Instructions For Form 1118 - 2004


Department of the Treasury
Instructions for Form 1118
Internal Revenue Service
(Rev. December 2004)
Foreign Tax Credit—Corporations
Section references are to the Internal Revenue Code, unless otherwise noted.
section 904(d)(2)(G) and Regulations
What’s New
Use Schedule A to compute the
section 1.904-4(h)(3)),
corporation’s income or loss before
Any high-taxed income (see General
adjustments for each applicable category
Changes to the form, schedules, and
Limitation Income on page 2), or
of income.
instructions were made to reflect
Any active rents or royalties received
Use Schedule B to determine the total
amendments to the foreign tax credit
from an unrelated person and active rents
foreign tax credit after certain limitations.
rules made by the American Jobs
or royalties received from a related
Use Schedule C to compute taxes
Creation Act of 2004.
person that were paid or accrued after
deemed paid by the domestic corporation
For tax years beginning on or after
September 20, 2004. See Regulations
filing the return.
March 26, 2004, corporations may use an
section 1.904-4(b)(2) for definitions and
Use Schedules D and E to compute
alternative tax book value method to
taxes deemed paid by lower-tier foreign
apportion interest expense on Schedule
Note. Certain income received from a
H, Part II. See page 9 for details.
Use Schedule F to report gross
CFC and certain dividends from a 10/50
income and definitely allocable
General Instructions
corporation that would otherwise be
deductions from foreign branches.
passive income may be assigned to
Use Schedule G to report required
another separate category under the
Purpose of Form
reductions of tax paid, accrued, or
look-through rules. See Look-Through
deemed paid.
Rules on page 2.
Use Form 1118 to compute a
Use Schedule H to apportion
corporation’s foreign tax credit for certain
High Withholding Tax Interest
deductions that cannot be definitely
taxes paid or accrued to foreign countries
allocated to some item or class of income.
High withholding tax interest is any
or U.S. possessions. See Taxes Eligible
Use Schedule I (a separate schedule)
interest subject to a withholding tax or
for a Credit on page 3.
to compute reductions of taxes paid,
other gross basis tax of a foreign country
accrued, or deemed paid on foreign oil
Who Must File
or U.S. possession at a rate of 5% or
and gas extraction income.
Any corporation that elects the benefits of
Use Schedule J (a separate schedule)
High withholding tax interest does not
the foreign tax credit under section 901
to compute adjustments to separate
include export financing interest (section
must complete and attach Form 1118 to
limitation income or losses in determining
its income tax return.
the numerators of limitation fractions,
year-end recharacterization balances,
Financial Services Income
When to Make the Election
and overall foreign loss account balances.
Financial services income is income
The election to claim the foreign tax credit
received or accrued while the corporation
(or a deduction in lieu of a credit) for any
Categories of Income
was a financial services entity if the
tax year may be made or changed at any
income is:
Compute a separate foreign tax credit for
time before the end of a special 10-year
Described in section 904(d)(2)(C)(ii),
each applicable separate category
period described in section 6511(d)(3) (or
Passive income (determined without
described below.
section 6511(c) if the period is extended
regard to section 904(d)(2)(A)(iii)(I) and
by agreement).
Passive Income
Export financing interest (section
Generally, passive income is:
904(d)(2)(G)) that would be high
Any income received or accrued that
withholding tax interest but for section
Form 1118
would be foreign personal holding
904(d)(2)(B)(ii), or
company income (defined in section
The corporation may submit a
Incidental income described in
954(c)) if the corporation were a
computer-generated Form 1118 and
Regulations section 1.904-4(e)(4).
controlled foreign corporation (CFC)
schedules if they conform to the IRS
(defined in section 957). This includes
Financial services income does not
version. However, if a software program
any gain on the sale or exchange of stock
is used, it must be approved by the IRS
Any high withholding tax interest, or
that is more than the amount treated as a
for use in filing substitute forms. This
dividend under section 1248. However, in
Any export financing interest not
ensures the proper placement of each
determining if any income would be
described in section 904(d)(2)(C)(i)(III).
item appearing on the IRS version. For
foreign personal holding company
more information, see Pub. 1167, General
Special rules apply for affiliated
income, the rules of section 864(d)(6) will
Rules and Specifications for Substitute
groups. See Regulations section
apply only for income of a CFC.
Forms and Schedules.
Any amount includible in gross income
Shipping Income
under sections 551 and 1293 (which
How To Complete
relate to foreign personal holding
Shipping income is any income the
Form 1118
companies and certain passive foreign
corporation receives or accrues that is of
investment companies).
a kind that would be foreign base
Important: Complete a separate
company shipping income as defined in
Schedule A; Schedule B, Parts I & II;
Passive income does not include:
section 954(f) as in effect before its repeal
Schedules C through G; and Schedule I
Any income that belongs in one of the
by the American Jobs Creation Act of
for each applicable separate category of
other separate categories described
income. See Categories of Income below.
Complete Schedule B, Part III; Schedule
Any export financing interest unless it is
Shipping income does not include:
H; and Schedule J only once.
also related person factoring income (see
Financial services income,
Cat. No. 10905I


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