U.S. Individual Income Tax Return

2007 Form 1116, Foreign Tax Credit and Instructions
Purpose: This is the first circulated draft of the 2007 Instructions for Form 1116 and a second
circulated draft of the Form 1116 for your review and comments. See below for a discussion of
the major changes made to the form since the first circulation. See the next page for major
changes to the instructions.

TPCC Meeting: None, but may be arranged if requested.
Prior Version: The 2006 Instructions for Form 1116 are available at:
http://www.irs.gov/pub/irs-pdf/i1116.pdf
Form: The first circulation of Form 1116 was posted on April 16, 2007 and is available at:
http://taxforms.web.irs.gov/Products/Drafts/2007-2/07f1116_d1.pdf
Other Products: Circulations of draft tax forms, instructions, notices, and
publications are posted at:
http://taxforms.web.irs.gov/draft_products.html
Comments: Please email, fax, call, or mail any comments to the TLS below and Reviewer,
Mark Richter at [email protected] by August 31, 2007.
Moneta Howland
Tax Forms and Publications
SE: W:CAR:MP:T:I:S
Email:[email protected]
Phone: 202-622-3161
Fax: 202-622-5022
Major Changes to the 2007 Form 1116
Page 1, above Part I
• We changed passive income to passive category income and general limitation income
to general category income to match the wording in the code.
• We moved the general category income box up to b and the lump-sum distribution box
from b to e. The general category income basket is an official basket and should be listed
before the three exceptions.
Page 2
• Line 19, caution- we changed separate category b to e due to the ordering of the boxes
on page 1.
• We switched the order of credits- lump-sum distributions is switched from 23 to 25 and
general category income is switched from 25 to 23 due to the ordering of the boxes on
page 1.

Description of Major Changes for the
2007 Instructions for Form 1116
Page 1
• We updated What’s New
1. To highlight the elimination of certain foreign source income categories per P.L.
108-357, sec 404.
2. To add a discussion regarding the carryforward of unused foreign taxes from the
eliminated categories per P.L. 108-357, sec. 404
3. To highlight the recharacterization of overall domestic loss per P.L. 108-357, sec.
402.
• Middle column, 1st bulleted item-we deleted ”(b) income that would be passive
except that it is also described in another category.” IRC 904(d)(2)(B)(iii) and IRC
904(k)(3)(A)(i) as amended by P.L. 108-357, sec. 404.
Pages 3-4
• We revised the discussion under Categories of Income to reflect the elimination of
certain foreign source income categories and the renaming of passive income to
passive category income and general limitation category to general category
income. Per P.L. 108-357, sec. 404.
• We revised the discussion of passive category income to include passive income
and specified passive category income per P.L. 108-357, sec. 404.
• We reordered the discussion of the baskets to conform to the reordering of the
baskets on Form 1116: The general category income basket is an official basket
and should be listed before the three exceptions-Section 901(j) income, Certain
income re-sourced by treaty and Lump-sum distributions.
Pages 6-7
• Under Foreign Qualified Dividends and Capital Gains (Losses) we added
references through out the discussion to reflect that if taxpayers qualify for the
adjustment exception, they can make an election not to make the adjustment and
if they do, they must elect not to adjust any of their foreign source qualified
dividends or capital gains. Reg sec 1.904(b)-1(b)(3).
• Under Adjustment Exception, we updated the dollar amounts for 1040 filers,
1040NR filers and Schedule D filers to reflect the inflation adjustments per Rev
Proc 2006-53.
Page 13
• Column 2, in the Example, we changed the last sentence to tell taxpayers who
complete 2 or more Forms 1116 to complete Part IV on the Form 1116 with the
largest amount entered on line 21. This change was recommended by the LMSB
Globalization Strategy & Policy office.
• Column 3, under Lines 2 Through 5-Deduction and Losses, 4th bullet, we deleted
references to the additional exemption for housing Hurricane Katrina displaced
individuals. The exemption applied only to tax years 2005 and 2006 per

P.L. 109-73, sec. 302.
• Column 3, under Itemized deduction limit, we revised the amount of the itemized
deduction limit per Rev. Proc 2006-53. We also revised the reference to the line
on the itemized deduction worksheet (line 11) that has the overall reduction. We
made the same change in the example that follows.
Page 14
• Column 1, under Line 3a, we added General Sales tax to the bulleted list. The
deductibility of this tax was extended per P.L, 109-432, sec 103.
• Column 2, under Line 4a, we added “qualified mortgage insurance premiums” to
the discussion regarding deductible home mortgage interest per P.L. 109-432, sec.
419.
Page 15
Column 1, 1st full paragraph- we added a discussion regarding the special rule for
carrying forward foreign tax credits that were in one of the eliminated baskets.
CC:INTL is working on rules for carrybacks to 2006, which we plan to cover in these
instructions. IRC 904(d)(2)(K)
Pages 16-17
Page 16, Column 3 under Line 17, we deleted references to the additional exemption
for housing Hurricane Katrina displaced individuals. The exemption applied only to
tax years 2005 and 2006 per P.L. 109-73, sec. 302.
We also deleted the references in the Worksheet for Line 17 on page 17.
Pages 17-18
• Under Adjustment exception, we added references through out the discussion to
reflect that if taxpayers qualify for the adjustment exception, they can make an
election not to make the adjustment, and if they do, they must elect not to adjust
any of their qualified dividends or capital gains. Reg sec. 1.904(b)-1(b)(3)
• Under Adjustment exception, we updated the dollar amounts for 1040 filers,
1040NR filers and Schedule D filers to reflect the inflation adjustments per Rev
Proc 2006-53.
• Page 18, 3rd column, 1st full paragraph- we changed the last sentence to tell
taxpayers who complete 2 or more Forms 1116 to complete Part IV on the Form
1116 with the largest amount entered on line 21. This change was recommended
by the LMSB Globalization Strategy & Policy office.

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Instructions for Form 1116

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Draft as of 07/27/2007

2007

Department of the Treasury
Internal Revenue Service

Instructions for Form 1116
Foreign Tax Credit
(Individual, Estate, or Trust)
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
What’s New for 2007
Income categories eliminated. The
following categories of income have
been eliminated for purposes of
computing the foreign tax credit limit.
Income that previously fell in these
categories is either passive category
income or general category income.
• High withholding tax interest.
• Financial services income.
• Shipping income.
• Dividends from a domestic
international sales corporation (DISC)
or former DISC.
• Certain distributions from a foreign
sales corporation (FSC) or former FSC.
High withholding tax interest and
shipping income are passive category
income or general category income,
depending on the circumstances.
Financial services income is general
category income if you are
predominantly engaged in the active
conduct of a banking, insurance,
financing or similar business. Dividends
from a DISC or former DISC and
certain distributions from a FSC or
former FSC are passive category
income.
Carryforward of unused foreign
taxes. A special rule applies when you
carry forward unused foreign taxes that
were in the eliminated income
categories to a tax year beginning after
2006. See the instructions for line 10.

Recharacterization of overall
domestic loss. If you have an overall
domestic loss for any tax year
beginning after 2006, you must
recharacterize a portion of your U.S.
source taxable income in succeeding
years as foreign source taxable income
for purposes of the foreign tax credit.
In a tax year you choose to claim the
foreign tax credit, the overall domestic
loss is the domestic loss for that tax
year to the extent it offsets foreign
source taxable income for that tax year
or for any preceding tax year (in which
you chose to claim the foreign tax
credit) because of a carryback. If you
do not choose to claim the foreign tax
credit for a tax year, the overall
domestic loss is the domestic loss for
that tax year to the extent it offsets
foreign source taxable income for any
preceding tax year (in which you chose
to claim the foreign tax credit) because
of a carryback.

