Instructions For Form 1118 - 2004 (Page 6 of 12) in pdf

foreign taxes (a) are paid more than 2

previously taxed E&P. See section

Regulations section 1.902-1(a)(9). Also,

years after the close of the tax year to

960(b).

see section 902(c)(3) and Regulations

which they relate or (b) are paid in a tax

section 1.902-1(a)(13) for special rules

Part III—Summary of Separate

year prior to which they relate. In addition,

treating earnings accumulated in

Credits

for tax years beginning after December

post-1986 years as pre-1987

31, 2004, taxpayers may elect to use the

Complete Part III only once. Enter on

accumulated profits when no U.S.

exchange rate on the date of payment.

lines 1 through 8 the separate foreign tax

shareholder was eligible to claim a

See section 986(a).

credits from Part II, line 11, for each

section 902 credit with respect to taxes

applicable separate category.

paid by the foreign corporation.

Column 1. Claim the foreign tax credit

Line 10. If the corporation participates in

for the tax year in which the taxes were

Column 5. Enter the opening balance in

or cooperates with an international

paid or accrued, depending on the

the distributing corporation’s post-1986

boycott, the foreign tax credit may be

method of accounting used. If a credit for

foreign income taxes pool for the tax year

reduced. Complete Form 5713,

taxes accrued is claimed, show both the

indicated. This amount is the foreign

International Boycott Report. If the

date accrued and the date paid (if paid).

income taxes paid, accrued, or deemed

corporation chooses to apply the

paid (in U.S. dollars) by the foreign

If the cash method of accounting is

international boycott factor to calculate

corporation for prior tax years beginning

used, an election under section 905(a)

the reduction in the credit, enter the

after 1986, reduced by foreign taxes

can be made to claim the credit based on

amount from line 2a(3) of Schedule C

attributable to distributions or deemed

accrued taxes. If this election is made,

(Form 5713) on line 10.

inclusions of earnings in prior tax years.

figure the foreign tax credit for all

See Regulations section 1.902-1(a)(8)(i).

subsequent tax years on the same basis.

Also, the credits are subject to the

Column 6(a). Enter the foreign income

Schedules C, D, and E

redetermination provisions of section

taxes paid or accrued by the foreign

905(c). See page 4 for details.

If the corporation is a partner in a

corporation for the tax year indicated,

partnership, for taxes of foreign

Column 2(d). Include foreign taxes paid

translated into U.S. dollars using the

corporations for tax years beginning after

or accrued on foreign branch taxable

exchange rate specified in section 986(a).

October 22, 2004, stock owned directly or

income to which the rules of section

Column 6(b). Enter the foreign income

indirectly, by or for a partnership shall be

863(b) apply.

taxes deemed paid (under section 902(b))

considered as being owned

Note. Do not include these overlapping

by the corporation for the tax year

proportionately by its partners. See

amounts in column 2(e).

indicated (from Schedule D, Part I,

section 902(c)(7).

Section A, column 10, and Section B,

Part II—Separate Foreign Tax

Schedule C

column 8(b)).

Credit

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

Line 4. Enter the total amount of foreign

Part I—Dividends and Deemed

foreign corporation’s functional currency)

taxes carried forward or back to the

Inclusions From Post-1986

of all dividends paid and deemed

current year (see page 4 for general

Undistributed Earnings

inclusions out of post-1986 undistributed

rules). Include all taxes carried forward,

earnings for the tax year indicated.

whether or not such taxes are used.

Column 1. Enter the name of the foreign

Column 8(b). Report the column 8(a)

Attach a schedule reconciling the prior

corporation (or DISC or former DISC)

amounts, translated into U.S. dollars at

year’s carryover with this year’s

whose earnings were distributed to, or

the appropriate exchange rates (as

carryover, identifying carrybacks and any

included in income by, the domestic

defined in section 989(b)). If the foreign

other adjustments.

corporation filing the return.

corporation’s functional currency is the

Line 6. If the corporation has, in any of

Column 2. Enter the year and month in

U.S. dollar, do not complete column 8(b).

its separate categories, a current year

which the foreign corporation’s U.S. tax

separate limitation loss, an overall

year ended.

Part II—Dividends Paid Out of

domestic loss, an overall foreign loss,

Example. When figuring foreign taxes

Pre-1987 Accumulated Profits

recapture of an overall foreign loss, or

deemed paid in 2004 by a calendar year

Use a separate line for each dividend

current year separate limitation income in

domestic corporation with respect to

paid. If a dividend is paid out of the

a category in which it has a beginning

dividends and inclusions out of post-1986

accumulated profits of more than one

balance of income that must be

undistributed earnings for the foreign

pre-1987 tax year, figure and show the

recharacterized, adjustments must be

corporation’s tax year that ended June

tax deemed paid on a separate line for

made. See the instructions for Schedule J

30, 2004, enter “0406.”

each tax year. In applying section 902,

to determine if that schedule must be

Column 4. Enter the distributing

the IRS may determine from which tax

filed.

corporation’s post-1986 undistributed

year’s accumulated profits the dividends

Line 7b. Enter taxable income that

earnings pool for the separate category

were paid. See Regulations section

should not be taken into account in

for which the schedule is being

1.902-3(g)(4).

computing the foreign tax credit limitation.

completed. Generally, this amount is the

For example, enter the income taken into

Important: The formula for calculating

corporation’s E&P (computed in the

account in computing the possessions

foreign taxes deemed paid under section

corporation’s functional currency

corporation tax credit under section 936

902 with respect to dividends paid in a

according to sections 964(a) and 986)

(without regard to sections 936(a)(4) and

post-1986 year out of pre-1987

accumulated in tax years beginning after

936(i)) or section 30A.

accumulated profits requires that all

1986, determined as of the close of the

components (dividends, accumulated

corporation’s tax year without reduction

Line 8. Divide line 6 by line 7c to

profits, and taxes) be maintained in the

for any earnings distributed or otherwise

determine the limitation fraction. Enter the

foreign corporation’s functional currency

fraction on line 8 as a decimal with the

included in income (e.g., under section

and translated into U.S. dollars at the

same number of places as the number of

304, 367(b), 551, 951(a), 1248, or 1293)

exchange rate in effect on the date of the

digits to the left of the decimal in adjusted

during the current tax year.

dividend distribution. See Regulations

taxable income on line 7c. For example, if

Post-1986 undistributed earnings are

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

adjusted taxable income on line 7c is

reduced to account for distributions or

$100,000, compute the limitation fraction

deemed distributions that reduced E&P

Column 1. Enter the name of the first-tier

to 6 decimal places.

and inclusions that resulted in previously

foreign corporation (or DISC or former

Line 10. The limitation may be increased

taxed amounts described in section

DISC) that paid a dividend out of

under section 960(b) for any tax year that

959(c)(1) and (2) or section 1293(c) in

pre-1987 profits to the domestic

the corporation receives a distribution of

prior tax years beginning after 1986. See

corporation filing the return.

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Instructions For Form 1118 - 2004 Page 6

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