Instructions For Form 1118 - Foreign Tax Credit - Corporations

Department of the Treasury

Instructions for Form 1118

Internal Revenue Service

(Rev. December 2008)

Foreign Tax Credit—Corporations

•

Complete Schedule B, Part III; Schedule

Any financial services income that is

Section references are to the Internal

H; and Schedule J only once.

general category income (see General

Revenue Code unless otherwise noted.

•

Category Income on page 2),

Use Schedule A to compute the

•

Any export financing interest unless it is

corporation’s income or loss before

What’s New for 2008

also related person factoring income (see

adjustments for each applicable category

section 904(d)(2)(G) and Temporary

of income.

•

The filing instructions for this form have

Regulations section 1.904-4T(h)(3)),

Use Schedule B to determine the total

•

changed. In some cases, Form 1118

Any high-taxed income (see General

foreign tax credit after certain limitations.

•

must be filed even when the corporation

Category Income on page 2 and the

Use Schedule C to compute taxes

is not claiming a current year credit. See

instructions for Schedule A, on page 5),

deemed paid by the domestic corporation

Who Must File below for details.

filing the return.

•

Schedule B, line 4 is new. This line

Any active rents or royalties. See

Use Schedules D and E to compute

was added to streamline the reporting of

Temporary Regulations section

taxes deemed paid by lower-tier foreign

the tax adjustment for high-tax kickouts

1.904-4T(b)(2)(iii) for definitions and

corporations.

•

under Regulations section 1.904-4(c).

exceptions.

Use Schedule F to report gross

income and definitely allocable

Note. Certain income received from a

General Instructions

deductions from foreign branches.

CFC and certain dividends from a 10/50

•

Use Schedule G to report required

corporation that would otherwise be

reductions of tax paid, accrued, or

passive income may be assigned to

Purpose of Form

deemed paid.

another separate category under the

•

Use Form 1118 to compute a

Use Schedule H to apportion

look-through rules. See Look-Through

corporation’s foreign tax credit for certain

deductions that cannot be definitely

Rules on page 2.

taxes paid or accrued to foreign countries

allocated to some item or class of income.

Specified passive category income.

•

or U.S. possessions. See Taxes Eligible

Use Schedule I (a separate schedule)

This term includes:

for a Credit on page 3.

to compute reductions of taxes paid,

•

Dividends from a DISC or former DISC

accrued, or deemed paid on foreign oil

(as defined in section 992(a) to the extent

Who Must File

and gas extraction income.

such dividends are treated as foreign

•

Use Schedule J (a separate schedule)

Any corporation that elects the benefits of

source income, and

to compute adjustments to separate

•

the foreign tax credit under section 901

Distributions from a former FSC out of

limitation income or losses in determining

must complete and attach Form 1118 to

earnings and profits attributable to foreign

the numerators of limitation fractions,

its income tax return.

trade income or interest or carrying

year-end recharacterization balances,

charges (as defined in section 927(d)(1),

and overall foreign and domestic loss

When to Make the Election

before its repeal) derived from a

account balances.

transaction which results in foreign trade

The election to claim the foreign tax credit

income (as defined in section 932(b),

(or a deduction in lieu of a credit) for any

Categories of Income

before its repeal).

tax year may be made or changed at any

Compute a separate foreign tax credit for

Section 901(j) Income

time before the end of a special 10-year

each applicable separate category

period described in section 6511(d)(3) (or

No credit is allowed for foreign taxes

described below.

section 6511(c) if the period is extended

imposed by and paid or accrued to certain

by agreement).

sanctioned countries. However, income

Passive Category Income

derived from each such country is subject

Passive category income includes

Computer-Generated

to a separate foreign tax credit limitation.

passive income and specified passive

Therefore, the corporation must use a

Form 1118

category income.

separate Form 1118 for income derived

The corporation may submit a

Passive income. Generally, passive

from each such country. On each Form

computer-generated Form 1118 and

income is:

1118, check the box for section 901(j)

•

schedules if they conform to the IRS

Any income received or accrued that

income at the top of page 1 and identify

version. However, if a software program

would be foreign personal holding

the applicable country in the space

is used, it must be approved by the IRS

company income (defined in section

provided.

for use in filing substitute forms. This

954(c)) if the corporation were a

Sanctioned countries are those

ensures the proper placement of each

controlled foreign corporation (CFC)

designated by the Secretary of State as

item appearing on the IRS version. For

(defined in section 957). This includes

countries that repeatedly provide support

more information, see Pub. 1167, General

any gain on the sale or exchange of stock

for acts of international terrorism,

Rules and Specifications for Substitute

that is more than the amount treated as a

countries with which the United States

Forms and Schedules.

dividend under section 1248. However, in

does not have diplomatic relations, or

determining if any income would be

countries whose governments are not

How To Complete

foreign personal holding company

recognized by the United States. As of

income, the rules of section 864(d)(6) will

the date these instructions were revised,

Form 1118

apply only for income of a CFC.

section 901(j) applied to income derived

•

Any amount includible in gross income

from Cuba, Iran, North Korea, Sudan, and

Important. Complete a separate

under section 1293 (which relates to

Syria. For more information, see section

Schedule A; Schedule B, Parts I & II;

certain passive foreign investment

901(j).

Schedules C through G; and Schedule I

companies).

for each applicable separate category of

Note. The President of the United States

income. See Categories of Income below.

Passive income does not include:

has the authority to waive the application

Cat. No. 10905I

Instructions For Form 1118 - Foreign Tax Credit - Corporations - 2008

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