Election To Claim the
Foreign Tax Credit
Without Filing Form 1116
You may be able to claim the foreign
tax credit without filing Form 1116. By
making this election, the foreign tax
credit limitation (lines 14 through 20 of
the form) will not apply to you. This
election is available only if you meet all
of the following conditions.
• All of your foreign source gross
income was “passive category income”
(which includes most interest and
dividends) (see page 3). However, for
this purpose, passive income also
includes (a) income subject to the
special rule for high-taxed income

Tax Help
For more information about, or assistance with figuring, the foreign tax credit, the following
IRS resources are available.
IRS Contacts

•
•
•

Publications

•

Call 1-800-829-1040 (in U.S. and Puerto Rico).
Call 215-516-2000 (overseas) (not toll free).
Contact IRS offices at U.S. embassies in London, Paris, or
the U.S. consulate in Frankfurt.
• Write to Internal Revenue Service, International Section,
P.O. Box 920, Bensalem, PA 19020-8518.

•
•
•
•

Pub. 54, Tax Guide for U.S. Citizens and Resident Aliens
Abroad.
Pub. 514, Foreign Tax Credit for Individuals.
Pub. 519, U.S. Tax Guide for Aliens.
Pub. 570, Tax Guide for Individuals With Income From U.S.
Possessions.
Pub. 575, Pension and Annuity Income.

Cat. No. 11441F

described on page 3, and (b) certain
export financing interest.
• All the income and any foreign taxes
paid on it were reported to you on a
qualified payee statement. Qualified
payee statements include Form
1099-DIV, Form 1099-INT, Schedule
K-1 (Form 1041), Schedule K-1 (Form
1065), Schedule K-1 (Form 1065-B),
Schedule K-1 (Form 1120S), or similar
substitute statements.
• Your total creditable foreign taxes are
not more than $300 ($600 if married
filing a joint return).
This election is not available to
estates or trusts.
If you make this election:
• You cannot carry over to any other
year any foreign taxes paid or accrued
in a tax year to which the election
applies (but carryovers to and from
other years are unaffected). See the
instructions for line 10 on beginning on
page 14.
• You are still required to take into
account the general rules for
determining whether a tax is creditable.
See Foreign Taxes Eligible for a Credit
and Foreign Taxes Not Eligible for a
Credit on page 2.
• You are still required to reduce the
taxes available for credit by any amount
you would have entered on line 12 of
Form 1116. See the instructions for
Line 12 on page 15.
To make the election, just enter on
the foreign tax credit line of your tax
return (for example, Form 1040, line 51)
the smaller of (a) your total foreign tax
or (b) your regular tax (for example,
Form 1040, line 44).

Purpose of Form
Who should file. File Form 1116 to
claim the foreign tax credit if the
election above does not apply and:
• You are an individual, estate, or trust,
and
• You paid or accrued certain foreign
taxes to a foreign country or U.S.
possession.
See Foreign Taxes Eligible for a
Credit on page 2 to determine if the
taxes you paid or accrued qualify for
the credit.
Do not use Form 1116 to figure a
credit for taxes paid to the U.S. Virgin
Islands. Instead, use Form 8689,
Allocation of Individual Income Tax to
the U.S. Virgin Islands.
Nonresident aliens. If you are a
nonresident alien, you generally cannot
take the credit. However, you may be
able to take the credit if:

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Instructions for Form 1116

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• You were a resident of Puerto Rico

during your entire tax year, or
• You pay or accrue tax to a foreign
country or U.S. possession on income
from foreign sources that is effectively
connected with a trade or business in
the United States. But if you must pay
tax to a foreign country or U.S.
possession on income from U.S.
sources only because you are a citizen
or a resident of that country or U.S.
possession, do not use that tax in
figuring the amount of your credit.
See section 906 for more information
on the foreign tax credit allowed to a
nonresident alien individual.

Credit or Deduction
Instead of claiming a credit for eligible
foreign taxes, you can choose to
deduct foreign income taxes. Form
1040 filers choosing to do so would
deduct foreign income taxes on
Schedule A (Form 1040), Itemized
Deductions. Generally, if you take the
credit for any eligible foreign taxes, you
cannot take any part of that year’s
foreign taxes as a deduction. However,
even if you take the credit for eligible
foreign taxes for the year, you can take
a deduction for:
• Foreign taxes not allowed as a credit
because of boycott provisions.
• Taxes paid to certain foreign
countries for which a credit has been
denied, as described in item (2) under
Foreign Taxes Not Eligible for a Credit
on this page.
• Taxes on income or gain that are not
creditable because you do not meet the
holding period requirement, as
described in item (3) or (5) under
Foreign Taxes Not Eligible for a Credit
on this page.
• Taxes on income or gain that are not
creditable because you have to make
related payments, as described in item
(4) or (6) under Foreign Taxes Not
Eligible for a Credit on this page.
• Certain taxes paid or accrued to a
foreign country in connection with the
purchase or sale of oil or gas extracted
in that country, as described in item (8)
under Foreign Taxes Not Eligible for a
Credit on this page.
If you want to change your election
to take a deduction instead of a credit,
or a credit instead of a deduction, you
must do so within a special 10-year
limitation period. See Pub. 514 for more
information.

Foreign Taxes Eligible
for a Credit
You can take a credit for income, war
profits, and excess profits taxes paid or
accrued during your tax year to any
foreign country or U.S. possession, or
any political subdivision (for example,
city, state, or province), agency, or
instrumentality of the country or
possession. This includes taxes paid or
accrued in lieu of a foreign or
possession income, war profits, or
excess profits tax that is otherwise
generally imposed. For purposes of the
credit, U.S. possessions include Puerto
Rico, Guam, the Commonwealth of the
Northern Mariana Islands, and
American Samoa.

U.S. citizens living in certain treaty
countries may be able to take an
additional foreign tax credit for foreign
tax imposed on certain items of income
from the United States. See Tax
Treaties in Pub. 514 for details. If this
applies to you, use the worksheet near
the back of Pub. 514 to help you figure
this additional credit.

Foreign Taxes Not
Eligible for a Credit
You cannot take a credit for the
following foreign taxes.
1. Taxes paid to a foreign country
that you do not legally owe, including
amounts eligible for refund by the
foreign country. If you do not exercise
your available remedies to reduce the
amount of foreign tax to what you
legally owe, a credit for the excess
amount is not allowed.
Example. Country X withholds $25
of tax from a payment made to you.
Under the income tax treaty between
the United States and Country X, you
owe only $15 and can claim a refund
from Country X for the other $10. Only
$15 is eligible for the foreign tax credit
(whether or not you apply for a refund).
2. Taxes imposed by and paid to
certain foreign countries. These
countries are those designated by the
Secretary of State as countries that
repeatedly provide support for acts of
international terrorism, countries with
which the United States does not have
diplomatic relations, or countries whose
governments are not recognized by the
United States. Pub. 514 contains a list
of these countries.
3. Foreign taxes withheld on a
dividend from a corporation, if you have
not held the stock for at least 16 days
within the 31-day period that begins 15
days before the ex-dividend date. This
required holding period is greater for
preferred-stock dividends attributable to
periods totaling more than 366 days.
See section 901(k)(3) or Pub. 514.
4. Foreign taxes withheld on a
dividend to the extent that you have to
make related payments on positions in
similar or related property.
Example. You receive a dividend
subject to foreign withholding tax. You
are obligated to pay someone else an
amount equal to all these dividends you
receive. You cannot claim a foreign tax
credit for the withholding tax on these
dividends.
5. Foreign taxes withheld on income
or gain (other than dividends) from
property if you have not held the
property for at least 16 days within the
31-day period that begins 15 days
before the date on which the right to
receive the payment arises. See
section 901(l) or Pub. 514.
6. Foreign taxes withheld on income
or gain (other than dividends) from
property to the extent you have to make
related payments on positions in similar
or related property.
7. Payments of foreign tax that are
returned to you in the form of a subsidy.
8. Taxes paid or accrued to a
foreign country in connection with the

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purchase or sale of oil or gas extracted
in that country if you do not have an
economic interest in the oil or gas, and
the purchase price or sales price is
different from the fair market value of
the oil or gas at the time of the
purchase or sale.
9. Foreign taxes paid or accrued on
income for which you are claiming an
exclusion on Form 8873, Extraterritorial
Income Exclusion. However, see
section 943(d) for an exception for
certain withholding taxes.
You cannot take a credit for any
interest or penalties you must pay.

