Instructions For Form 1118 - (Rev. December 2009) (Page 4 of 13) in pdf

paid or accrued in a tax year beginning

2. The amount of E&P from which

Reporting Requirements

after 2006. Alternatively, the corporation

such dividends were paid for the affected

If the corporation must redetermine its

can allocate unused foreign taxes in its

year or years;

U.S. tax liability, the corporation must:

pre-2007 passive income category to the

•

3. The current balances of the pools

File an amended return and Form 1118

post-2006 separate category for passive

of E&P and foreign taxes before and after

with the Service Center where it filed the

category income, and can allocate all

the foreign tax adjustment; and

tax return on which it claimed the affected

other unused foreign taxes in pre-2007

foreign tax credit and

4. The information described above

separate categories that were eliminated

•

Provide identifying information such as

for foreign taxes paid or accrued, as

in 2007 to the post-2006 separate

the corporation’s name, address,

applicable.

category for general category income.

employer identification number (EIN), and

the tax year or years that are affected by

If foreign taxes deemed paid under

Treaty-Based Return

the redetermination.

sections 902 or 960 are adjusted and the

corporation is not required to redetermine

Positions

Additional information required. If the

its U.S. tax liability, adjust the appropriate

redetermination was because of one of

Corporations that adopt a return position

pools of foreign taxes and E&P using the

the following, the corporation must

that any U.S. treaty overrides or modifies

rules outlined in Temporary Regulations

provide the additional information as

any provision of the Internal Revenue

sections 1.905-3T(d)(2)(ii) and

indicated.

Code, and causes (or potentially causes)

•

1.905-4T(b)(2).

Refund of foreign taxes paid —

a reduction of any tax incurred at any

time, generally must disclose this

1. The date or dates on which the

Amended returns for all years affected

position. Complete Form 8833,

foreign taxes were accrued, paid, and

by foreign tax redeterminations that result

Treaty-Based Return Position Disclosure

refunded;

in U.S. tax deficiencies and that occurred

Under Section 6114 or Section 7701(b),

2. The amount of foreign taxes

in the three tax years immediately

and attach it to Form 1118. See section

accrued, paid, and refunded on each date

preceding the corporation’s first tax year

6114 and Regulations section 301.6114-1

(in foreign currency); and

beginning on or after November 7, 2007

for details.

3. The exchange rates used to

(and tax years of foreign subsidiaries

translate such amounts.

Failure to make such a report may

•

ending with or within such tax years of

Foreign taxes that when paid differ

result in a $10,000 penalty.

their domestic corporate shareholders),

from the accrued amounts claimed as

are due no later than the due date (with

credits for a year beginning before

extensions) of the corporation’s return for

Proof of Credits

1998 —

its second tax year beginning on or after

1. The date on which the foreign taxes

Form 1118 must be carefully filled in with

November 7, 2007. Amended returns for

were accrued;

all the information called for and with the

all years affected by foreign tax

2. The dates on which the foreign

calculations of credits indicated.

redeterminations that result in U.S. tax

taxes were paid;

deficiencies and that occur in tax years

Important. Documentation (that is,

3. The exchange rate for each date

beginning after November 7, 2007 (and

receipts of payments or a foreign tax

the foreign taxes were accrued and paid;

return for accrued taxes) is not required to

tax years of foreign subsidiaries ending

and

be attached to Form 1118. However,

with or within such tax years of their

4. The amount of foreign taxes

proof must be presented upon request by

domestic corporate shareholders), are

accrued or paid on each such date (in

the IRS to substantiate the credit. See

due no later than the due date (with

foreign currency).

•

Regulations section 1.905-2.

extensions) of the corporation’s return for

Foreign taxes that when paid differ

its tax year in which the foreign tax

from accrued amounts claimed as

If the corporation claims a foreign tax

credits for a tax year beginning after

redetermination occurs. For special rules

credit for tax accrued but not paid, the

1997 because the corporation paid

relating to corporations under the

IRS may require a bond to be furnished

more or less foreign tax than was

jurisdiction of the Large and Mid-Size

on Form 1117, Income Tax Surety Bond,

originally accrued or failed to pay

Business Division, see Temporary

before the credit is allowed. See

accrued taxes within 2 years —

Regulations sections 1.905-4T(b)(3) and

Regulations section 1.905-2(c).

1.905-4T(f)(2)(iii).

1. The date on which the foreign taxes

were accrued;

Foreign Tax Credit

Interest and Penalties

2. The dates on which the foreign

Redeterminations

taxes were paid;

In most cases, interest is computed on

3. The average exchange rate for the

the deficiency or overpayment that

The corporation’s foreign tax credit and

year for which the foreign taxes were

resulted from the foreign tax adjustment

U.S. tax liability generally must be

accrued;

(sections 6601 and 6611 and the related

redetermined if:

4. For taxes paid more than 2 years

•

regulations). See Temporary Regulations

Accrued foreign taxes when paid differ

after the year to which they relate, the

from the amounts claimed as credits;

section 1.905-4T(e) for additional

exchange rate at the time of payment;

•

Accrued foreign taxes are not paid

information.

and

within 2 years after the close of the tax

5. The amount of tax accrued or paid

If the corporation does not comply with

year to which they relate; or

for each such date, and the amount of

•

the requirements discussed above within

Any foreign tax paid is fully or partially

accrued tax that was not paid within 2

the time for filing specified, the penalty

refunded.

years (in foreign currency).

provisions of section 6689 (and the

•

Foreign taxes deemed paid under

Except as provided in Temporary

related regulations) will apply.

section 902 or 960 — If the corporation is

Regulations section 1.905-3T(d)(3), a

required to make a redetermination under

redetermination of U.S. tax liability is not

Temporary Regulations section

required to account for the effect of a

1.905-3T(d)(3), include the following basic

redetermination of foreign tax paid or

Specific Instructions

information as an attachment to the tax

accrued by a foreign corporation on the

return for the year for which the

Report all amounts in U.S. dollars unless

amount of foreign taxes deemed paid

redetermination applies:

otherwise specified. If it is necessary to

under section 902 or 960. Instead, the

convert from a foreign currency, attach a

foreign corporation’s pools of E&P and

1. The dates and amounts of any

statement explaining how the conversion

foreign taxes are adjusted in the year of

dividend distributions or other inclusions

the foreign tax redetermination.

from E&P for the affected year or years;

rate was determined.

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Instructions For Form 1118 - (Rev. December 2009) Page 4

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