Instructions For Form 1118 - 2004 printable pdf download

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.

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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

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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

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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

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or royalties received from a related

Use Schedule C to compute taxes

Creation Act of 2004.

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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

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section 1.904-4(b)(2) for definitions and

Use Schedules D and E to compute

alternative tax book value method to

exceptions.

taxes deemed paid by lower-tier foreign

apportion interest expense on Schedule

corporations.

Note. Certain income received from a

H, Part II. See page 9 for details.

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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

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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

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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

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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.

more.

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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

904(d)(2)(B)(ii)).

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

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time before the end of a special 10-year

Described in section 904(d)(2)(C)(ii),

each applicable separate category

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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

(III)),

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Export financing interest (section

Generally, passive income is:

Computer-Generated

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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

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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

include:

is used, it must be approved by the IRS

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Any high withholding tax interest, or

that is more than the amount treated as a

for use in filing substitute forms. This

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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.

1.904-4(e)(3)(ii).

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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:

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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

2004.

income. See Categories of Income below.

below,

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Complete Schedule B, Part III; Schedule

Any export financing interest unless it is

Shipping income does not include:

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H; and Schedule J only once.

also related person factoring income (see

Financial services income,

Cat. No. 10905I

Instructions For Form 1118 - 2004

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