Foreign Currency
Conversion
Report all amounts in U.S. dollars
except where specified otherwise in
Part II. If you have to convert from
foreign currency, attach a detailed
explanation of how you figured the
conversion rate.
If you take a credit for taxes paid, the
conversion rate is the rate of exchange
in effect on the day you paid the foreign
taxes (or on the day the tax was
withheld). If you receive a refund of
foreign taxes paid, the conversion rate
is the rate in effect when you paid the
taxes, not when you receive the refund.
If you choose to account for foreign
income taxes on an accrual basis, you
must generally use the average
exchange rate for the tax year to which
the taxes relate. However, you cannot
do so if either of the following apply.
• The foreign taxes are actually paid
more than 2 years after the close of the
tax year to which they relate.
• The foreign taxes are actually paid in
a tax year prior to the year to which
they relate.
Accrued foreign taxes not eligible for
conversion at the yearly average
exchange rate must be converted using
the exchange rate on the date of
payment of the tax.
Election to use exchange rate on
date paid. If you have accrued foreign
taxes that you are otherwise required to
convert using the average exchange
rate, you may elect to use the
exchange rate in effect on the date the
foreign taxes are paid if the taxes are
denominated in a foreign currency.
Once made, the election applies to the
tax year for which made and all
subsequent tax years unless revoked
with the consent of the IRS. The
election is available for tax years
beginning after 2004. It must be made
by the due date (including extensions)
for filing the tax return for the first tax
year to which the election applies.
Make the election by attaching a
statement to the applicable tax return.
Special rules for a qualified business
unit. If you have a qualified business
unit, see Pub. 514 for special rules for
converting foreign income and taxes
into U.S. dollars. You may have a
qualified business unit if you own and
operate a business or are
self-employed in a foreign country.

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Instructions for Form 1116

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Draft as of 07/27/2007
Foreign Tax Credit
Redeterminations
If you claim a credit for foreign taxes
paid, and you receive a refund of all or
part of those taxes in a later year, you
must file an amended return reducing
the taxes credited by the amount
refunded.
If you claim the foreign tax credit
based on foreign taxes accrued instead
of foreign taxes paid, your credit must
be redetermined in any of the following
situations.
1. Your accrued taxes when paid
differ from the amount you claimed as a
credit.
2. You do not pay the accrued taxes
within 2 years after the close of the tax
year to which they relate.
3. After you pay the accrued taxes,
you receive a full or partial refund of
them.
For item (2) above, foreign taxes
paid more than 2 years after the close
of the tax year to which they relate can
be taken into account in figuring the
foreign tax credit for the year to which
they relate. However, the taxes must be
converted into dollars at the exchange
rate in effect at the time they are paid.
If any of the above situations occurs
after you file your return, you must file
Form 1040X, Amended U.S. Individual
Income Tax Return, or other amended
return, to notify the IRS so that your
U.S. tax for the year or years affected
can be redetermined. Complete and
attach to Form 1040X (or other
amended return) a revised Form 1116
for the tax year(s) affected. See
Temporary Regulations section
1.905-4T(b) for more information.
If you do not notify the IRS of a
foreign tax refund or change in
CAUTION the dollar amount of foreign
taxes paid or accrued, you may have to
pay a penalty.
See Pub. 514 for more information.
Tax years beginning before 1998.
For the rules relating to redetermining
U.S. taxes for years beginning before
1998, see Pub. 514.

!

Income From Sources
Outside the
United States
This income generally includes, but is
not limited to, the following.
• Compensation for services
performed outside the United States.
• Interest income from a payer located
outside the United States.
• Dividends from a corporation
incorporated outside the United States.
• Gain on the sale of nondepreciable
personal property you sold while
maintaining a tax home outside the
United States, if you paid a tax of at
least 10% of the gain to a foreign
country.
Special rules apply in determining
the source of income from the sale of
inventory; sale of depreciable property
used in a trade or business; sale of
intangible property such as a patent,
copyright, or trademark; ocean

activities; and transportation services
that begin or end in the United States
or a U.S. possession. See Pub. 514 for
more information.
Compensation for labor or personal
services as an employee. If you are
an employee and receive compensation
for labor or personal services
performed both inside and outside the
United States, special rules apply in
determining the source of the
compensation. Compensation (other
than fringe benefits) is sourced on a
time basis. Fringe benefits (such as
housing and education) are sourced on
a geographical basis. Or you may be
able to use an alternative basis to
determine the source. If you use an
alternative basis, you may have to
check the box on line 1b (discussed on
page 13). See Pub. 514 for more
information.

Categories of Income
Use a separate Form 1116 to figure the
credit for each category of foreign
source income listed above Part I of
Form 1116. The following instructions
tell you what kind of income to include
in each category. For more information,
see Pub. 514, Code section 904, and
Regulations sections 1.904-4 and
1.904-5.

a. Passive Category Income
Passive category income consists of
passive income and specified passive
category income.
Passive category income does not
include gain from the sale of inventory
or property held primarily for sale to
customers in the ordinary course of
your trade or business; gain from
commodities hedging transactions; and
active business gains or losses of
producers, processors, merchants, or
handlers of commodities.
Passive income. Passive income
generally includes dividends, interest,
royalties, rents, annuities, gain from the
sale of property that produces such
income or of non-income-producing
investment property, and gains from
foreign currency or commodities
transactions. Capital gains not related
to the active conduct of a trade or
business are also generally passive
income.
Passive income does not include
export financing interest, active
business rents and royalties, or
high-taxed income (see High-taxed
income on this page.)
Specified passive category income.
Dividends from a DISC (domestic
international sales corporation ) or
former DISC to the extent they are
treated as foreign source income,
taxable income attributable to certain
foreign trade income, and certain
distributions from a FSC (foreign sales
corporation) or former FSC are
specified passive category income .
Look-through rules. Certain income
received or accrued by you as a
10%-or-more U.S. shareholder in a
controlled foreign corporation (CFC) is
treated as passive category income.
For example, Subpart F inclusions,
dividends interest, rents, and royalties

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from a CFC are treated as passive
category income to the extent they are
attributable to passive category income
of the CFC. See Regulations section
1.904-5 for more information.

b. General Category Income
General category income is income that
is not passive category income or
income described in categories c., d.,
and e., discussed later. General
category income may include:
• Wages, salary, and overseas
allowances of an individual as an
employee.
• Income earned in the active conduct
of a trade or business.
• Gains from the sale of inventory or
depreciable property used in a trade or
business.
Financial services income. In
general, financial services income is
treated as general category income if it
is derived by a financial services entity
in the active conduct of a banking,
insurance, financing, or similar
business. You are a financial services
entity if you are predominantly engaged
in the active conduct of a banking,
insurance, financing, or similar
business for any taxable year.
If you qualify as a financial services
entity because you treat certain items
of income as active financing income
under Regulations section
1.904-4(e)(2)(i)(Y), you must show the
type and amount of each item on an
attachment to Form 1116.
High-taxed income In some cases,
passive income and taxes must be
treated as general category income and
taxes. Generally, passive income and
taxes must be treated as general
category income if the foreign taxes
you paid on the income (after allocation
of expenses) exceed the highest U.S.
tax that can be imposed on the income.
However, no part of the passive income
that is financial services income is
treated as high-taxed income. See
Regulations section 1.904-4(c) for more
information.

