Instructions For Form 1118 - Foreign Tax Credit - Corporations

the IRS may determine from which tax

translated into the foreign corporation’s

a second-tier foreign corporation for a tax

year’s accumulated profits the dividends

functional currency at the exchange rate

year that ended June 30, 2008, enter

were paid. See Regulations section

in effect on the first day of the foreign

“0806.”

1.902-3(g)(4).

corporation’s first post-1986 tax year. See

Column 3. Enter the second-tier foreign

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

Important. The formula for calculating

corporation’s applicable two-digit foreign

deemed inclusion is then translated into

foreign taxes deemed paid under section

country or U.S. possession code from the

U.S. dollars at the appropriate exchange

902 with respect to dividends paid in a

list beginning on page 11.

rate specified in section 989(b). Foreign

post-1986 year out of pre-1987

Column 4. Enter the second-tier foreign

income taxes paid in pre-1987 tax years

accumulated profits requires that all

corporation’s post-1986 undistributed

are translated into U.S. dollars for

components (dividends, accumulated

earnings pool (in functional currency) for

purposes of section 960 at the exchange

profits, and taxes) be maintained in the

the separate category for which the

rate in effect when the foreign taxes were

foreign corporation’s functional currency

schedule is being completed. See the

paid. See Regulations section 1.964-1(d)

and translated into U.S. dollars at the

instructions for Schedule C, Part I,

and Temporary Regulations section

exchange rate in effect on the date of the

column 4.

1.905-5T(b)(1).

dividend distribution. See Regulations

Column 5. Enter the opening balance in

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

Column 1. Enter the name of the first- or

the second-tier foreign corporation’s

lower-tier foreign corporation whose

Column 1. Enter the name of the

post-1986 foreign income taxes pool for

earnings were deemed included in the

first-tier foreign corporation (or DISC or

the tax year indicated. See the

income of the domestic corporation filing

former DISC) that paid a dividend out of

instructions for Schedule C, Part I,

the return.

pre-1987 profits to the domestic

column 5.

corporation filing the return.

Column 2. Enter the year and month in

Column 6(a). Enter the foreign income

which the corporation’s pre-1987 tax year

Column 2. Enter the year and month in

taxes paid or accrued by the second-tier

ended. If the deemed inclusion is from the

which the foreign corporation’s pre-1987

foreign corporation for the tax year

accumulated E&P of more than 1 tax

tax year ended.

indicated, translated from foreign

year, figure and show the tax deemed

Column 4. For each line, enter the

currency into U.S. dollars using the

paid on a separate line for each year.

pre-1987 accumulated profits for the tax

exchange rate specified in section 986(a).

year indicated in column 2, computed in

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

Column 6(b). Enter the foreign income

functional currency under section 902.

calculated in U.S. dollars under

taxes deemed paid (under section 902(b))

Regulations sections 1.964-1(a) through

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

by the second-tier foreign corporation for

and (ii).

(e), translated into functional currency

the tax year indicated (from Schedule D,

under Notice 88-70 for the tax year

Column 5. Enter the foreign taxes paid

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

indicated in column 2.

and deemed paid (in functional currency)

Section B, column 8(b)).

with respect to the pre-1987 accumulated

Column 5. Enter foreign taxes paid and

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

profits entered in column 4 for the tax

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

second-tier foreign corporation’s

year indicated in column 2. See the

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

functional currency) of all dividends paid

instructions for Schedule G on page 8 for

out of its post-1986 undistributed earnings

information on reduction of foreign taxes

for the tax year indicated.

for failure to furnish information required

Column 8(b). Report the sum of the

under section 6038.

column 8(a) amounts translated into the

Column 6(a). Enter the amount of each

Column 6(b). Enter the amount from

functional currency of the first-tier foreign

dividend paid by the first-tier foreign

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

corporation at the spot rate in effect on

corporation (or DISC or former DISC) to

the appropriate exchange rate specified in

the date of each distribution.

the domestic corporation (in functional

section 989(b).

currency) out of the accumulated profits

Section B —Dividends Paid Out of

of the pre-1987 tax year indicated in

Pre-1987 Accumulated Profits

column 2.

Schedule D

Use a separate line for each dividend

Column 6(b). Enter the amount from

paid. If a dividend is paid out of the

Part I—Tax Deemed Paid by

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

accumulated profits of more than one

using the spot exchange rate in effect on

First-Tier Foreign Corporations

pre-1987 tax year, figure and show the

the date of distribution. See Regulations

tax deemed paid on a separate line for

Section A —Dividends Paid Out of

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

each tax year. In applying section 902,

1.902-3(g)(1).

Post-1986 Undistributed Earnings

the IRS may determine from which tax

Column 8(a). Multiply column 5 by

year’s accumulated profits the dividends

Column 1. Enter the name of the

column 7. Enter this amount in column

were paid. See Regulations section

second-tier foreign corporation and the

8(a) in functional currency.

1.902-3(g)(4).

name of the first-tier foreign corporation to

Column 8(b). Enter the amount from

Important. The formula for calculating

which it paid a dividend out of post-1986

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

foreign taxes deemed paid by a first-tier

undistributed earnings.

the spot exchange rate in effect on the

foreign corporation under section 902(b)

Example. The U.S. corporation filing

date of distribution. See Regulations

with respect to dividends paid by a

the return owns all of the stock of CFC1

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

second-tier foreign corporation in a

and CFC2. CFC1 and CFC2 each own

post-1986 year out of pre-1987

Part III—Deemed Inclusions

50% of the stock of CFC3. In 2008, CFC3

accumulated profits requires that all

pays a dividend to CFC1 and CFC2. Use

From Pre-1987 Earnings and

components (dividends, accumulated

one line to report dividends from CFC3 to

Profits

profits, and taxes) be maintained in the

CFC1 and another line to report dividends

Important. The formula for calculating

second-tier foreign corporation’s

from CFC3 to CFC2.

foreign taxes deemed paid under section

functional currency. Dividends are

Column 2. Enter the year and month in

960 with respect to deemed inclusions

translated into the first-tier foreign

which the distributing second-tier foreign

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

corporation’s functional currency and

corporation’s tax year ended.

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

added to its post-1986 undistributed

requires that earnings and profits and

Example. If a first-tier foreign

earnings at the exchange rate in effect on

foreign taxes be calculated in U.S. dollars

corporation that uses the calendar year

the date of the dividend distribution. See

under the rules of Regulations section

2008 as its tax year receives dividends

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

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

out of post-1986 undistributed earnings of

Foreign taxes are translated into U.S.

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Instructions For Form 1118 - Foreign Tax Credit - Corporations - 2008 Page 7

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