Instructions For Form 1118 - Foreign Tax Credit-Corporations
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13Instructions for Form 1118
Department of the Treasury
Internal Revenue Service
(Rev. December 2010)
(Use with the December 2009 revision of Form 1118.)
Foreign Tax Credit—Corporations
Passive Category Income
is used, it must be approved by the IRS
Section references are to the Internal
for use in filing substitute forms. This
Revenue Code unless otherwise noted.
Passive category income includes
ensures the proper placement of each
passive income and specified passive
item appearing on the IRS version. For
category income.
What’s New for 2010
more information, see Pub. 1167, General
Rules and Specifications for Substitute
Passive income. Generally, passive
•
Forms and Schedules.
income is:
Section 212 of P.L. 111-226 added new
•
Any income received or accrued that
section 901(m), which provides for the
How To Complete
would be foreign personal holding
denial of a foreign tax credit with respect
to foreign income not subject to U.S.
company income (defined in section
Form 1118
taxation by reason of covered asset
954(c)) if the corporation were a
acquisitions (as defined in new section
controlled foreign corporation (CFC)
Important. Complete a separate
901(m)(2)). See No Credit or Deduction
(defined in section 957). This includes
Schedule A; Schedule B, Parts I & II;
on page 3 for additional information.
any gain on the sale or exchange of stock
Schedules C through G; Schedule I; and
•
that is more than the amount treated as a
Section 213 of P.L. 111-226 added new
Schedule K for each applicable separate
dividend under section 1248. However, in
section 904(d)(6), which provides for the
category of income. See Categories of
determining if any income would be
separate application of the foreign tax
Income below. Complete Schedule B,
foreign personal holding company
credit rules with respect to certain items
Part III; Schedule H; and Schedule J only
income, the rules of section 864(d)(6) will
resourced under treaties. See Income
once.
apply only for income of a CFC.
Re-sourced by Treaty on page 2 for
•
•
Use Schedule A to compute the
Any amount includible in gross income
additional information.
under section 1293 (which relates to
corporation’s income or loss before
•
Section 214 of P.L. 111-226 added new
certain passive foreign investment
adjustments for each applicable category
section 960(c), which provides for a
companies).
of income.
limitation with respect to section 956
•
Use Schedule B to determine the total
inclusions. See the instructions for
Passive income does not include:
foreign tax credit after certain limitations.
•
Schedule G, Line E on page 9 for
Any financial services income that is
•
Use Schedule C to compute taxes
additional information.
general category income (see General
deemed paid by the domestic corporation
Category Income on page 2),
filing the return.
•
General Instructions
Any export financing interest unless it is
•
Use Schedules D and E to compute
also related person factoring income (see
taxes deemed paid by lower-tier foreign
section 904(d)(2)(G) and Temporary
corporations.
Purpose of Form
Regulations section 1.904-4T(h)(3)),
•
Use Schedule F to report gross
•
Any high-taxed income (see General
Use Form 1118 to compute a
income and definitely allocable
Category Income on page 2 and the
corporation’s foreign tax credit for certain
deductions from foreign branches.
instructions for Schedule A on page 5), or
taxes paid or accrued to foreign countries
•
Use Schedule G to report required
•
Any active rents or royalties. See
or U.S. possessions. See Taxes Eligible
reductions of tax paid, accrued, or
Temporary Regulations section
for a Credit on page 3.
deemed paid.
1.904-4T(b)(2)(iii) for definitions and
•
Use Schedule H to apportion
Who Must File
exceptions.
deductions that cannot be definitely
Any corporation that elects the benefits of
allocated to some item or class of income.
Note. Certain income received from a
the foreign tax credit under section 901
•
Use Schedule I (a separate schedule)
CFC and certain dividends from a 10/50
must complete and attach Form 1118 to
to compute reductions of taxes paid,
corporation that would otherwise be
its income tax return.
accrued, or deemed paid on foreign oil
passive income may be assigned to
and gas extraction income.
another separate category under the
•
When to Make the Election
Use Schedule J (a separate schedule)
look-through rules. See Look-Through
to compute adjustments to separate
Rules on page 2.
The election to claim the foreign tax credit
limitation income or losses in determining
(or a deduction in lieu of a credit) for any
Specified passive category income.
the numerators of limitation fractions,
tax year may be made or changed at any
This term includes:
year-end recharacterization balances,
time before the end of a special 10-year
•
Dividends from a DISC or former DISC
and overall foreign and domestic loss
period described in section 6511(d)(3) (or
(as defined in section 992(a)) to the
account balances.
section 6511(c) if the period is extended
•
extent such dividends are treated as
Use Schedule K (a separate schedule)
by agreement).
foreign source income, and
to reconcile the corporation’s prior year
•
Distributions from a former FSC out of
foreign tax carryover with its current year
Computer-Generated
earnings and profits attributable to foreign
foreign tax carryover.
trade income or interest or carrying
Form 1118
charges (as defined in section 927(d)(1),
Categories of Income
The corporation may submit a
before its repeal) derived from a
Compute a separate foreign tax credit for
computer-generated Form 1118 and
transaction which results in foreign trade
each applicable separate category
schedules if they conform to the IRS
income (as defined in section 932(b),
described below.
version. However, if a software program
before its repeal).
Cat. No. 10905I
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