Instructions For Form 1118 - 2004 (Page 8 of 12) in pdf

Regulations sections 1.902-1(a)(10)(i)

902(c)(6) and Regulations section

time prescribed. If the required

and (ii).

1.902-1(a)(10)(i). Foreign income taxes

information is not submitted within 90

attributable to these pre-pooling profits

days after the IRS has mailed notice to

Column 5. Enter the foreign taxes paid

must be reduced when the associated

the U.S. person, additional penalties

and deemed paid under section 902(b) (in

earnings are distributed. However, such

apply.

functional currency) with respect to the

taxes are not eligible for the deemed paid

accumulated profits entered in column 4

Note. The reduction in foreign taxes

credit. See Regulations section

for the pre-1987 tax year indicated in

available for credit is reduced by any

1.902-1(a)(10)(iii) and section 1113(c)(2)

column 2. See the instructions for

dollar penalty imposed under section

of the Taxpayer Relief Act of 1997.

Schedule G below for information on

6038(b).

reduction of foreign taxes for failure to

Note. In completing Part III, column 5,

Line E. Include the reduction for foreign

furnish information required under section

note that, under section 902(b) as

taxes on foreign oil related income under

6038.

amended by the Taxpayer Relief Act of

section 907(b) and taxes attributable to

1997, no taxes are deemed paid by a

Column 6(a). Enter each dividend paid

the deductible portion of any cash

sixth- or lower-tier foreign corporation with

by the second-tier foreign corporation (in

dividend described in section 965(a).

respect to dividends received from

functional currency) to the first-tier foreign

lower-tier foreign corporations.

corporation out of the accumulated profits

of the pre-1987 tax year indicated in

Schedule H

column 2.

Schedule F

Column 6(b). Enter the amount from

Computer-Generated

column 6(a), translated into the first-tier

Enter the gross income and definitely

Schedule H

foreign corporation’s functional currency

allocable deductions for each foreign

A computer-generated Schedule H may

using the spot exchange rate in effect on

branch (including a disregarded entity) as

be filed if it conforms to the IRS version.

the date of distribution. See Regulations

indicated. For each such foreign branch,

In some cases, Schedule H can be

sections 1.902-1(a)(10)(ii) and

attach an income statement, balance

expanded to properly apportion

1.902-3(g)(1).

sheet, and schedule of remittances.

deductions. This applies in cases such as

Column 8(a). Multiply column 5 by

when the corporation:

•

column 7. Enter this amount in column

Has more than two product lines (under

Schedule G

8(a).

the sales method of apportioning R&D

Column 8(b). Enter the amount from

deductions),

Line A. If the corporation claims a

•

column 8(a), translated in U.S. dollars at

Has section 901(j) income from more

deduction for percentage depletion under

the spot exchange rate in effect on the

than one sanctioned country, or

section 613 with respect to any part of its

•

date of distribution. See Regulations

Has income re-sourced by treaty for

foreign mineral income (as defined in

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

more than one country.

section 901(e)(2)) for the tax year, any

foreign taxes on that income must be

Part II—Tax Deemed Paid by

Part I—Research and

reduced by the smaller of:

Second-Tier Foreign

Development Deductions

1. The foreign taxes minus the tax on

Corporations

Use Part I to apportion the research and

that income or

Follow the instructions for the

development (R&D) deductions that

2. The tax on that income determined

corresponding columns of Schedule D,

cannot be definitely allocated to some

without regard to the deduction for

Part I, substituting “second-tier foreign

item or class of gross income. Use either

percentage depletion minus the tax on

corporation” for references to the “first-tier

the sales method or one of the gross

that income.

foreign corporation” and “third-tier foreign

income methods described in Regulations

corporation” for references to the

section 1.861-17.

The reduction must be made on a

“second-tier foreign corporation.”

country-by-country basis (Regulations

Note. The line 4 totals will generally be

section 1.901-3(a)(1)). Attach a separate

Note. In completing Section A, column 5,

less than the totals on lines 1 and 2

schedule showing the reduction.

note that section 902(b) as in effect prior

because the line 4 totals do not include

to the Taxpayer Relief Act of 1997 did not

the gross income and deductions that are

Line C. If the corporation chooses to

treat any foreign taxes as deemed paid by

implicitly apportioned to the residual

calculate the reduction in the foreign tax

a third- or lower-tier foreign corporation

grouping.

by identifying taxes specifically

with respect to dividends received from

attributable to participation in or

Column (a) Sales Method

lower-tier foreign corporations.

cooperation with an international boycott,

Complete these columns only if the

enter the amount from Form 5713,

corporation elects the sales method of

Schedule C, line 2b. See Form 5713 and

Schedule E

apportioning R&D deductions described

its separate Schedule C and instructions.

in Regulations section 1.861-17(c). Enter

Use Schedule E to report foreign taxes

Line D. If the corporation controls a

in the spaces provided the three-digit SIC

deemed paid with respect to dividends

foreign corporation or partnership and

Code numbers (based upon the Standard

from certain fourth-, fifth-, and sixth-tier

fails to furnish any return or any

Industrial Classification System) of the

controlled foreign corporations out of

information in any return required under

product lines to which the R&D

earnings accumulated in tax years

section 6038(a) by the due date, reduce

deductions relate. See Regulations

beginning after August 5, 1997. Follow

the foreign taxes available for credit under

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

the instructions for the corresponding

sections 901, 902, and 960 by 10%. If the

details on choosing SIC codes and

columns of Schedule D, Part I, Section A,

failure continues for 90 days or more after

changing a product category.

substituting references to the next

the date of written notice by the IRS,

Note. If the corporation has more than

lower-tier foreign corporation as

reduce the tax by an additional 5% for

two product lines, see

appropriate.

each 3-month period or fraction thereof

Computer-Generated Schedule H above.

during which the failure continues after

The post-1986 undistributed earnings

the 90-day period has expired. See

and taxes pools for the eligible CFCs

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

section 6038(c) for limitations and special

begin on the first day of the CFC’s first tax

rules.

Line 1. Enter the worldwide gross sales

year beginning after August 5, 1997.

for the product lines.

Earnings accumulated in tax years

In addition, a $10,000 penalty is

beginning before August 6, 1997, will be

imposed under section 6038(b) for failure

Lines 3a through 3h. Enter the gross

treated as pre-1987 accumulated profits

to supply the information required under

sales that resulted in gross income for

for section 902 purposes. See section

section 6038(a) for each entity within the

each statutory grouping.

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Instructions For Form 1118 - 2004 Page 8

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