c. Section 901(j) Income
No credit is allowed for foreign taxes
imposed by and paid or accrued to
certain sanctioned countries. However,
income derived from each such country
is subject to a separate foreign tax
credit limitation. Therefore, you must
use a separate Form 1116 for income
derived from each such country.
These countries are those
designated by the Secretary of State as
countries that repeatedly provide
support for acts of international
terrorism, countries with which the
United States does not have diplomatic
relations, or countries whose
governments are not recognized by the
United States. Pub. 514 contains a list
of these countries.
If you paid taxes to a country that
ceased to be a sanctioned country
during the tax year, see Pub. 514 for
details on how to figure the foreign tax
credit for the period that begins after
the end of the sanctions.
Presidential waiver. The President of
the United States has the authority to

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Instructions for Form 1116

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waive the denial of the credit with
respect to a sanctioned country if (a) it
is in the national interest of the United
States and will expand trade and
investment opportunities for U.S.
companies in such sanctioned country,
and (b) the President reports to the
Congress, not less than 30 days before
the waiver is granted, the intention to
grant such a waiver and the reason for
such waiver.
Since no credit is allowed for
TIP taxes paid to sanctioned
countries, you would generally
complete Form 1116 for this category
only through line 16.

d. Certain Income
Re-sourced by Treaty
If a sourcing rule in an applicable
income tax treaty treats any of the
specific types of income described
below as foreign source, and you elect
to apply the treaty, the income will be
treated as foreign source.
• Certain gains (section 865(h)), or
• Certain income from a U.S.-owned
foreign corporation (section 904(h)(10)).
See Regulations section 1.904-5(m)(7)
for an example.
Important. You must compute a
separate foreign tax credit limitation for
any such income for which you claim
benefits under a treaty, using a
separate Form 1116 for each amount of
re-sourced income from a treaty
country. Add the amounts from line 21
of each separate Form 1116 and enter
the total on line 28 of your summary
Form 1116 (that is, the Form 1116 for
which you are completing Part IV).

performed in the United States by a
U.S. citizen resident in a foreign
country) are not subject to a separate
foreign tax credit limitation. However,
the specific treaty may provide for other
restrictions on the amount of income
that is re-sourced or the amount of
credit that is allowed with respect to
foreign tax paid on re-sourced income.
See, for example, article 24, paragraph
1, of the treaty between France and the
United States.

e. Lump-Sum Distributions
You can take a foreign tax credit for
taxes you paid or accrued on a foreign
source lump-sum distribution from a
pension plan. Special formulas may be
used to figure a separate tax on a
qualified lump-sum distribution for the
year in which the distribution is
received. See Pub. 575 for more
information.
If you are able to elect, and do elect,
to figure your U.S. tax on a lump-sum
distribution using Form 4972, Tax on
Lump-Sum Distributions, a separate
foreign tax credit limitation applies. Use
a separate Form 1116. On this
separate Form 1116, check box e
above Part I. Skip Part I. Complete Part
II showing only foreign taxes that are
attributable to the lump-sum
distribution. Then, complete the
Worksheet for Lump-Sum Distributions,
on page 4, to figure the amounts to
enter in Part III.

Other types of income that are

TIP re-sourced under the terms of

an income tax treaty (for
example, compensation for services

Keep for Your
Records

Worksheet for Lump-Sum Distributions

1. Enter the amount from Form 1116, line 8 . . . . . . . . . . . . . . . . . 1.
2. Enter the sum of the amounts from Form 4972, lines 6 and 12,
that are from foreign sources. Also enter this amount
on Form 1116, line 16 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Enter the sum of the amounts from Form 4972, lines 6 and 12,
that are from all sources (both U.S. and foreign). Also enter
this amount on Form 1116, line 17 . . . . . . . . . . . . . . . . . . . . . . 3.
4. Divide line 2 by line 3. Enter the result as a decimal (rounded
to at least four places) here and on Form 1116, line 18. If
line 2 is equal to or more than line 3, enter “1” . . . . . . . . . . . . . 4.
5. Enter the amount from Form 4972, line 30. Also include
this amount on Form 1116, line 19 . . . . . . . . . . . . . . . . . . . . . . 5.
Caution: Do not include the amount on line 5 above in the
tax you enter on line 19 of any other Form 1116 you
are filing.
6. Multiply line 5 by line 4. Enter the result here and on
Form 1116, line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Enter the smaller of line 1 or line 6 here and on Form 1116,
line 21. To the left of line 21, write “LSD” . . . . . . . . . . . . . . . . . 7.

-4-

Special Rules
Reporting Foreign Tax
Information From
Partnerships and S
Corporations
If you received a 2007 Schedule K-1
from a partnership or S corporation that
includes foreign tax information, use the
rules below to report that information on
Form 1116.

General Information for
Partners and S Corporation
Shareholders
Less-than-10% limited partners and
certain less-than-10% S corporation
shareholders. If you are a limited
partner or an S corporation shareholder
who does not actively participate in the
management of the S corporation and
you own a less-than-10% interest (by
value) in the partnership or S
corporation, you generally may assign
exclusively to the passive category your
distributive share of foreign source
income and deductions from that
partnership or S corporation. See
Regulations section 1.904-5(h)(2) for
more details and exceptions.
This rule takes precedence over
the income category rules
CAUTION outlined in the instructions that
follow for line 16, codes C and D – F, (or
line 14, codes C and D – F) of the
Schedule K-1, and the apportionment
of deductions rules outlined in the
instructions on page 5 for line 16,
codes H and I – K, (or line 14 codes H
and I – K) of the Schedule K-1.
Reporting amounts on Form 1116.
Include amounts reported to you on
Schedule K-1 with any other amounts
reportable on Form 1116 using:
• A separate Form 1116 for each
category of income.
• A separate column in Part I and a
separate line in Part II for each country
or possession.

!

Explanation of Certain Line
Items on Schedule K-1
In each instance that follows,

TIP the first line reference is to the

Schedule K-1 for Form 1065
and the second line reference is to the
Schedule K-1 for Form 1120S. (The
Schedule K-1 for Form 1065-B includes
all foreign tax information in box 9 or in
an attachment for box 9.)
Line 16, code B, or line 14, code B —
Gross income from all sources.
Combine your distributive share of
“gross income from all sources” with all
of your other gross income and enter
the total on line 3e. “Gross income from
all sources” is a constant amount (that
is, you will enter the same amount on
line 3e of all Forms 1116 that you file).
Line 16, code C, or line 14, code C —
Gross income sourced at partner or
shareholder level. This line includes
income from the sale of eligible
personal property (most personal
property other than inventory,
depreciable property, and certain
intangible property). See Pub. 514 for
details.

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Instructions for Form 1116

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Draft as of 07/27/2007
Although all income reported to
you on this line of the Schedule
CAUTION K-1 has been apportioned to
separate categories of income, you
must nevertheless first determine
(using the rules below) whether the
income on this line is U.S. source
income or foreign source income. Then,
enter only foreign source income in Part
I of each of the applicable Forms 1116
(that is, those Forms 1116 for each
category of income you received from
the partnership or S corporation).
Use the following rules to source the
income reported to you on this line of
the Schedule K-1. If you are a U.S.
resident (as defined below), the income
is U.S. source income. If you are a
nonresident (as defined below), the
income is foreign source income.
U.S. resident. A U.S. resident is a
U.S. citizen or resident alien who does
not have a tax home in a foreign
country or a nonresident alien who has
a tax home in the United States.
Tax home. Generally, your tax
home is the general area of your main
place of business, employment, or post
of duty, regardless of where you
maintain your family home. Your tax
home is the place where you are
permanently or indefinitely engaged to
work as an employee or self-employed
individual. If you do not have a regular
or main place of business because of
the nature of your work, then your tax
home is the place where you regularly
live. If you do not fit either of these
categories, you are considered an
itinerant and your tax home is wherever
you work.
Nonresident. A nonresident is any
person who is not a U.S. resident. U.S.
citizens and resident aliens with a
foreign tax home will not be treated as
nonresidents for a sale of eligible
personal property unless a foreign tax
of 10% or more was paid or accrued on
the gain on the sale (or, in the case of a
loss sale, a foreign tax of 10% or more
would have been paid had the sale
resulted in a gain).
Note. To help you with these rules, the
partnership or S corporation has
specifically identified the following.
• Gains on the sale of eligible personal
property for which a foreign tax of 10%
or more was paid or accrued.
• Losses on the sale of eligible
personal property for which a foreign
tax of 10% or more would have been
paid had the sale resulted in a gain.
Include foreign source income in
Part I of the applicable Form 1116 (that
is, the Form 1116 for each category of
income provided to you for this line of
the Schedule K-1). Do not include in
Part I of Form 1116 income that you
determined (using the above rules) to
be U.S. source income.
If the partnership or S
corporation has specifically
CAUTION identified any capital gains or
losses or unrecaptured section 1250
gain on this line (Schedule K-1, line 16,
code C, or line 14, code C) and you
have determined that those gains or
losses are foreign source, see Foreign
Qualified Dividends and Capital Gains
(Losses) on this page before entering

!

