Instructions For Form 1118 - 2007 (Page 7 of 12) in pdf

Column 5. Enter the opening balance in

Column 5. Enter the foreign taxes paid

under Notice 88-70 for the tax year

the distributing corporation’s post-1986

and deemed paid (in functional currency)

indicated in column 2.

foreign income taxes pool for the tax year

with respect to the pre-1987 accumulated

Column 5. Enter foreign taxes paid and

indicated. This amount is the foreign

profits entered in column 4 for the tax

deemed paid (in U.S. dollars) with respect

income taxes paid, accrued, or deemed

year indicated in column 2. See the

to the E&P entered in column 4. See the

paid (in U.S. dollars) by the foreign

instructions for Schedule G on page 8 for

corporation for prior tax years beginning

information on reduction of foreign taxes

after 1986, reduced by foreign taxes

for failure to furnish information required

attributable to distributions or deemed

under section 6038.

inclusions of earnings in prior tax years.

Column 6(a). Enter the amount of each

Column 6(b). Enter the amount from

See Regulations section 1.902-1(a)(8)(i).

dividend paid by the first-tier foreign

column 6(a) translated into U.S. dollars at

corporation (or DISC or former DISC) to

Column 6(a). Enter the foreign income

the appropriate exchange rate specified in

the domestic corporation (in functional

taxes paid or accrued by the foreign

section 989(b).

currency) out of the accumulated profits

corporation for the tax year indicated,

of the pre-1987 tax year indicated in

translated into U.S. dollars using the

column 2.

Schedule D

exchange rate specified in section 986(a).

Column 6(b). Enter the amount from

Column 6(b). Enter the foreign income

Part I—Tax Deemed Paid by

column 6(a) translated into U.S. dollars

taxes deemed paid (under section 902(b))

using the spot exchange rate in effect on

First-Tier Foreign Corporations

by the corporation for the tax year

the date of distribution. See Regulations

indicated (from Schedule D, Part I,

sections 1.902-1(a)(10)(ii) and

Section A —Dividends Paid Out of

Section A, column 10, and Section B,

1.902-3(g)(1).

Post-1986 Undistributed Earnings

column 8(b)).

Column 8(a). Multiply column 5 by

Column 8(a). Report the sum (in the

Column 1. Enter the name of the

column 7. Enter this amount in column

foreign corporation’s functional currency)

second-tier foreign corporation and the

8(a) in functional currency.

of all dividends paid and deemed

name of the first-tier foreign corporation to

inclusions out of post-1986 undistributed

Column 8(b). Enter the amount from

which it paid a dividend out of post-1986

column 8(a) translated into U.S. dollars at

earnings for the tax year indicated.

undistributed earnings.

the spot exchange rate in effect on the

Column 8(b). Report the column 8(a)

Example. The U.S. corporation filing

date of distribution. See Regulations

amounts, translated into U.S. dollars at

the return owns all of the stock of CFC1

section 1.902-1(a)(10)(iii).

the appropriate exchange rates (as

and CFC2. CFC1 and CFC2 each own

defined in section 989(b)). If the foreign

50% of the stock of CFC3. In 2007, CFC3

Part III—Deemed Inclusions

pays a dividend to CFC1 and CFC2. Use

corporation’s functional currency is the

From Pre-1987 Earnings and

U.S. dollar, do not complete column 8(b).

one line to report dividends from CFC3 to

Profits

CFC1 and another line to report dividends

Part II—Dividends Paid Out of

Important. The formula for calculating

from CFC3 to CFC2.

Pre-1987 Accumulated Profits

foreign taxes deemed paid under section

Column 2. Enter the year and month in

960 with respect to deemed inclusions

Use a separate line for each dividend

which the distributing second-tier foreign

(that is, under section 956 or 1248) in a

paid. If a dividend is paid out of the

corporation’s tax year ended.

post-1986 year out of pre-1987 E&P

accumulated profits of more than one

Example. If a first-tier foreign

requires that earnings and profits and

pre-1987 tax year, figure and show the

corporation that uses the calendar year

foreign taxes be calculated in U.S. dollars

tax deemed paid on a separate line for

2007 as its tax year receives dividends

under the rules of Regulations section

each tax year. In applying section 902,

out of post-1986 undistributed earnings of

1.964-1(a) through (e), and then

the IRS may determine from which tax

a second-tier foreign corporation for a tax

translated into the foreign corporation’s

year’s accumulated profits the dividends

year that ended June 30, 2007, enter

functional currency at the exchange rate

were paid. See Regulations section

“0706.”

in effect on the first day of the foreign

1.902-3(g)(4).

corporation’s first post-1986 tax year. See

Column 3. Enter the second-tier foreign

Important. The formula for calculating

corporation’s applicable two-digit foreign

Notice 88-70, 1988-2 C.B. 369. The

foreign taxes deemed paid under section

country or U.S. possession code from the

deemed inclusion is then translated into

902 with respect to dividends paid in a

U.S. dollars at the appropriate exchange

list beginning on page 11.

post-1986 year out of pre-1987

rate specified in section 989(b). Foreign

Column 4. Enter the second-tier foreign

accumulated profits requires that all

income taxes paid in pre-1987 tax years

corporation’s post-1986 undistributed

components (dividends, accumulated

are translated into U.S. dollars for

earnings pool (in functional currency) for

profits, and taxes) be maintained in the

purposes of section 960 at the exchange

the separate category for which the

foreign corporation’s functional currency

rate in effect when the foreign taxes were

schedule is being completed. See the

and translated into U.S. dollars at the

paid. See Regulations section 1.964-1(d)

instructions for Schedule C, Part I,

exchange rate in effect on the date of the

and Temporary Regulations section

column 4.

dividend distribution. See Regulations

1.905-5T(b)(1).

Column 5. Enter the opening balance in

section 1.902-1(a)(10)(ii) and (iii).

Column 1. Enter the name of the first- or

the second-tier foreign corporation’s

Column 1. Enter the name of the

lower-tier foreign corporation whose

post-1986 foreign income taxes pool for

first-tier foreign corporation (or DISC or

earnings were deemed included in the

the tax year indicated. See the

former DISC) that paid a dividend out of

income of the domestic corporation filing

instructions for Schedule C, Part I,

pre-1987 profits to the domestic

the return.

column 5.

corporation filing the return.

Column 2. Enter the year and month in

Column 6(a). Enter the foreign income

Column 2. Enter the year and month in

which the corporation’s pre-1987 tax year

taxes paid or accrued by the second-tier

which the foreign corporation’s pre-1987

ended. If the deemed inclusion is from the

foreign corporation for the tax year

tax year ended.

accumulated E&P of more than 1 tax

indicated, translated from foreign

year, figure and show the tax deemed

currency into U.S. dollars using the

Column 4. For each line, enter the

paid on a separate line for each year.

exchange rate specified in section 986(a).

pre-1987 accumulated profits for the tax

year indicated in column 2, computed in

Column 4. For each line, enter the E&P

Column 6(b). Enter the foreign income

functional currency under section 902.

calculated in U.S. dollars under

taxes deemed paid (under section 902(b))

See Regulations section 1.902-1(a)(10)(i)

Regulations sections 1.964-1(a) through

by the second-tier foreign corporation for

and (ii).

(e), translated into functional currency

the tax year indicated (from Schedule D,

-7-

Instructions For Form 1118 - 2007 Page 7

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