Instructions For Form 1118 - Foreign Tax Credit - Corporations

Instructions for Form 1118

Department of the Treasury

Internal Revenue Service

(Rev. December 2011)

Foreign Tax Credit—Corporations

Section references are to the Internal

more information, see Pub. 1167, General

company income (defined in section

Rules and Specifications for Substitute

954(c)) if the corporation were a

Revenue Code unless otherwise noted.

Forms and Schedules.

controlled foreign corporation (CFC)

(defined in section 957). This includes

What’s New for 2011

How To Complete

any gain on the sale or exchange of stock

that is more than the amount treated as a

Form 1118

•

Schedule H, Part I, column (b) has

dividend under section 1248. However, in

been modified to include additional

determining if any income would be

Important. Complete a separate

sub-columns for an additional product

foreign personal holding company

Schedule A; Schedule B, Parts I & II;

line. As a result, other changes have

income, the rules of section 864(d)(6) will

Schedules C through G; Schedule I; and

been made to Schedule H, Part I of the

apply only for income of a CFC.

Schedule K for each applicable separate

•

form. See Schedule H, Part I, and related

category of income. See Categories of

Any amount includible in gross income

instructions for additional information.

Income below. Complete Schedule B,

under section 1293 (which relates to

•

Section 211 of P.L. 111-226 added new

certain passive foreign investment

Part III; Schedule H; and Schedule J only

section 909, which provides rules to

companies).

once.

prevent splitting foreign tax credits from

•

Use Schedule A to compute the

Passive income does not include:

the income to which they relate. See the

corporation’s income or loss before

•

Any financial services income that is

instructions for Schedule G, line E on

adjustments for each applicable category

general category income (see General

page 9 for more information.

of income.

Category Income on page 2),

•

Use Schedule B to determine the total

The IRS has created a page on

•

Any export financing interest unless it is

foreign tax credit after certain limitations.

IRS.gov for information about Form 1118

also related person factoring income (see

•

Use Schedule C to compute taxes

and its related schedules and instructions,

section 904(d)(2)(G) and Temporary

deemed paid by the domestic corporation

at Information

Regulations section 1.904-4T(h)(3)),

filing the return.

about any future developments affecting

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Any high-taxed income (see General

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Use Schedules D and E to compute

Form 1118 (such as legislation enacted

Category Income on page 2 and the

taxes deemed paid by lower-tier foreign

after Form 1118 is released) will be

instructions for Schedule A on page 5), or

corporations.

posted on that page.

•

Any active rents or royalties. See

Use Schedule F to report gross

Temporary Regulations section

General Instructions

income and definitely allocable

1.904-4T(b)(2)(iii) for definitions and

deductions from foreign branches.

exceptions.

•

Use Schedule G to report required

Purpose of Form

reductions of tax paid, accrued, or

Note. Certain income received from a

deemed paid.

CFC and certain dividends from a 10/50

Use Form 1118 to compute a

•

Use Schedule H to apportion

corporation that would otherwise be

corporation’s foreign tax credit for certain

deductions that cannot be definitely

passive income may be assigned to

taxes paid or accrued to foreign countries

allocated to some item or class of income.

another separate category under the

or U.S. possessions. See Taxes Eligible

•

Use Schedule I (a separate schedule)

look-through rules. See Look-Through

for a Credit on page 3.

to compute reductions of taxes paid,

Rules on page 2.

Who Must File

accrued, or deemed paid on foreign oil

and gas extraction income.

Specified passive category income.

Any corporation that elects the benefits of

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Use Schedule J (a separate schedule)

This term includes:

the foreign tax credit under section 901

•

to compute adjustments to separate

Dividends from a DISC or former DISC

must complete and attach Form 1118 to

limitation income or losses in determining

(as defined in section 992(a)) to the

its income tax return.

the numerators of limitation fractions,

extent such dividends are treated as

year-end recharacterization balances,

foreign source income, and

When to Make the Election

•

and overall foreign and domestic loss

Distributions from a former FSC out of

account balances.

earnings and profits attributable to foreign

The election to claim the foreign tax credit

•

Use Schedule K (a separate schedule)

trade income or interest or carrying

(or a deduction in lieu of a credit) for any

to reconcile the corporation’s prior year

charges (as defined in section 927(d)(1),

tax year may be made or changed at any

foreign tax carryover with its current year

before its repeal) derived from a

time before the end of a special 10-year

foreign tax carryover.

transaction which results in foreign trade

period described in section 6511(d)(3) (or

income (as defined in section 932(b),

section 6511(c) if the period is extended

Categories of Income

before its repeal).

by agreement).

Compute a separate foreign tax credit for

Section 901(j) Income

Computer-Generated

each applicable separate category

described below.

No credit is allowed for foreign taxes

Form 1118

imposed by and paid or accrued to certain

Passive Category Income

The corporation may submit a

sanctioned countries. However, income

Passive category income includes

derived from each such country is subject

computer-generated Form 1118 and

passive income and specified passive

schedules if they conform to the IRS

to a separate foreign tax credit limitation.

category income.

version. However, if a software program

Therefore, the corporation must use a

Passive income. Generally, passive

is used, it must be approved by the IRS

separate Form 1118 for income derived

for use in filing substitute forms. This

income is:

from each such country. On each Form

•

ensures the proper placement of each

Any income received or accrued that

1118, check the box for section 901(j)

item appearing on the IRS version. For

would be foreign personal holding

income at the top of page 1 and identify

Jan 03, 2012

Cat. No. 10905I

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

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