!

an amount in Part I of
Form 1116.
Line 16, codes D, E, and F, or line 14,
codes D, E, and F — Foreign gross
income sourced at partnership or S
corporation level. Income reported
on this line has already been sourced
for you by the partnership or S
corporation. The partnership or S
corporation has reported this income to
you by country and by category of
income. Include these amounts in Part I
of each of the applicable Forms 1116
(that is, those Forms 1116 for each
category of income you received).
You should disregard any
TIP information shown on your
Schedule K-1 pertaining to
gross income attributable to a foreign
branch. It is intended only for corporate
partners preparing Form 1118.
Line 16, code G, or line 14, code G —
Interest expense. See the
instructions for line 4b on page 14 to
allocate and apportion the interest
expense shown on this line of Schedule
K-1. In applying those instructions, take
into account your distributive share of
the partnership’s or S corporation’s
gross income (for purposes of the
$5,000 threshold) or your pro rata
share of the partnership’s or S
corporation’s assets. However, if you
were a limited partner or an S
corporation shareholder who did not
actively participate in the management
of the S corporation and your interest in
the partnership or S corporation was
less than 10%, see the next paragraph.
Include interest expense that you
allocate to foreign source income on
line 4b of the applicable Form 1116. Do
not enter in Part I of Form 1116 any
interest expense that you allocate to
U.S. source income.
Less-than-10% limited partners
and certain less-than-10% S
corporation shareholders. If you are
a limited partner or an S corporation
shareholder (who does not actively
participate in the management of the S
corporation) and you own (directly or
indirectly) a less-than-10% interest (by
income) in the partnership or S
corporation, you may generally allocate
your distributive share of interest
expense from that partnership or S
corporation to foreign or U.S. source
income based on your distributive share
of the gross foreign or U.S. source
income of that partnership or S
corporation. The interest expense you
allocate to foreign source income
generally may be apportioned
exclusively to the passive category.
However, see Temporary Regulations
section 1.861-9T(e)(4) for exceptions.
Line 16, code H, or line 14, code H —
Other expenses. This line includes
expenses (other than interest expense)
of the partnership or S corporation that
must be allocated and apportioned at
the partner or shareholder level (for
example, research and experimental
expenses).
Combine your distributive share of
these expenses with all of your other
like expenses, if any, and then allocate
and apportion them using the
applicable rules (for example, for

-5-

research and experimental expenses,
the rules under Regulations section
1.861-17(f)).
Include expenses that you allocate
to foreign source income on line 2 of
the applicable Form 1116. Expenses
that you allocate to U.S. source income
should not be entered on any line of
Part I of Form 1116.
Line 16, codes I, J, and K, or line 14,
codes I, J, and K — Deductions
allocated and apportioned at
partnership or S corporation level to
foreign source income. The
partnership or S corporation has
already allocated these expenses to
foreign source income and has reported
them to you by country and by category
of income. Include these amounts on
line 2 of each of the applicable Forms
1116 (that is, those Forms 1116 for
each category of income you received).
You should disregard any
TIP information shown on your
Schedule K-1 pertaining to
definitely allocable deductions
attributable to a foreign branch. It is
intended only for corporate partners
preparing Form 1118.
Line 16, codes L and M, or line 14,
codes L and M — Total foreign taxes.
The partnership or S corporation has
already allocated and apportioned total
foreign taxes for you and has reported
them to you by country and by category
of income. Include these amounts in
Part II of each of the applicable Forms
1116 (that is, those Forms 1116 for
each category of income you received).
Line 16, code N, or line 14, code N —
Reduction in taxes available for
credit. The partnership or S
corporation has already apportioned the
reduction in taxes available for credit
and has reported it to you by country
and by category of income. Include
these amounts on line 12 of each of the
applicable Forms 1116 (that is, those
Forms 1116 for each category of
income you received).

Foreign Qualified
Dividends and Capital
Gains (Losses)
If you have foreign source qualified
dividends or foreign source capital
gains (including any foreign source
capital gain distributions) or losses, you
may be required to make certain
adjustments to those amounts before
taking them into account on line 1a
(qualified dividends and gains) or line 5
(losses).
If you completed the Qualified
Dividends and Capital Gain Tax
Worksheet in the instructions for your
tax return, and are not required to file
Schedule D, see Qualified Dividends
and Capital Gain Tax Worksheet
(Individuals), next, to determine the
adjustments you may be required to
make. If you completed the Qualified
Dividends Tax Worksheet in the
Instructions for Form 1041, see
Qualified Dividends Tax Worksheet
(Estates and Trusts), later, to determine
the adjustments you may be required to
make. If you are required to file

Page 6 of 18

Instructions for Form 1116

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Draft as of 07/27/2007
Schedule D, see Schedule D Filers, on
page 6, to determine the adjustments
you may be required to make.
You can elect not to make the
adjustments to your qualified dividends
and capital gains if you qualify for the
adjustment exception. See Adjustment
exception under Qualified Dividends
and Capital Gain Tax Worksheet
(Individuals), Qualified Dividends Tax
Worksheet (Estates and Trusts), and
Schedule D Filers.

Qualified Dividends and
Capital Gain Tax Worksheet
(Individuals)
If you completed the Qualified
Dividends and Capital Gain Tax
Worksheet in your tax return
instructions and you do not have to file
Schedule D, you may have to adjust
the amount of your foreign source
qualified dividends and capital gain
distributions.
Form 1040 filers. You must adjust the
amount of your foreign source qualified
dividends and capital gain distributions
if both of the following apply:
• Line 7 of the Qualified Dividends and
Capital Gain Tax Worksheet is greater
than zero.
• Line 17 of the Qualified Dividends
and Capital Gain Tax Worksheet is less
than line 18 of that worksheet.
Form 1040NR filers. You must adjust
the amount of your foreign source
qualified dividends and capital gain
distributions if both of the following
apply:
• Line 5 of the Qualified Dividends and
Capital Gain Tax Worksheet is greater
than zero.
• Line 15 of the Qualified Dividends
and Capital Gain Tax Worksheet is less
than line 16 of that worksheet.
Adjustment exception. If you qualify
for the adjustment exception, you can
elect not to adjust your foreign source
capital gains or qualified dividends. You
make this election by not adjusting
these items. If you make this election,
you must elect not to adjust any of your
foreign source qualified dividends or
capital gain distributions.
Adjustment exception for Form
1040 filers. You qualify for the
adjustment exception if you meet both
of the following requirements.
1. Line 7 of the Qualified Dividends
and Capital Gain Tax Worksheet does
not exceed:
a. $195,850 if married filing jointly or
qualifying widow(er),
b. $97,925 if married filing
separately,
c. $160,850 if single, or
d. $178,350 if head of household.
2. The amount of your foreign
source capital gain distributions, plus
the amount of your foreign source
qualified dividends, is less than
$20,000. For this purpose, ignore any
capital gain distributions or qualified
dividends you elected to include on
Form 4952, line 4g.
Adjustment exception for Form
1040NR filers. If you file Form
1040NR, you qualify for the adjustment

