Instructions For Form 1118 - (Rev. December 2009) (Page 6 of 13) in pdf

relate. However, the exchange rate on the

instructions for Schedule J to determine if

Column 3. Enter the applicable

date of payment must be used if the

that schedule must be filed.

two-letter codes from the list at http://

foreign taxes (a) are paid more than 2

,,id=175595,00.

Line 8b. Enter taxable income that

years after the close of the tax year to

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should not be taken into account in

which they relate or (b) are paid in a tax

Column 4. Enter the distributing

computing the foreign tax credit limitation.

year prior to which they relate. In addition,

corporation’s post-1986 undistributed

Line 9. Divide line 7 by line 8c to

for tax years beginning after December

earnings pool for the separate category

determine the limitation fraction. Enter the

31, 2004, taxpayers may elect to use the

for which the schedule is being

fraction on line 9 as a decimal with the

exchange rate on the date of payment.

completed. Generally, this amount is the

same number of places as the number of

Taxpayers may elect to use the payment

corporation’s E&P (computed in the

digits to the left of the decimal in adjusted

date exchange rates for all creditable

corporation’s functional currency

taxable income on line 8c. For example, if

foreign income taxes or only those taxes

according to sections 964(a) and 986)

adjusted taxable income on line 8c is

that are attributable to qualified business

accumulated in tax years beginning after

$100,000, compute the limitation fraction

units with U.S. dollar functional

1986, determined as of the close of the

to 6 decimal places.

currencies. The election is made by

corporation’s tax year without reduction

attaching a statement to a timely-filed

Line 11. The limitation may be increased

for any earnings distributed or otherwise

(including extensions) Form 1118 that

under section 960(b) for any tax year that

included in income (that is, under section

indicates the corporation is making the

the corporation receives a distribution of

304, 367(b), 951(a), 1248, or 1293)

election under section 986(a)(1)(D). Once

previously taxed E&P. See section

during the current tax year.

made, the election applies for all

960(b).

Post-1986 undistributed earnings are

subsequent tax years and is revocable

Part III—Summary of Separate

reduced to account for distributions or

only with the consent of the IRS. See

deemed distributions that reduced E&P

Credits

section 986(a).

and inclusions that resulted in previously

Complete Part III only once. Enter on

Column 1. Claim the foreign tax credit

taxed amounts described in section

lines 1 through 3 the separate foreign tax

for the tax year in which the taxes were

959(c)(1) and (2) or section 1293(c) in

credits from Part II, line 12, for each

paid or accrued, depending on the

prior tax years beginning after 1986. See

applicable separate category.

method of accounting used. If a credit for

Regulations section 1.902-1(a)(9). Also,

taxes accrued is claimed, show both the

Note. Complete Part III only on the Form

see section 902(c)(3) and Regulations

date accrued and the date paid (if paid).

1118 with the largest amount entered on

section 1.902-1(a)(13) for special rules

Part II, line 12.

treating earnings accumulated in

If the cash method of accounting is

post-1986 years as pre-1987

used, an election under section 905(a)

Line 5. If the corporation participates in

accumulated profits when no U.S.

may be made to claim the credit based on

or cooperates with an international

shareholder was eligible to claim a

accrued taxes. If this election is made,

boycott, the foreign tax credit may be

section 902 credit with respect to taxes

figure the foreign tax credit for all

reduced. Complete Form 5713,

paid by the foreign corporation.

subsequent tax years on the same basis.

International Boycott Report. If the

Also, the credits are subject to the

Column 5. Enter the opening balance in

corporation chooses to apply the

redetermination provisions of section

the distributing corporation’s post-1986

international boycott factor to calculate

905(c). See page 4 for details.

foreign income taxes pool for the tax year

the reduction in the credit, enter the

indicated. This amount is the foreign

amount from line 2a(3) of Schedule C

Column 2(d). Include foreign taxes paid

income taxes paid, accrued, or deemed

(Form 5713) on line 5.

or accrued on foreign branch taxable

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

income to which the rules of section

corporation for prior tax years beginning

863(b) apply.

Schedules C, D, and E

after 1986, reduced by foreign taxes

Note. Do not include these overlapping

attributable to distributions or deemed

If the corporation is a partner in a

amounts in column 2(e).

inclusions of earnings in prior tax years.

partnership, for taxes of foreign

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

Part II—Separate Foreign Tax

corporations for tax years beginning after

Column 6(a). Enter the foreign income

October 22, 2004, stock owned directly or

Credit

taxes paid or accrued by the foreign

indirectly, by or for a partnership shall be

corporation for the tax year indicated,

Line 4. If the corporation is reclassifying

considered as being owned

translated into U.S. dollars using the

high-taxed income from passive category

proportionately by its partners. See

exchange rate specified in section 986(a).

income to general category income, enter

section 902(c)(7).

the related tax adjustment on line 4.

Column 6(b). Enter the foreign income

Indicate whether adjustment is positive or

Schedule C

taxes deemed paid (under section 902(b))

(negative). See General Category Income

by the corporation for the tax year

on page 2 for additional information.

Part I—Dividends and Deemed

indicated (from Schedule D, Part I,

Section A, column 10, and Section B,

Inclusions From Post-1986

Line 5. Enter the total amount of foreign

column 8(b)).

taxes carried forward or back to the

Undistributed Earnings

current year. The amount of foreign taxes

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

Column 1. Enter the name of the foreign

carried forward to the current tax year is

foreign corporation’s functional currency)

corporation (or DISC or former DISC)

the amount from Schedule K (Form

of all dividends paid and deemed

whose earnings were distributed to, or

1118), line 3, column (xiv). Attach

inclusions out of post-1986 undistributed

included in income by, the domestic

Schedule K (Form 1118) to Form 1118.

earnings for the tax year indicated.

corporation filing the return.

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

Line 7. If the corporation has a current

Column 2. Enter the year and month in

amounts, translated into U.S. dollars at

year overall domestic loss or recapture of

which the foreign corporation’s U.S. tax

the appropriate exchange rates (as

an overall domestic loss account, or, in

year ended.

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

any of its separate categories, a current

corporation’s functional currency is the

year separate limitation loss, an overall

Example. When figuring foreign taxes

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

foreign loss, recapture of an overall

deemed paid in 2009 by a calendar year

foreign loss, or current year separate

domestic corporation with respect to

Part II—Dividends Paid Out of

limitation income in a category in which it

dividends and inclusions out of post-1986

Pre-1987 Accumulated Profits

has a beginning balance of income that

undistributed earnings for the foreign

must be recharacterized, adjustments

corporation’s tax year that ended June

Use a separate line for each dividend

must be made. See the separate

30, 2009, enter “0906.”

paid. If a dividend is paid out of the

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Instructions For Form 1118 - (Rev. December 2009) Page 6

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