Instructions For Form 1118 - (Rev. December 2009) (Page 7 of 13) in pdf

accumulated profits of more than one

which it paid a dividend out of post-1986

Part III—Deemed Inclusions

pre-1987 tax year, figure and show the

undistributed earnings.

From Pre-1987 Earnings and

tax deemed paid on a separate line for

Profits

Example. The U.S. corporation filing

each tax year. In applying section 902,

the return owns all of the stock of CFC1

Important. The formula for calculating

the IRS may determine from which tax

and CFC2. CFC1 and CFC2 each own

foreign taxes deemed paid under section

year’s accumulated profits the dividends

50% of the stock of CFC3. In 2009, CFC3

960 with respect to deemed inclusions

were paid. See Regulations section

pays a dividend to CFC1 and CFC2. Use

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

1.902-3(g)(4).

one line to report dividends from CFC3 to

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

CFC1 and another line to report dividends

Important. The formula for calculating

requires that earnings and profits and

from CFC3 to CFC2.

foreign taxes deemed paid under section

foreign taxes be calculated in U.S. dollars

under the rules of Regulations section

Column 2. Enter the year and month in

902 with respect to dividends paid in a

which the distributing second-tier foreign

post-1986 year out of pre-1987

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

translated into the foreign corporation’s

corporation’s tax year ended.

accumulated profits requires that all

components (dividends, accumulated

functional currency at the exchange rate

Example. If a first-tier foreign

profits, and taxes) be maintained in the

in effect on the first day of the foreign

corporation that uses the calendar year

corporation’s first post-1986 tax year. See

foreign corporation’s functional currency

2009 as its tax year receives dividends

and translated into U.S. dollars at the

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

out of post-1986 undistributed earnings of

deemed inclusion is then translated into

exchange rate in effect on the date of the

a second-tier foreign corporation for a tax

U.S. dollars at the appropriate exchange

dividend distribution. See Regulations

year that ended June 30, 2009, enter

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

rate specified in section 989(b). Foreign

“0906.”

income taxes paid in pre-1987 tax years

Column 3. Enter the applicable

Column 1. Enter the name of the

are translated into U.S. dollars for

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

first-tier foreign corporation (or DISC or

purposes of section 960 at the exchange

,,id=175595,00.

former DISC) that paid a dividend out of

rate in effect when the foreign taxes were

html

pre-1987 profits to the domestic

paid. See Regulations section 1.964-1(d)

corporation filing the return.

Column 4. Enter the second-tier foreign

and Temporary Regulations section

corporation’s post-1986 undistributed

1.905-5T(b)(1).

Column 2. Enter the year and month in

earnings pool (in functional currency) for

which the foreign corporation’s pre-1987

Column 1. Enter the name of the first- or

the separate category for which the

tax year ended.

lower-tier foreign corporation whose

schedule is being completed. See the

earnings were deemed included in the

instructions for Schedule C, Part I,

Column 3. Enter the applicable

income of the domestic corporation filing

column 4.

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

the return.

,,id=175595,00.

Column 5. Enter the opening balance in

Column 2. Enter the year and month in

html

the second-tier foreign corporation’s

which the corporation’s pre-1987 tax year

post-1986 foreign income taxes pool for

Column 4. For each line, enter the

ended. If the deemed inclusion is from the

the tax year indicated. See the

pre-1987 accumulated profits for the tax

accumulated E&P of more than one tax

instructions for Schedule C, Part I,

year indicated in column 2, computed in

year, figure and show the tax deemed

column 5.

paid on a separate line for each year.

functional currency under section 902.

Column 6(a). Enter the foreign income

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

Column 3. Enter the applicable

taxes paid or accrued by the second-tier

and (ii).

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

foreign corporation for the tax year

,,id=175595,00.

indicated, translated from foreign

Column 5. Enter the foreign taxes paid

html

currency into U.S. dollars using the

and deemed paid (in functional currency)

exchange rate specified in section 986(a).

with respect to the pre-1987 accumulated

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

profits entered in column 4 for the tax

calculated in U.S. dollars under

Column 6(b). Enter the foreign income

year indicated in column 2. See the

Regulations sections 1.964-1(a) through

taxes deemed paid (under section 902(b))

instructions for Schedule G on page 8 for

(e), translated into functional currency

by the second-tier foreign corporation for

information on reduction of foreign taxes

under Notice 88-70 for the tax year

the tax year indicated (from Schedule D,

for failure to furnish information required

indicated in column 2.

Part II, Section A, column 10, and Part II,

under section 6038.

Section B, column 8(b)).

Column 5. Enter foreign taxes paid and

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

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

Column 6(a). Enter the amount of each

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

second-tier foreign corporation’s

dividend paid by the first-tier foreign

instructions for Schedule G on page 8 for

functional currency) of all dividends paid

corporation (or DISC or former DISC) to

information on reduction of foreign taxes

out of its post-1986 undistributed earnings

the domestic corporation (in functional

for failure to furnish information required

for the tax year indicated.

currency) out of the accumulated profits

under section 6038.

of the pre-1987 tax year indicated in

Column 8(b). Report the sum of the

column 2.

column 8(a) amounts translated into the

Column 6(b). Enter the amount from

functional currency of the first-tier foreign

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

Column 6(b). Enter the amount from

corporation at the spot rate in effect on

the appropriate exchange rate specified in

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

the date of each distribution.

section 989(b).

using the spot exchange rate in effect on

Section B —Dividends Paid Out of

the date of distribution. See Regulations

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

Pre-1987 Accumulated Profits

Schedule D

1.902-3(g)(1).

Use a separate line for each dividend

paid. If a dividend is paid out of the

Part I—Tax Deemed Paid by

Column 8(a). Multiply column 5 by

accumulated profits of more than one

column 7. Enter this amount in column

First-Tier Foreign Corporations

pre-1987 tax year, figure and show the

8(a) in functional currency.

tax deemed paid on a separate line for

Section A —Dividends Paid Out of

Column 8(b). Enter the amount from

each tax year. In applying section 902,

Post-1986 Undistributed Earnings

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

the IRS may determine from which tax

the spot exchange rate in effect on the

Column 1. Enter the name of the

year’s accumulated profits the dividends

date of distribution. See Regulations

second-tier foreign corporation and the

were paid. See Regulations section

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

name of the first-tier foreign corporation to

1.902-3(g)(4).

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Instructions For Form 1118 - (Rev. December 2009) Page 7

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