Instructions For Form 1118 - Foreign Tax Credit - Corporations

Column (a) Sales Method

2. Multiply the result by the amount on

method. See Regulations section

line 2, column (a)(ii).

1.861-9(i).

Complete these columns only if the

corporation elects the sales method of

Columns (a) and (b) are subdivided

Example 2. To determine the amount

apportioning R&D deductions described

into “Nonfinancial Corporations” and

to enter on line 3b, column (a)(iv):

in Regulations section 1.861-17(c). Enter

“Financial Corporations.” In allocating

1. Divide the amount on line 3b,

in the spaces provided the SIC Code

interest deductions, members of an

column (a)(iii) by the amount on line 1,

numbers (based upon the Standard

affiliated group that are financial

column (a)(iii).

Industrial Classification System) of the

corporations must be treated as a

2. Multiply the result by the amount on

product lines to which the R&D

separate affiliated group. Complete

line 2, column (a)(iv).

deductions relate. See Regulations

columns (a)(ii) and (b)(iv) for members of

section 1.861-17(a)(2)(ii) and (iii) for

the corporation’s affiliated group that are

Column (b) Gross Income Methods

details on choosing SIC codes and

financial corporations and columns (a)(i)

changing a product category.

Complete these columns only if the

and (b)(iii) for members that are

corporation elects one of the gross

nonfinancial corporations.

Note. If the corporation has more than

income methods of apportioning R&D

two product lines, see

See Regulations section 1.861-11 for

deductions described in Regulations

Computer-Generated Schedule H on

the definition of an affiliated group.

section 1.861-17(d)(2) and (3). Check the

page 8.

Columns (a)(i) and (a)(ii)

box for the option used. Use Option 1

Columns (a)(i) and (a)(iii)

only if certain conditions are met. See

Line 1a. Enter the average of the total

Regulations section 1.861-17(d)(2).

assets of the affiliated group. See

Line 1. Enter the worldwide gross sales

Temporary Regulations section

for the product lines.

Column (b)(vi)

1.861-9T(g)(2) for the definition of

Lines 3a through 3d. Enter the gross

Line 1. Enter the total gross income

average for these purposes.

sales that resulted in gross income for

(excluding exempt income according to

each statutory grouping.

Line 1b. Enter the assets included on

Temporary Regulations section

line 1a that are characterized as excess

1.861-8T(d)(2)).

Columns (a)(ii) and (a)(iv)

related party indebtedness. See

Lines 3a through 3d. Enter the gross

Temporary Regulations section

Line 1. Enter the total R&D deductions

income within each statutory grouping.

1.861-10T(e) for an exception to the

connected with the product lines.

general rule of fungibility for excess

Column (b)(vii)

Line 2. Reduce the line 1 totals by

related party indebtedness.

legally mandated R&D (Regulations

Line 1. Enter the total R&D deductions.

Line 1c. Enter all other assets that

section 1.861-17(a)(4)), and a 50%

Line 2. Reduce the line 1 totals by

attract specifically allocable interest

exclusive apportionment amount

legally mandated R&D (Regulations

deductions. See Temporary Regulations

(Regulations section 1.861-17(b)(1)(i)).

section 1.861-17(a)(4)), and a 25%

section 1.861-10T for other exceptions to

The legally mandated R&D rules apply

exclusive apportionment amount

the general rule of fungibility (such as

to R&D undertaken solely to meet legal

(Regulations section 1.861-17(b)(1)(ii)).

qualified nonrecourse indebtedness and

requirements imposed by a particular

integrated financial transactions).

Lines 3a through 3d. If Option 1 is

political entity for improvement or

checked, divide the gross income

Line 1d. Enter the total of the exempt

marketing of specific products or

apportioned to the statutory grouping by

assets and assets without directly

processes if the corporation does not

the total gross income and multiply the

identifiable yield that are to be excluded

reasonably expect the results of that

result by the R&D deductions to be

from the interest apportionment formula

research to generate gross income

apportioned. If Option 2 is checked, enter

(Temporary Regulations sections

(beyond de minimis amounts) outside a

the appropriate amount as described in

1.861-8T(d)(2) and 1.861-9T(g)(3)).

single geographic source.

Regulations section 1.861-17(d)(3).

Lines 3a through 3d. The assets on line

Under the exclusive apportionment

2 are characterized as assets in one of

Part II—Interest Deductions, All

rules, 50% of the R&D deductions are

the statutory groupings or as belonging to

apportioned exclusively to the statutory

Other Deductions, and Total

the residual grouping. Enter the value of

grouping of gross income, or the residual

Deductions

the assets in each of the statutory

grouping of gross income, as the case

Note. The line 4 totals will generally be

groupings on line 3a through 3d. See

may be, from the geographic source

less than the totals on lines 1 and 2

Temporary Regulations sections

where the R&D activities which account

because the line 4 totals do not include

1.861-9T(g)(3), 1.861-12T(g)(2), and

for more than 50% of the amount of such

the gross income and deductions that are

1.861-12T(h)(2) for the rules for

deduction were performed. If the 50% test

implicitly apportioned to the residual

characterizing the assets.

is not met, then no part of the deduction

grouping.

is apportioned under these rules.

Columns (b)(iii) and (b)(iv)

Columns (a)(i) through (b)(iv)

Lines 3a through 3d. To figure the

Line 1a. Enter the total interest

amount of R&D deductions to apportion to

Use these columns to apportion interest

deductions for the members of the

each statutory grouping, divide the gross

deductions. See Temporary Regulations

corporation’s affiliated group. These

sales apportioned to the statutory

sections 1.861-8T through 1.861-13T for

include any expense that is currently

grouping by the worldwide gross sales for

rules on the apportionment of interest

deductible under section 163 (including

the product line. Multiply the result by the

deductions based on the fair market

original issue discount), and interest

R&D deductions to be apportioned.

value, tax book value, or adjusted tax

equivalents. See Temporary Regulations

Note. If the corporation had section

book value of assets.

section 1.861-9T for the definition of

901(j) income from more than one

If the corporation elected to use the

interest equivalents and a list of the

sanctioned country or had income

fair market value method to apportion

sections that disallow or suspend interest

re-sourced by treaty for more than one

interest expense, see Temporary

deductions or require the capitalization of

country, see Computer-Generated

Regulations section 1.861-9T(h). Also see

interest deductions.

Schedule H on page 8.

Rev. Proc. 2003-37, 2003-1 C.B. 950, for

Line 1b. Enter the interest deductions

procedures for supplying certain

Example 1. To determine the amount

associated with the assets on line 1b of

documentation and information.

to enter on line 3a, column (a)(ii):

columns (a)(i) and (a)(ii), respectively,

1. Divide the amount on line 3a,

For tax years beginning on or after

that attract specifically allocable interest

column (a)(i) by the amount on line 1,

March 26, 2004, a corporation may elect

deductions under Temporary Regulations

column (a)(i).

to use the alternative tax book value

section 1.861-10T(e).

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Instructions For Form 1118 - Foreign Tax Credit - Corporations - 2008 Page 9

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