Instructions For Form 1118 - Foreign Tax Credit - Corporations

relate. However, the exchange rate on the

must be made. See the separate

Column 4. Enter the distributing

date of payment must be used if the

instructions for Schedule J to determine if

corporation’s post-1986 undistributed

foreign taxes (a) are paid more than 2

that schedule must be filed.

earnings pool for the separate category

years after the close of the tax year to

for which the schedule is being

Line 8b. Enter taxable income that

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

completed. Generally, this amount is the

should not be taken into account in

year prior to which they relate. In addition,

corporation’s E&P (computed in the

computing the foreign tax credit limitation.

for tax years beginning after December

corporation’s functional currency

Line 9. Divide line 7 by line 8c to

31, 2004, taxpayers may elect to use the

according to sections 964(a) and 986)

determine the limitation fraction. Enter the

exchange rate on the date of payment.

accumulated in tax years beginning after

fraction on line 9 as a decimal with the

Taxpayers may elect to use the payment

1986, determined as of the close of the

same number of places as the number of

date exchange rates for all creditable

corporation’s tax year without reduction

digits to the left of the decimal in adjusted

foreign income taxes or only those taxes

for any earnings distributed or otherwise

taxable income on line 8c. For example, if

that are attributable to qualified business

included in income (that is, under section

adjusted taxable income on line 8c is

units with U.S. dollar functional

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

$100,000, compute the limitation fraction

currencies. The election is made by

during the current tax year.

to 6 decimal places.

attaching a statement to a timely-filed

Post-1986 undistributed earnings are

Line 11. The limitation may be increased

(including extensions) Form 1118 that

reduced to account for distributions or

under section 960(b) for any tax year that

indicates the corporation is making the

deemed distributions that reduced E&P

the corporation receives a distribution of

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

and inclusions that resulted in previously

previously taxed E&P. See section

made, the election applies for all

taxed amounts described in section

960(b).

subsequent tax years and is revocable

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

only with the consent of the IRS. See

Part III—Summary of Separate

prior tax years beginning after 1986. See

section 986(a).

Credits

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

Column 1. Claim the foreign tax credit

see section 902(c)(3) and Regulations

Complete Part III only once. Enter on

for the tax year in which the taxes were

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

lines 1 through 3 the separate foreign tax

paid or accrued, depending on the

treating earnings accumulated in

credits from Part II, line 12, for each

method of accounting used. If a credit for

post-1986 years as pre-1987

applicable separate category.

taxes accrued is claimed, show both the

accumulated profits when no U.S.

Note. Complete Part III only on the Form

date accrued and the date paid (if paid).

shareholder was eligible to claim a

1118 with the largest amount entered on

section 902 credit with respect to taxes

If the cash method of accounting is

Part II, line 12.

paid by the foreign corporation.

used, an election under section 905(a)

Line 5. If the corporation participates in

may be made to claim the credit based on

Column 5. Enter the opening balance in

or cooperates with an international

accrued taxes. If this election is made,

the distributing corporation’s post-1986

boycott, the foreign tax credit may be

figure the foreign tax credit for all

foreign income taxes pool for the tax year

reduced. Complete Form 5713,

subsequent tax years on the same basis.

indicated. This amount is the foreign

International Boycott Report. If the

Also, the credits are subject to the

income taxes paid, accrued, or deemed

corporation chooses to apply the

redetermination provisions of section

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

international boycott factor to calculate

905(c). See page 4 for details.

corporation for prior tax years beginning

the reduction in the credit, enter the

after 1986, reduced by foreign taxes

Column 2(d). Include foreign taxes paid

amount from line 2a(3) of Schedule C

attributable to distributions or deemed

or accrued on foreign branch taxable

(Form 5713) on line 5.

inclusions of earnings in prior tax years.

income to which the rules of section

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

863(b) apply.

Column 6(a). Enter the foreign income

Note. Do not include these overlapping

Schedules C, D, and E

taxes paid or accrued by the foreign

amounts in column 2(e).

If the corporation is a partner in a

corporation for the tax year indicated,

Part II—Separate Foreign Tax

partnership, for taxes of foreign

translated into U.S. dollars using the

corporations for tax years beginning after

Credit

exchange rate specified in section 986(a).

October 22, 2004, stock owned directly or

Column 6(b). Enter the foreign income

Line 4. If the corporation is reclassifying

indirectly, by or for a partnership shall be

taxes deemed paid (under section 902(b))

high-taxed income from passive category

considered as being owned

by the corporation for the tax year

income to general category income, enter

proportionately by its partners. See

indicated (from Schedule D, Part I,

the related tax adjustment on line 4.

section 902(c)(7).

Section A, column 10, and Section B,

Indicate whether adjustment is positive or

column 8(b)).

(negative). See General Category Income

Schedule C

on page 2 for additional information.

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

Part I—Dividends and Deemed

foreign corporation’s functional currency)

Line 5. Enter the total amount of foreign

of all dividends paid and deemed

Inclusions From Post-1986

taxes carried forward or back to the

inclusions out of post-1986 undistributed

current year (see page 3 for general

Undistributed Earnings

earnings for the tax year indicated.

rules). Include all taxes carried forward,

Column 1. Enter the name of the foreign

whether or not such taxes are used.

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

corporation (or DISC or former DISC)

Attach a schedule reconciling the prior

amounts, translated into U.S. dollars at

whose earnings were distributed to, or

year’s carryover with this year’s

the appropriate exchange rates (as

included in income by, the domestic

carryover, identifying carrybacks and any

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

corporation filing the return.

other adjustments.

corporation’s functional currency is the

Column 2. Enter the year and month in

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

Line 7. If the corporation has a current

which the foreign corporation’s U.S. tax

year overall domestic loss or recapture of

Part II—Dividends Paid Out of

year ended.

an overall domestic loss account, or, in

Pre-1987 Accumulated Profits

any of its separate categories, a current

Example. When figuring foreign taxes

year separate limitation loss, an overall

deemed paid in 2008 by a calendar year

Use a separate line for each dividend

foreign loss, recapture of an overall

domestic corporation with respect to

paid. If a dividend is paid out of the

foreign loss, or current year separate

dividends and inclusions out of post-1986

accumulated profits of more than one

limitation income in a category in which it

undistributed earnings for the foreign

pre-1987 tax year, figure and show the

has a beginning balance of income that

corporation’s tax year that ended June

tax deemed paid on a separate line for

must be recharacterized, adjustments

30, 2008, enter “0806.”

each tax year. In applying section 902,

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Instructions For Form 1118 - Foreign Tax Credit - Corporations - 2008 Page 6

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