Instructions For Form 1118 - Foreign Tax Credit - Corporations

income taxes paid, accrued, or deemed

with respect to the pre-1987 accumulated

(e), translated into functional currency

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

profits entered in column 4 for the tax

under Notice 88-70 for the tax year

corporation for prior tax years beginning

year indicated in column 2. See the

indicated in column 2.

after 1986, reduced by foreign taxes

instructions for Schedule G on page 8 for

Column 5. Enter foreign taxes paid and

attributable to distributions or deemed

information on reduction of foreign taxes

deemed paid (in U.S. dollars) with respect

inclusions of earnings in prior tax years.

for failure to furnish information required

to the E&P entered in column 4. See the

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

under section 6038.

instructions for Schedule G on page 8 for

Column 6(a). Enter the foreign income

Column 6(a). Enter the amount of each

information on reduction of foreign taxes

taxes paid or accrued by the foreign

dividend paid by the first-tier foreign

for failure to furnish information required

corporation for the tax year indicated,

corporation (or DISC or former DISC) to

under section 6038.

translated into U.S. dollars using the

the domestic corporation (in functional

Column 6(b). Enter the amount from

exchange rate specified in section 986(a).

currency) out of the accumulated profits

column 6(a) translated into U.S. dollars at

of the pre-1987 tax year indicated in

Column 6(b). Enter the foreign income

the appropriate exchange rate specified in

column 2.

taxes deemed paid (under section 902(b))

section 989(b).

by the corporation for the tax year

Column 6(b). Enter the amount from

indicated (from Schedule D, Part I,

column 6(a) translated into U.S. dollars

Schedule D

Section A, column 10, and Section B,

using the spot exchange rate in effect on

column 8(b)).

the date of distribution. See Regulations

Part I—Tax Deemed Paid by

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

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

1.902-3(g)(1).

First-Tier Foreign Corporations

foreign corporation’s functional currency)

of all dividends paid and deemed

Column 8(a). Multiply column 5 by

Section A—Dividends Paid Out of

inclusions out of post-1986 undistributed

column 7. Enter this amount in column

Post-1986 Undistributed Earnings

earnings for the tax year indicated.

8(a) in functional currency.

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

Column 8(b). Enter the amount from

Column 1. Enter the name of the

amounts, translated into U.S. dollars at

column 8(a) translated into U.S. dollars at

second-tier foreign corporation and the

the appropriate exchange rates (as

the spot exchange rate in effect on the

name of the first-tier foreign corporation to

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

date of distribution. See Regulations

which it paid a dividend out of post-1986

corporation’s functional currency is the

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

undistributed earnings.

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

Part III—Deemed Inclusions

Example. The U.S. corporation filing

Part II—Dividends Paid Out of

From Pre-1987 Earnings and

the return owns all of the stock of CFC1

Pre-1987 Accumulated Profits

and CFC2. CFC1 and CFC2 each own

Profits

50% of the stock of CFC3. In 2010, CFC3

Use a separate line for each dividend

Important. The formula for calculating

pays a dividend to CFC1 and CFC2. Use

paid. If a dividend is paid out of the

foreign taxes deemed paid under section

one line to report dividends from CFC3 to

accumulated profits of more than one

960 with respect to deemed inclusions

CFC1 and another line to report dividends

pre-1987 tax year, figure and show the

(that is, under section 956 or 1248) in a

from CFC3 to CFC2.

tax deemed paid on a separate line for

post-1986 year out of pre-1987 E&P

Column 2. Enter the year and month in

each tax year. In applying section 902,

requires that earnings and profits and

which the distributing second-tier foreign

the IRS may determine from which tax

foreign taxes be calculated in U.S. dollars

corporation’s tax year ended.

year’s accumulated profits the dividends

under the rules of Regulations section

were paid. See Regulations section

Example. If a first-tier foreign

1.964-1(a) through (e), and then

1.902-3(g)(4).

corporation that uses the calendar year

translated into the foreign corporation’s

2010 as its tax year receives dividends

Important. The formula for calculating

functional currency at the exchange rate

out of post-1986 undistributed earnings of

foreign taxes deemed paid under section

in effect on the first day of the foreign

a second-tier foreign corporation for a tax

902 with respect to dividends paid in a

corporation’s first post-1986 tax year. See

year that ended June 30, 2010, enter

post-1986 year out of pre-1987

Notice 88-70, 1988-2 C.B. 369. The

“1006.”

accumulated profits requires that all

deemed inclusion is then translated into

components (dividends, accumulated

U.S. dollars at the appropriate exchange

Column 3. Enter the applicable

profits, and taxes) be maintained in the

rate specified in section 989(b). Foreign

two-letter codes from the list at

foreign corporation’s functional currency

income taxes paid in pre-1987 tax years

gov/countrycodes.

and translated into U.S. dollars at the

are translated into U.S. dollars for

Column 4. Enter the second-tier foreign

exchange rate in effect on the date of the

purposes of section 960 at the exchange

corporation’s post-1986 undistributed

dividend distribution. See Regulations

rate in effect when the foreign taxes were

earnings pool (in functional currency) for

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

paid. See Regulations section 1.964-1(d)

the separate category for which the

and Temporary Regulations section

Column 1. Enter the name of the

schedule is being completed. See the

1.905-5T(b)(1).

first-tier foreign corporation (or DISC or

instructions for Schedule C, Part I,

former DISC) that paid a dividend out of

Column 1. Enter the name of the first- or

column 4.

pre-1987 profits to the domestic

lower-tier foreign corporation whose

Column 5. Enter the opening balance in

corporation filing the return.

earnings were deemed included in the

the second-tier foreign corporation’s

income of the domestic corporation filing

Column 2. Enter the year and month in

post-1986 foreign income taxes pool for

the return.

which the foreign corporation’s pre-1987

the tax year indicated. See the

tax year ended.

Column 2. Enter the year and month in

instructions for Schedule C, Part I,

which the corporation’s pre-1987 tax year

column 5.

Column 3. Enter the applicable

ended. If the deemed inclusion is from the

two-letter codes from the list at

Column 6(a). Enter the foreign income

accumulated E&P of more than one tax

gov/countrycodes.

taxes paid or accrued by the second-tier

year, figure and show the tax deemed

Column 4. For each line, enter the

foreign corporation for the tax year

paid on a separate line for each year.

indicated, translated from foreign

pre-1987 accumulated profits for the tax

Column 3. Enter the applicable

year indicated in column 2, computed in

currency into U.S. dollars using the

two-letter codes from the list at

exchange rate specified in section 986(a).

functional currency under section 902.

See Regulations section 1.902-1(a)(10)(i)

gov/countrycodes.

Column 6(b). Enter the foreign income

and (ii).

Column 4. For each line, enter the E&P

taxes deemed paid (under section 902(b))

Column 5. Enter the foreign taxes paid

calculated in U.S. dollars under

by the second-tier foreign corporation for

and deemed paid (in functional currency)

Regulations sections 1.964-1(a) through

the tax year indicated (from Schedule D,

-7-

Instructions For Form 1118 - Foreign Tax Credit - Corporations - 2011 Page 7

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