exception if you meet both of the
following requirements.
1. Line 5 of the Qualified Dividends
and Capital Gain Tax Worksheet does
not exceed:
a. $195,850 if you checked filing
status box 6,
b. $97,925 if you checked filing
status box 3, 4, or 5, or
c. $160,850 if you checked filing
status box 1 or 2.
2. The amount of your foreign
source capital gain distributions, plus
the amount of your foreign source
qualified dividends, is less than
$20,000.
How to make adjustments. To adjust
your foreign source qualified dividends
or capital gain distributions, multiply
your foreign source qualified dividends
or capital gain distributions in each
separate category by 0.4286. Include
the results on line 1a of the applicable
Form 1116.
Do not adjust the amount of any
foreign source qualified
CAUTION dividends or capital gain
distributions that you elected to include
on Form 4952, line 4g.
No adjustments required. If you are
not required to adjust the amount of
your foreign source qualified dividends
or capital gain distributions, or you
qualify for the adjustment exception and
elect not to adjust these items, include
the amount of your foreign source
qualified dividends and capital gain
distributions in each separate category
(without adjustment) on line 1a of the
applicable Form 1116.

!

Qualified Dividends Tax
Worksheet (Estates and
Trusts)
If you completed the Qualified
Dividends Tax Worksheet in the
Instructions for Form 1041, you must
adjust the amount of your foreign
source qualified dividends if:
• Line 5 of the Qualified Dividends Tax
Worksheet is greater than zero, and
• Line 15 of the Qualified Dividends
Tax Worksheet is less than line 16 of
that worksheet.
Adjustment exception. If you qualify
for the adjustment exception, you can
elect not to adjust your foreign source
qualified dividends. You make this
election by not adjusting these
dividends. If you make this election,
you must elect not to adjust any of your
foreign source qualified dividends. You
qualify for the adjustment exception if:
1. Line 5 of the Qualified Dividends
Tax Worksheet does not exceed
$7,650, and
2. The amount of foreign source
qualified dividends reported on Form
1041, line 2b(2), is less than $20,000.
For this purpose, ignore any qualified
dividends you elected to include on
Form 4952, line 4g.
How to make adjustment. To adjust
your foreign source qualified dividends,
multiply your foreign source qualified
dividends in each separate category by
0.4286. Include the results on line 1a of
the applicable Form 1116.

-6-

Do not adjust the amount of any
foreign source qualified
CAUTION dividends that you elected to
include on Form 4952, line 4g.
No adjustment required. If you are
not required to make adjustments to
your foreign source qualified dividends
(or you qualify for the adjustment
exception and you elected not to adjust
these dividends), include your foreign
source qualified dividends on line 1a of
the applicable Form 1116 without
adjustment.

!

Schedule D Filers
Note. Throughout these instructions,
references to Schedule D (Form 1041)
are for estates and trusts only.
Adjustments to foreign qualified
dividends. If you are required to file
Schedule D (Form 1040, or Form
1041), you must adjust the amount of
your foreign source qualified dividends
that you include on line 1a of Form
1116 if one of the following applies to
you.
1. You figured your tax using the
Qualified Dividends and Capital Gain
Tax Worksheet in the Form 1040
instructions, line 7 of that worksheet is
greater than zero, and line 17 of that
worksheet is less than line 18.
2. You figured your tax using the
Qualified Dividends and Capital Gain
Tax Worksheet in the Form 1040NR
instructions, line 5 of that worksheet is
greater than zero, and line 15 of that
worksheet is less than line 16.
3. You figured your tax using
Schedule D (Form 1041), line 23 of
Schedule D is greater than zero, and
line 33 of Schedule D is less than line
34.
4. You figured your tax using the
Schedule D Tax Worksheet (in the
Schedule D (Form 1040) instructions or
in the Form 1041 instructions), line 17
of the Schedule D Tax Worksheet is
greater than zero, and line 35 of the
Schedule D Tax Worksheet is less than
line 36.
Adjustment exception. If you qualify
for the adjustment exception, you can
elect not to adjust foreign source
qualified dividends. You make this
election by not adjusting these
dividends. If you make this election,
you must elect not to adjust any of your
foreign source qualified dividends. You
qualify for the adjustment exception if
the amount of your foreign source net
capital gain, plus the amount of your
foreign source qualified dividends, is
less than $20,000 and one of the
following applies to you.
1. Line 7 of the Qualified Dividends
and Capital Gain Tax Worksheet in the
Form 1040 instructions or line 17 of the
Schedule D Tax Worksheet in the
Schedule D (Form 1040) instructions is
less than or equal to:
a. $195,850 if married filing jointly or
qualifying widow(er),
b. $97,925 if married filing
separately,
c. $160,850 if single, or
d. $178,350 if head of household.
2. Line 5 of the Qualified Dividends
and Capital Gain Tax Worksheet in the
Form 1040NR instructions or line 17 of

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Instructions for Form 1116

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Draft as of 07/27/2007
the Schedule D Worksheet in the
Schedule D (Form 1040) instructions is
less than or equal to:
a. $195,850 if you checked filing
status box 6,
b. $97,925 if you checked filing
status box 3, 4, or 5, or
c. $160,850 if you checked filing
status box 1 or 2.
3. Line 23 of Schedule D (Form
1041) or line 17 of the Schedule D Tax
Worksheet in the Form 1041
instructions is less than or equal to
$7,650.
Note. Your foreign source net
capital gain is the excess of your net
long-term capital gain from foreign
sources over your net short-term capital
loss from foreign sources. Ignore any
long-term capital gains you elected to
include on Form 4952, line 4g, in
determining your foreign source net
capital gain. Ignore any qualified
dividends you elected to include on
Form 4952, line 4g, in determining the
amount of your foreign source qualified
dividends.
How to make adjustment. To
adjust your foreign source qualified
dividends, multiply your foreign source
qualified dividends in each separate
category by 0.4286. Include the results
on line 1a of the applicable Form 1116.
Do not adjust the amount of any
foreign source qualified
CAUTION dividends that you elected to
include on Form 4952, line 4g.
No adjustment required. If you
are not required to adjust your foreign
source qualified dividends (or you
qualify for the adjustment exception and
elect not to adjust these dividends),
include on line 1a of Form 1116 the full
amount of foreign source qualified
dividends without adjustment.
Adjustments to foreign capital gains
and losses. You must use Worksheet
A, Worksheet B, or the instructions for

!

Capital Gains and Losses in Pub. 514
to determine the adjustments you must
make to your foreign capital gains or
losses. Read the instructions below to
see if you qualify to use Worksheet A or
Worksheet B. If you do not qualify to
use Worksheet A or Worksheet B, use
the instructions for Capital Gains and
Losses in Pub. 514 to determine the
adjustments you must make.
Before you complete Worksheet
A or Worksheet B, you must
CAUTION reduce each foreign source
long-term capital gain by the amount of
that gain you elected to include on
Form 4952, line 4g. The gain you
elected to include on Form 4952, line
4g, must be entered directly on line 1a
of the applicable Form 1116 without
adjustment.
Worksheet A. You can use
Worksheet A on page 8 to determine
the adjustments you must make to your
foreign source capital gains or losses if
you have foreign source capital gains
or losses in no more than two separate
categories and any of the following
apply.
• You qualify for the adjustment
exception discussed earlier under
Adjustments to foreign qualified
dividends under Schedule D Filers.
• Line 15 or 16 of Schedule D (Form
1040) (line 14a or 15 of Schedule D
(Form 1041)) is zero or a loss.
• You figured your tax using the
Qualified Dividends and Capital Gain
Tax Worksheet in the Form 1040
instructions and (a) line 3 of that
worksheet minus the amount on Form
4952, line 4e, that you elected to
include on Form 4952, line 4g, is zero
or less, (b) line 7 of that worksheet is
zero, or (c) line 17 of that worksheet is
equal to or greater than line 18.
• You figured your tax using the
Qualified Dividends and Capital Gain
Tax Worksheet in the Form 1040NR
instructions and (a) line 3 of that

!

