Instructions For Form 1118 - 2004 Page 4

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Taxes on foreign oil and gas extraction
2. The amount of foreign taxes paid
Treaty-Based Return
income that were reduced under section
on each date (in foreign currency);
Positions
907(a).
3. The exchange rate on each date
the foreign taxes were paid; and
Taxes paid or accrued to a foreign
Corporations that adopt a return position
4. The amount of foreign taxes
country or U.S. possession on taxable
that any U.S. treaty overrides or modifies
refunded (in foreign currency).
income that is taken into account in
any provision of the Internal Revenue
Foreign taxes that when paid differ
computing the possessions corporation
Code, and causes (or potentially causes)
from the accrued amounts claimed as
tax credit (section 936(c) or section 30A).
a reduction of any tax incurred at any
credits for a year beginning before
Taxes attributable to income excluded
time, generally must disclose this
1998 —
under section 814(a) (relating to
position. Complete Form 8833,
1. The date on which the foreign taxes
contiguous country branches of domestic
Treaty-Based Return Position Disclosure
were accrued;
life insurance companies).
Under Section 6114 or Section 7701(b),
2. The dates on which the foreign
and attach it to Form 1118. See section
Taxes paid or accrued to a foreign
taxes were paid;
6114 and Regulations section 301.6114-1
country or U.S. possession with respect
3. The exchange rate for each date
for details.
to income excluded from gross income on
the foreign taxes were accrued and paid;
Form 8873, Extraterritorial Income
Failure to make such a report may
and
Exclusion. However, see section 943(d)
result in a $10,000 penalty.
4. The amount of foreign taxes
for an exception for certain withholding
accrued or paid on each such date (in
taxes.
Proof of Credits
foreign currency).
Taxes paid, accrued, or deemed paid
Foreign taxes that when paid differ
Form 1118 must be carefully filled in with
that are attributable to the deductible
from accrued amounts claimed as
all the information called for and with the
portion of any cash dividend described in
credits for a tax year beginning after
calculations of credits indicated.
section 965(a).
1997 because the corporation paid
Important: Documentation (e.g., receipts
more or less foreign tax than was
Carryback and Carryforward of
of payments or a foreign tax return for
originally accrued or failed to pay
Excess Foreign Taxes
accrued taxes) is not required to be
accrued taxes within 2 years —
attached to Form 1118. However, proof
If the allowable foreign taxes paid,
1. The date on which the foreign taxes
must be presented upon request by the
accrued, or deemed paid in a tax year in
were accrued;
IRS to substantiate the credit. See
a separate category exceed the foreign
2. The dates on which the foreign
Regulations section 1.905-2.
tax credit limitation for the tax year for that
taxes were paid;
separate category, the excess may be:
If the corporation claims a foreign tax
3. The average exchange rate for the
Carried back 2 years to offset taxes
credit for tax accrued but not paid, the
year for which the foreign taxes were
imposed in the same category. (For
IRS may require a bond to be furnished
accrued;
excess foreign taxes arising in tax years
on Form 1117, Income Tax Surety Bond,
4. For taxes paid more than 2 years
beginning after October 22, 2004, the
before the credit is allowed. See
after the year to which they relate, the
excess may be carried back 1 year.)
Regulations section 1.905-2(c).
exchange rate at the time of payment;
Carried forward 5 years to offset taxes
and
Foreign Tax Credit
imposed in the same category (and 10
5. The amount of tax accrued or paid
years for excess foreign taxes which may
for each such date, and the amount of
Redeterminations
be carried to any tax year ending after
accrued tax that was not paid within 2
October 22, 2004).
The corporation’s foreign tax credit must
years (in foreign currency).
be redetermined if:
The excess is applied first to the earliest
Foreign taxes deemed paid under
Accrued foreign taxes when paid differ
of the years to which it may be carried,
section 902 or 960 — If the corporation is
from the amounts claimed as credits;
then to the next earliest year, etc. The
required to make a redetermination under
Accrued foreign taxes that relate to tax
corporation cannot carry a credit to a tax
Temporary Regulations section
years beginning after 1997 are not paid
year for which it claimed a deduction,
1.905-3T(d)(4), include the following basic
within 2 years after the close of the tax
rather than a credit, for foreign taxes paid
information as an attachment to the tax
year to which they relate; or
or accrued. Furthermore, the corporation
return for the year for which the
Any foreign tax paid is fully or partially
must reduce the amount of any carryback
redetermination applies:
refunded.
or carryforward by the amount it would
1. The dates and amounts of any
have used if it had chosen to claim a
dividend distributions or other inclusions
Reporting Requirements
credit rather than a deduction in that tax
from E&P for the affected year or years;
If any of the above occurs, the
year. See section 904(c) and Regulations
2. The amount of E&P from which
corporation generally must redetermine
section 1.904-2 for more details.
such dividends were paid for the affected
its U.S. tax liability. To do this, the
year or years; and
How to claim the excess credit. If the
corporation must:
3. The information described above
corporation is carrying back the excess
File an amended return and Form 1118
for foreign taxes paid or accrued, as
credit to an earlier year, file an amended
with the Service Center where it filed the
applicable.
tax return with a revised Form 1118.
tax return on which it claimed the affected
Attach the statement described in
foreign tax credit and
If foreign taxes deemed paid under
Regulations section 1.904-2(f) for each
Provide identifying information such as
sections 902 or 960 are adjusted and the
tax year to which the corporation is
the corporation’s name, address,
corporation is not required to redetermine
carrying back or carrying forward the
employer identification number (EIN), and
its U.S. tax liability, adjust the appropriate
excess credit.
the tax year or years that are affected by
pools of foreign taxes and E&P using the
the redetermination.
rules outlined in Temporary Regulations
Special rules apply to:
section 1.905-3T(d)(2)(ii).
Additional information required. If the
The carryback and carryover of foreign
redetermination was because of one of
taxes paid or accrued on foreign oil and
If an adjustment to the appropriate
the following, the corporation must
gas extractions or related taxes (see
pools of foreign taxes and E&P is
provide the additional information as
section 907(f)) and
required, attach a notice of the
indicated.
An excess foreign tax credit carried to a
adjustment to the tax return for the tax
Refund of foreign taxes paid —
tax year beginning after September 30,
year during which the foreign tax
1993, if an excess limitation account was
1. The date or dates on which the
adjustment occurs. Provide the following
established under section 960(b)(2).
foreign taxes were paid;
information:
-4-

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