Instructions For Form 1118 - Foreign Tax Credit-Corporations (Page 7 of 13) in pdf

Column 5. Enter the opening balance in

Column 3. Enter the applicable

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

the distributing corporation’s post-1986

and (ii).

two-letter codes from the list at

foreign income taxes pool for the tax year

gov/countrycodes.

Column 5. Enter the foreign taxes paid

indicated. This amount is the foreign

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

and deemed paid (in functional currency)

income taxes paid, accrued, or deemed

calculated in U.S. dollars under

with respect to the pre-1987 accumulated

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

Regulations sections 1.964-1(a) through

profits entered in column 4 for the tax

corporation for prior tax years beginning

(e), translated into functional currency

year indicated in column 2. See the

after 1986, reduced by foreign taxes

under Notice 88-70 for the tax year

instructions for Schedule G on page 8 for

attributable to distributions or deemed

indicated in column 2.

information on reduction of foreign taxes

inclusions of earnings in prior tax years.

Column 5. Enter foreign taxes paid and

for failure to furnish information required

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

under section 6038.

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

Column 6(a). Enter the foreign income

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

Column 6(a). Enter the amount of each

taxes paid or accrued by the foreign

instructions for Schedule G on page 8 for

dividend paid by the first-tier foreign

corporation for the tax year indicated,

information on reduction of foreign taxes

corporation (or DISC or former DISC) to

translated into U.S. dollars using the

for failure to furnish information required

the domestic corporation (in functional

exchange rate specified in section 986(a).

under section 6038.

currency) out of the accumulated profits

Column 6(b). Enter the foreign income

Column 6(b). Enter the amount from

of the pre-1987 tax year indicated in

taxes deemed paid (under section 902(b))

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

column 2.

by the corporation for the tax year

the appropriate exchange rate specified in

indicated (from Schedule D, Part I,

Column 6(b). Enter the amount from

section 989(b).

Section A, column 10, and Section B,

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

column 8(b)).

using the spot exchange rate in effect on

Schedule D

the date of distribution. See Regulations

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

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

foreign corporation’s functional currency)

1.902-3(g)(1).

Part I—Tax Deemed Paid by

of all dividends paid and deemed

inclusions out of post-1986 undistributed

First-Tier Foreign Corporations

Column 8(a). Multiply column 5 by

earnings for the tax year indicated.

column 7. Enter this amount in column

Section A—Dividends Paid Out of

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

8(a) in functional currency.

Post-1986 Undistributed Earnings

amounts, translated into U.S. dollars at

Column 8(b). Enter the amount from

the appropriate exchange rates (as

Column 1. Enter the name of the

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

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

second-tier foreign corporation and the

the spot exchange rate in effect on the

corporation’s functional currency is the

name of the first-tier foreign corporation to

date of distribution. See Regulations

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

which it paid a dividend out of post-1986

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

Part II—Dividends Paid Out of

undistributed earnings.

Part III—Deemed Inclusions

Pre-1987 Accumulated Profits

Example. The U.S. corporation filing

From Pre-1987 Earnings and

the return owns all of the stock of CFC1

Use a separate line for each dividend

Profits

and CFC2. CFC1 and CFC2 each own

paid. If a dividend is paid out of the

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

accumulated profits of more than one

Important. The formula for calculating

pays a dividend to CFC1 and CFC2. Use

pre-1987 tax year, figure and show the

foreign taxes deemed paid under section

one line to report dividends from CFC3 to

tax deemed paid on a separate line for

960 with respect to deemed inclusions

CFC1 and another line to report dividends

each tax year. In applying section 902,

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

from CFC3 to CFC2.

the IRS may determine from which tax

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

year’s accumulated profits the dividends

Column 2. Enter the year and month in

requires that earnings and profits and

were paid. See Regulations section

which the distributing second-tier foreign

foreign taxes be calculated in U.S. dollars

1.902-3(g)(4).

corporation’s tax year ended.

under the rules of Regulations section

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

Important. The formula for calculating

Example. If a first-tier foreign

translated into the foreign corporation’s

foreign taxes deemed paid under section

corporation that uses the calendar year

functional currency at the exchange rate

902 with respect to dividends paid in a

2010 as its tax year receives dividends

in effect on the first day of the foreign

post-1986 year out of pre-1987

out of post-1986 undistributed earnings of

corporation’s first post-1986 tax year. See

accumulated profits requires that all

a second-tier foreign corporation for a tax

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

components (dividends, accumulated

year that ended June 30, 2010, enter

deemed inclusion is then translated into

profits, and taxes) be maintained in the

“1006.”

U.S. dollars at the appropriate exchange

foreign corporation’s functional currency

Column 3. Enter the applicable

rate specified in section 989(b). Foreign

and translated into U.S. dollars at the

two-letter codes from the list at

income taxes paid in pre-1987 tax years

exchange rate in effect on the date of the

gov/countrycodes.

are translated into U.S. dollars for

dividend distribution. See Regulations

Column 4. Enter the second-tier foreign

purposes of section 960 at the exchange

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

corporation’s post-1986 undistributed

rate in effect when the foreign taxes were

Column 1. Enter the name of the

earnings pool (in functional currency) for

paid. See Regulations section 1.964-1(d)

first-tier foreign corporation (or DISC or

the separate category for which the

and Temporary Regulations section

former DISC) that paid a dividend out of

schedule is being completed. See the

1.905-5T(b)(1).

pre-1987 profits to the domestic

instructions for Schedule C, Part I,

corporation filing the return.

Column 1. Enter the name of the first- or

column 4.

Column 2. Enter the year and month in

lower-tier foreign corporation whose

Column 5. Enter the opening balance in

earnings were deemed included in the

which the foreign corporation’s pre-1987

the second-tier foreign corporation’s

income of the domestic corporation filing

tax year ended.

post-1986 foreign income taxes pool for

the return.

Column 3. Enter the applicable

the tax year indicated. See the

two-letter codes from the list at

instructions for Schedule C, Part I,

Column 2. Enter the year and month in

column 5.

gov/countrycodes.

which the corporation’s pre-1987 tax year

Column 4. For each line, enter the

Column 6(a). Enter the foreign income

ended. If the deemed inclusion is from the

pre-1987 accumulated profits for the tax

accumulated E&P of more than one tax

taxes paid or accrued by the second-tier

year indicated in column 2, computed in

year, figure and show the tax deemed

foreign corporation for the tax year

functional currency under section 902.

paid on a separate line for each year.

indicated, translated from foreign

-7-

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

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