Instructions For Form 1118 - (Rev. December 2009) (Page 8 of 13) in pdf

Important. The formula for calculating

Part II—Tax Deemed Paid by

section 613 with respect to any part of its

foreign taxes deemed paid by a first-tier

foreign mineral income (as defined in

Second-Tier Foreign

foreign corporation under section 902(b)

section 901(e)(2)) for the tax year, any

Corporations

with respect to dividends paid by a

foreign taxes on that income must be

Follow the instructions for the

second-tier foreign corporation in a

reduced by the smaller of:

corresponding columns of Schedule D,

post-1986 year out of pre-1987

1. The foreign taxes minus the tax on

Part I, substituting “second-tier foreign

accumulated profits requires that all

that income or

corporation” for references to the “first-tier

components (dividends, accumulated

2. The tax on that income determined

foreign corporation” and “third-tier foreign

profits, and taxes) be maintained in the

without regard to the deduction for

corporation” for references to the

second-tier foreign corporation’s

percentage depletion minus the tax on

“second-tier foreign corporation.”

functional currency. Dividends are

that income.

Note. In completing Section A, column 5,

translated into the first-tier foreign

note that section 902(b) as in effect prior

corporation’s functional currency and

The reduction must be made on a

to the Taxpayer Relief Act of 1997 did not

added to its post-1986 undistributed

country-by-country basis (Regulations

treat any foreign taxes as deemed paid by

earnings at the exchange rate in effect on

section 1.901-3(a)(1)). Attach a separate

a third- or lower-tier foreign corporation

the date of the dividend distribution. See

schedule showing the reduction.

Regulations section 1.902-1(a)(9)(ii).

with respect to dividends received from

Foreign taxes are translated into U.S.

lower-tier foreign corporations.

Line C. If the corporation chooses to

dollars, and added to the first-tier foreign

calculate the reduction in the foreign tax

corporation’s post-1986 foreign income

by identifying taxes specifically

Schedule E

taxes, at the exchange rate in effect on

attributable to participation in or

the date of the dividend distribution. See

cooperation with an international boycott,

Use Schedule E to report foreign taxes

Regulations section 1.902-1(a)(8)(ii).

enter the amount from Form 5713,

deemed paid with respect to dividends

Schedule C, line 2b. See Form 5713 and

Column 1. Enter the name of the

from certain fourth-, fifth-, and sixth-tier

its separate Schedule C and instructions.

second-tier foreign corporation and the

controlled foreign corporations out of

name of the first-tier foreign corporation to

earnings accumulated in tax years

Line D. If the corporation controls a

which it paid a dividend out of pre-1987

beginning after August 5, 1997. Follow

foreign corporation or partnership and

accumulated profits.

the instructions for the corresponding

fails to furnish any return or any

columns of Schedule D, Part I, Section A,

Column 2. For each pre-1987 tax year,

information in any return required under

substituting references to the next

enter the year and month in which the

section 6038(a) by the due date, reduce

lower-tier foreign corporation as

second-tier foreign corporation’s tax year

the foreign taxes available for credit under

appropriate.

ended.

sections 901, 902, and 960 by 10%. If the

failure continues for 90 days or more after

Column 3. Enter the applicable

The post-1986 undistributed earnings

the date of written notice by the IRS,

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

and taxes pools for the eligible CFCs

reduce the tax by an additional 5% for

,,id=175595,00.

begin on the first day of the CFC’s first tax

each 3-month period or fraction thereof

html

year beginning after August 5, 1997.

during which the failure continues after

Earnings accumulated in tax years

Column 4. For each line, enter the

the 90-day period has expired. See

beginning before August 6, 1997, will be

pre-1987 accumulated profits for the tax

section 6038(c) for limitations and special

treated as pre-1987 accumulated profits

year indicated in column 2, computed in

rules.

for section 902 purposes. See section

the second-tier corporation’s functional

902(c)(6) and Regulations section

currency under section 902. See

In addition, a $10,000 penalty is

1.902-1(a)(10)(i). Foreign income taxes

Regulations sections 1.902-1(a)(10)(i)

imposed under section 6038(b) for failure

attributable to these pre-pooling profits

and (ii).

to supply the information required under

must be reduced when the associated

Column 5. Enter the foreign taxes paid

section 6038(a) for each entity within the

earnings are distributed. However, such

and deemed paid under section 902(b) (in

time prescribed. If the required

taxes are generally not eligible for the

functional currency) with respect to the

information is not submitted within 90

deemed paid credit. See Regulations

accumulated profits entered in column 4

days after the IRS has mailed notice to

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

for the pre-1987 tax year indicated in

the U.S. person, additional penalties may

1.902-1(c)(8).

column 2. See the instructions for

apply.

Note. In completing Part III, column 5,

Schedule G below for information on

Note. The reduction in foreign taxes

note that, under section 902(b) as

reduction of foreign taxes for failure to

available for credit is reduced by any

amended by the Taxpayer Relief Act of

furnish information required under section

dollar penalty imposed under section

1997, no taxes are deemed paid by a

6038.

6038(b).

sixth- or lower-tier foreign corporation with

Column 6(a). Enter each dividend paid

respect to dividends received from

by the second-tier foreign corporation (in

lower-tier foreign corporations.

functional currency) to the first-tier foreign

Schedule H

corporation out of the accumulated profits

of the pre-1987 tax year indicated in

Schedule F

Computer-Generated

column 2.

Enter the gross income and definitely

Schedule H

Column 6(b). Enter the amount from

allocable deductions for each foreign

column 6(a), translated into the first-tier

A computer-generated Schedule H may

branch (including a disregarded entity) as

foreign corporation’s functional currency

be filed if it conforms to the IRS version.

indicated. For each such foreign branch

using the spot exchange rate in effect on

In some cases, Schedule H can be

for which Form 8858, Information Return

the date of distribution. See Regulations

expanded to properly apportion

of U.S. Persons With Respect To Foreign

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

deductions. This applies in cases such as

Disregarded Entities, is not filed, attach

1.902-3(g)(1).

when the corporation:

an income statement, balance sheet, and

•

Column 8(a). Multiply column 5 by

Has more than two product lines (under

schedule of remittances.

column 7. Enter the result in column 8(a).

the sales method of apportioning R&D

deductions),

Column 8(b). Enter the amount from

•

Has section 901(j) income from more

column 8(a), translated in U.S. dollars at

Schedule G

than one sanctioned country, or

the spot exchange rate in effect on the

•

date of distribution. See Regulations

Line A. If the corporation claims a

Has income re-sourced by treaty for

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

deduction for percentage depletion under

more than one country.

-8-

Instructions For Form 1118 - (Rev. December 2009) Page 8

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