-7-

worksheet is zero, (b) line 5 of that
worksheet is zero, or (c) line 15 of that
worksheet is equal to or greater than
line 16.
• You figured your tax using Schedule
D (Form 1041) and (a) line 23 of
Schedule D is zero, (b) line 18 of
Schedule D minus the amount on Form
4952, line 4e, that you elected to
include on Form 4952, line 4g, is zero
or less, or (c) line 33 is equal to or
greater than line 34.
• You figured your tax using the
Schedule D Tax Worksheet (in the
Schedule D (Form 1040) instructions or
in the Form 1041 instructions) and (a)
line 17 is zero, (b) line 9 is zero or less,
or (c) line 35 is equal to or greater than
line 36.
Complete Worksheet A only once,
even if you have capital gains or losses
in two separate categories. Keep the
completed Worksheet A for your
records. Do not file Worksheet A with
your tax return.
Capital losses are deductible only up
to $3,000 of ordinary income.
Worksheet B. If you do not qualify
to use Worksheet A, use Worksheet B
on page 9 to determine the adjustments
you must make to your foreign source
capital gains or losses if:
• You have foreign source capital
gains or losses in no more than two
separate categories, and
• You did not complete the
Unrecaptured Section 1250 Gain
Worksheet or the 28% Rate Gain
Worksheet in the Schedule D
instructions.
Complete Worksheet B only once,
even if you have capital gains or losses
in two separate categories. Keep the
completed Worksheet B for your
records. Do not file Worksheet B with
your tax return.

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Instructions for Form 1116

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Draft as of 07/27/2007
Worksheet A

Keep for Your
Records

(See instructions below)
Category #1

Category #2

Specify 䊳
1. Separate category capital gain or (loss) . . . . . . . . . . . . . . . 1.
2. Foreign source capital gain net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Capital gain net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Total U.S. capital loss adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Adjusted separate category capital gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. U.S. capital loss adjustment factor. (For each separate
category, divide line 1 by line 2 and round off the result
to at least four decimal places.) . . . . . . . . . . . . . . . . . . . . . 6.
7. U.S. capital loss adjustment. (For each separate category,
multiply line 4 by line 6.) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Adjusted separate category capital gain. (For each
separate category, subtract line 7 from line 1. Enter
the result here and include the result on line 1a of the
applicable Form 1116.) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
Instructions for Worksheet A
Line 1. For each separate category for which you have foreign source capital gains or losses, combine your foreign source
capital gains and losses in that separate category and enter the result on line 1. Show a loss on line 1 of this worksheet as a
negative amount and include the loss on line 5 of the Form 1116 you are filing for that separate category.
Line 2. Combine the amounts entered on line 1. If the result is zero or less, do not complete the rest of the worksheet.
Instead, for each separate category with a positive amount on line 1 of this worksheet, include that positive amount on line 1a
of the Form 1116 you are filing for that separate category.
Line 3. Enter the amount from line 16 of Schedule D (Form 1040), less the portion of net capital gain you included on Form
4952, line 4g. If the result is zero or less, enter -0-.
Estates and trusts: Enter the amount from line 15 of Schedule D (Form 1041), less any amount shown on line 21 of that
Schedule D. If the result is zero or less, enter -0-.
Line 4. Subtract line 3 from line 2 and enter the result on line 4. If the result is zero or less, do not complete the rest of the
worksheet. Instead, for each separate category with a positive amount on line 1 of this worksheet, include that positive
amount on line 1a of the Form 1116 you are filing for that separate category.
Line 5.
• If both separate categories have a positive amount on line 1, skip line 5 and go to line 6.
• If only one separate category has a positive amount on line 1, subtract line 4 from that positive amount. Enter the result
here and include the result on line 1a of the Form 1116 you are filing for that separate category. Skip lines 6 – 8 of this
worksheet.

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Page 9 of 18

Instructions for Form 1116

17:47 - 27-JUL-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Draft as of 07/27/2007
Worksheet B

Keep for Your
Records

(See instructions below)
Category #1
Specify 䊳____________
(1)
Short-Term

(2)
Long-Term
(15%)

Category #2
Specify 䊳__________
(3)
Short-Term

(4)
Long-Term
(15%)

(5)
Other

1. Separate category rate
group capital gain or (loss)
2. U.S. capital loss adjustment
amount
3. Subtotal (subtract line 2
from line 1 gain amounts)
4. Net U.S. long-term capital
loss
5. U.S. long-term capital loss
adjustment
6. Excess net U.S. long-term
capital loss
7. Long-term capital gain (or
adjustment amount)
8. Limitation percentage
9. Long-term limitation
amounts
10. Adjustment amounts
11. Rate differential adjustments
12. Long-term gains
13. Rate differential adjustment
14. Long-term gain
15. Adjusted separate category
capital gains and losses

Instructions for Worksheet B
Line 1. For each separate category:
• Combine your foreign source short-term capital gains and losses and enter the result in column (1) or (3).
• Combine your foreign source long-term capital gains and losses and enter the result in column (2) or (4).
Line 2. Complete the Line 2 Worksheet on page 11 for each column on line 1 with a gain.
Line 4. Enter your net long-term capital loss (if any) from U.S. sources. To determine this amount, subtract your
long-term capital losses from U.S. sources from your long-term capital gains from U.S. sources. Enter the loss (if any)
as a positive amount in column (5). If you do not have a loss, leave line 4 blank and skip lines 5 through 14.
Line 5. Combine the amounts (if any) from columns (2) and (4) on line 2. Enter the result in column (5). If you do not
have any amount entered in either column, enter -0- in column (5).
Line 6. Subtract line 5 from line 4. Enter the result in column (5). If the result is zero or less, leave line 6 blank and skip
lines 7 through 14 of this worksheet.
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Page 10 of 18

Instructions for Form 1116

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Draft as of 07/27/2007
Line 7.
• If you entered an amount in either column (2) or (4) (but not both) of line 3, subtract line 6 from the amount entered in
either column (2) or (4) of line 3. Enter the result in column (2) or (4) on line 7 and skip lines 8 through 12.
• If you entered amounts in both columns (2) and (4) on line 3, combine those amounts and enter the result in column
(5) on line 7.
Line 8. Divide each amount on line 3 by line 7 and enter the results on line 8. Round off each result to at least four
decimal places.
Line 9. Multiply each decimal amount on line 8 by line 6 and enter the results in the appropriate columns on line 9.
Line 10. Subtract line 9, column (2) from line 3, column (2) and enter the result on line 10, column (2). Subtract line 9,
column (4) from line 3, column (4) and enter the result on line 10, column (4).
Line 11. Multiply each amount on line 10 by 0.4286 and enter the results here.
Line 12. Combine line 11, column (2) with line 9, column (2) and enter the result on line 12, column (2) . Combine line
11, column (4) with line 9, column (4) and enter the result on line 12, column (4). Include the amounts on line 1a of the
applicable Form 1116. Skip lines 13 and 14.
Line 13. Multiply the amount on line 7 by 0.4286 and enter the result here in the applicable column.
Line 14. Combine line 6 and line 13 and enter the result here. Include the result on line 1a of the applicable Form 1116.
Line 15.
If you have a:
• Short-term gain shown in column (1) or (3) of line 3, enter the amount of that short-term gain on line 15, column (1)
or (3).
• Long-term gain shown in column (2) or (4) of line 3, and line 6 is blank, multiply the amount of each gain by 0.4286
and enter the result on line 15, column (2) or (4).
• Short-term loss in any column of line 1, complete the Line 15 Worksheet on page 12 for each column with a loss.
• Long-term loss in column (2) or (4) of line 1, multiply the amount of the loss by 0.4286 and enter the result on line 15
in the appropriate column.
After you have completed line 15:
• Include line 15 gain amounts on line 1a of the applicable Form 1116.
• Include line 15 loss amounts on line 5 of the applicable Form 1116.

