Instructions For Form 1118 - Foreign Tax Credit-Corporations (Page 6 of 13) in pdf

but that are described as similar items in

accrued taxes. If this election is made,

International Boycott Report. If the

Regulations section 1.904-4(e)(2)(i)(Y),

figure the foreign tax credit for all

corporation chooses to apply the

attach a statement to Form 1118 showing

subsequent tax years on the same basis.

international boycott factor to calculate

the types and amounts of the similar

Also, the credits are subject to the

the reduction in the credit, enter the

items.

redetermination provisions of section

amount from line 2a(3) of Schedule C

905(c). See page 4 for details.

(Form 5713) on line 5.

Column 11. Enter the corporation’s net

Column 2(d). Include foreign taxes paid

operating loss as defined in section 172

or accrued on foreign branch taxable

that is attributable to foreign source

Schedules C, D, and E

income to which the rules of section

income in the separate limitation

863(b) apply.

category. If the net operating loss is part

If the corporation is a partner in a

of an overall foreign loss, see Temporary

Note. Do not include these overlapping

partnership, for taxes of foreign

Regulations section 1.904(g)-3T for

amounts in column 2(e).

corporations for tax years beginning after

allocation rules that apply in determining

October 22, 2004, stock owned directly or

Part II—Separate Foreign Tax

the amount to enter in column 11.

indirectly, by or for a partnership shall be

Credit

considered as being owned

It is not necessary to report the NOL

proportionately by its partners. See

adjustment on a per-country basis. See

Line 4. If the corporation is reclassifying

section 902(c)(7).

Net Operating Losses on page 5.

high-taxed income from passive category

income to general category income, enter

Schedule C

the related tax adjustment on line 4.

Schedule B

Indicate whether adjustment is positive or

Part I—Dividends and Deemed

(negative). See General Category Income

Part I—Foreign Taxes Paid,

Inclusions From Post-1986

on page 2 for additional information.

Accrued, and Deemed Paid

Undistributed Earnings

Line 5. Enter the total amount of foreign

taxes carried forward or back to the

Report only foreign taxes paid, accrued,

Column 1. Enter the name of the foreign

current year. The amount of foreign taxes

or deemed paid for the separate category

corporation (or DISC or former DISC)

carried forward to the current tax year is

for which this Form 1118 is being

whose earnings were distributed to, or

the amount from Schedule K (Form

completed. Report all amounts in U.S.

included in income by, the domestic

1118), line 3, column (xiv). Attach

dollars. If the corporation must convert

corporation filing the return.

Schedule K (Form 1118) to Form 1118.

from foreign currency, attach a schedule

Column 2. Enter the year and month in

showing the amounts in foreign currency

Line 7. If the corporation has a current

which the foreign corporation’s U.S. tax

and the exchange rate used.

year overall domestic loss or recapture of

year ended.

an overall domestic loss account, or, in

For corporations claiming the credit on

Example. When figuring foreign taxes

any of its separate categories, a current

the accrual basis, the exchange rate for

year separate limitation loss, an overall

deemed paid in 2009 by a calendar year

translating foreign taxes into U.S. dollars

foreign loss, recapture of an overall

domestic corporation with respect to

will generally be an average exchange

foreign loss, or current year separate

dividends and inclusions out of post-1986

rate for the tax year to which the taxes

limitation income in a category in which it

undistributed earnings for the foreign

relate. However, the exchange rate on the

has a beginning balance of income that

corporation’s tax year that ended June

date of payment must be used if the

must be recharacterized, adjustments

30, 2009, enter “0906.”

foreign taxes (a) are paid more than 2

must be made. See the separate

years after the close of the tax year to

Column 3. Enter the applicable

instructions for Schedule J to determine if

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

two-letter codes from the list at

that schedule must be filed.

year prior to which they relate. In addition,

gov/countrycodes.

for tax years beginning after December

Line 8b. Enter taxable income that

Column 4. Enter the distributing

31, 2004, taxpayers may elect to use the

should not be taken into account in

corporation’s post-1986 undistributed

exchange rate on the date of payment.

computing the foreign tax credit limitation.

earnings pool for the separate category

Taxpayers may elect to use the payment

Line 9. Divide line 7 by line 8c to

for which the schedule is being

date exchange rates for all creditable

determine the limitation fraction. Enter the

completed. Generally, this amount is the

foreign income taxes or only those taxes

fraction on line 9 as a decimal with the

corporation’s E&P (computed in the

that are attributable to qualified business

same number of places as the number of

corporation’s functional currency

units with U.S. dollar functional

digits to the left of the decimal in adjusted

according to sections 964(a) and 986)

currencies. The election is made by

taxable income on line 8c. For example, if

accumulated in tax years beginning after

attaching a statement to a timely-filed

adjusted taxable income on line 8c is

1986, determined as of the close of the

(including extensions) Form 1118 that

$100,000, compute the limitation fraction

corporation’s tax year without reduction

indicates the corporation is making the

to 6 decimal places.

for any earnings distributed or otherwise

election under section 986(a)(1)(D). Once

Line 11. The limitation may be increased

included in income (that is, under section

made, the election applies for all

under section 960(b) for any tax year that

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

subsequent tax years and is revocable

the corporation receives a distribution of

during the current tax year.

only with the consent of the IRS. See

previously taxed E&P. See section

Post-1986 undistributed earnings are

section 986(a).

960(b).

reduced to account for distributions or

The information entered on each

Part III—Summary of Separate

deemed distributions that reduced E&P

line of Schedule B, Part I must

Credits

and inclusions that resulted in previously

pertain to the country code

CAUTION

taxed amounts described in section

Complete Part III only once. Enter on

specified on the corresponding line of

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

lines 1 through 3 the separate foreign tax

Schedule A, column 1.

prior tax years beginning after 1986. See

credits from Part II, line 12, for each

Column 1. Claim the foreign tax credit

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

applicable separate category.

for the tax year in which the taxes were

see section 902(c)(3) and Regulations

Note. Complete Part III only on the Form

paid or accrued, depending on the

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

1118 with the largest amount entered on

method of accounting used. If a credit for

treating earnings accumulated in

Part II, line 12.

taxes accrued is claimed, show both the

post-1986 years as pre-1987

date accrued and the date paid (if paid).

Line 5. If the corporation participates in

accumulated profits when no U.S.

If the cash method of accounting is

or cooperates with an international

shareholder was eligible to claim a

used, an election under section 905(a)

boycott, the foreign tax credit may be

section 902 credit with respect to taxes

may be made to claim the credit based on

reduced. Complete Form 5713,

paid by the foreign corporation.

-6-

Instructions For Form 1118 - Foreign Tax Credit-Corporations Page 6

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