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Page 11 of 18

Instructions for Form 1116

17:47 - 27-JUL-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Draft as of 07/27/2007
Line 2 Worksheet (For Line 2 of Worksheet B)
(See instructions below)

Keep for Your
Records

Category #1

Category #2

Specify 䊳
1. Separate category rate group
gain (or loss) . . . . . . . . . . . . . . . . . 1.
Short-Term
2. Separate category gain (or loss)

Long-Term

Short-Term

Long-Term

2.

3. Foreign source capital gain net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Capital gain net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
5. Total U.S. capital loss adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Separate category adjustment . . . . . 6.
7. Rate Group Factor . . . . . . . . . . . . . 7.
8. Rate Group Adjustment . . . . . . . . . 8.
Instructions for Line 2 Worksheet
Line 1. Enter your gains and losses from line 1 of Worksheet B. Enter a loss as a negative amount (in parentheses).
Line 2. For each separate category, combine the amounts from line 1. Enter a loss as a negative amount (in parentheses).
Line 3. Combine the amounts from line 2 of this worksheet. If the result is zero or less, stop here. Do not enter any amount on line 2 of
Worksheet B.
Line 4. Enter the amount from line 16 of the Schedule D (Form 1040), less the portion of net capital gain you included on Form 4952, line
4g. If the amount entered on line 4 is zero or less, stop here. Do not continue with this worksheet or Worksheet B. Instead, complete
Worksheet A.
Estates and trusts: Enter the amount from line 15 of the Schedule D (Form 1041), less any amount shown on line 21 of that Schedule D.
If the amount entered on line 4 is zero or less, stop here. Do not continue with this worksheet or Worksheet B. Instead, complete
Worksheet A.
Line 5. Subtract line 4 from line 3 and enter the result on line 5. If the result is zero or less, stop here. Do not enter any amount on line 2 of
Worksheet B.
Line 6.

• If only one separate category has a positive amount on line 2, enter the amount from line 5 on line 6 (in the column for the separate

category with the positive amount on line 2).
• If both separate categories have positive amounts on line 2, divide each amount on line 2 by line 3. Multiply each result by line 5. Enter
the results on line 6 in the appropriate columns.
Line 7.
For each separate category:
• If you entered an amount on line 6 and you entered positive amounts in both the short-term and long-term columns on line 1, divide each
positive amount on line 1 by line 2 and enter the results in the appropriate columns.
• Leave line 7 blank if you did not enter an amount on line 6 or only one column on line 1 has a positive amount.
Line 8.
For each separate category:
• If you entered amounts on line 7, multiply each amount on line 7 by line 6. Enter the results in the appropriate columns on line 8 of this
worksheet and on line 2 of Worksheet B.
• If line 7 is blank, enter the amount from line 6 in the same column on line 8 as the column that has a gain on line 1. Also, enter the amount
on line 2 of Worksheet B in the appropriate column. If line 6 is blank, do not enter any amount on line 8 of this worksheet or line 2 of
Worksheet B.

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Page 12 of 18

Instructions for Form 1116

17:47 - 27-JUL-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Draft as of 07/27/2007
Line 15 Worksheet

(For Line 15 of Worksheet B)

Keep for Your
Records

1. Enter your net short-term capital gain (if any) from U.S. sources. To determine this amount, subtract your
short-term capital losses from U.S. sources from your short-term capital gains from U.S. sources. If the
result is zero or a loss, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. If you entered a short-term gain on line 3 of Worksheet B, enter that amount here . . . . . . . . . . . . . . . . . . 2.
3. Add lines 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Did you enter a short-term capital loss on line 1 of Worksheet B for one (but not both) of the separate
categories?
䡺

Yes.

Complete lines 5 – 10 and skip the rest of this worksheet.

䡺

No.

Skip lines 5 – 10 and go to line 11.

5. Enter the short-term capital loss from line 1 of Worksheet B (enter the loss as a positive amount) . . . . 5.
6. Enter the gain, if any, determined on line 3. If line 3 is not a gain, enter -0-. . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Subtract line 6 from line 5. If zero or a loss, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Multiply line 7 by 0.4286 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Enter the smaller of line 5 or line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Add lines 8 and 9. Enter the result here and on line 15 of Worksheet B . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Is the amount on line 1 zero?
䡺

Yes.

Multiply each short-term loss by 0.4286. Enter the results on line 15 of
Worksheet B. Skip the rest of this worksheet.

䡺

No.

Go to line 12.

12. Enter your short-term loss from Worksheet B, line 1, column (1) (enter the loss as a positive amount) . . 12.
13. Enter your short-term loss from Worksheet B, line 1, column (3) (enter the loss as a positive amount) . . 13.
14. Add lines 12 and 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Enter the gain determined in line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
16. Subtract line 15 from line 14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
Is the result zero or less?
䡺

Yes.

Skip the rest of this worksheet. Enter each short-term loss from line 1 on line 15
of Worksheet B, in the applicable column, without adjustment (that is, each
short-term loss you enter on line 15 of Worksheet B will be the same as the
short-term loss you entered on line 1 of Worksheet B).

䡺

No.

Complete lines 17 – 22.

17. Multiply line 16 by 0.4286 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Add lines 15 and 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
19. Divide line 12 by line 14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.
20. Multiply line 19 by line 18. Enter the result here and on Worksheet B, line 15, column (1) . . . . . . . . . . . . . 20.
21. Divide line 13 by line 14. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.
22. Multiply line 21 by line 18. Enter the result here and on Worksheet B, line 15, column (3) . . . . . . . . . . . . . 22.

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Page 13 of 18

Instructions for Form 1116

17:47 - 27-JUL-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Draft as of 07/27/2007
Specific Instructions
Part I—Taxable Income
or Loss From Sources
Outside the United
States
Part I must be completed by all
filers unless specifically
CAUTION indicated otherwise in these
instructions.

!

Line l—Foreign Country or
U.S. Possession
Generally, if you received income from,
or paid taxes to, more than one foreign
country or U.S. possession, report
information on a country-by-country
basis on Form 1116, Parts I and II. Use
a separate column in Part I and a
separate line in Part II for each country
or possession. If you paid taxes to
more than three countries or
possessions, attach additional sheets
following the format of Parts I and II.

Lines 1a and 1b—Foreign
Gross Income
Include income in the category checked
above Part I that is taxable by the
United States and is from sources
within the country entered on line l. You
must include income even if it is not
taxable by that foreign country. Identify
the type of income on the dotted line
next to line 1a. Do not include any
earned income excluded on Form 2555,
Foreign Earned Income, or Form
2555-EZ, Foreign Earned Income
Exclusion.

Example. If you received dividends
(passive category income) and wages
(general category income) from foreign
sources, you must complete two Forms
1116. On one Form 1116, check box a
(passive category income), enter the
dividends on line 1a, and write
“Dividends” on the dotted line. On the
other Form 1116, check box b (general
category income), enter on line 1a
wages not excluded on Form 2555 or
Form 2555-EZ, and write “Wages” on
the dotted line. Complete Parts I, II, and
III of each Form 1116. Then, complete
Part IV on the Form 1116 with the
largest amount entered on line 21.
If you are filing a Form 1116
that includes foreign source
CAUTION qualified dividends or foreign
source capital gains or losses, see
Foreign Qualified Dividends and Capital
Gains (Losses) starting on page 5.

!

Line 1b
You must check the box on line 1b if all
of the following apply.
• The income on line 1a is
compensation for services you
performed as an employee.
• Your total employee compensation
from both U.S. and foreign sources was
$250,000 or more.
• You used an alternative basis
(discussed in Pub. 514) to determine
the source of the compensation entered
on line 1a.
In addition, attach to Form 1116 a
statement that contains the following
information.
• The specific compensation income or
the specific fringe benefit for which the
alternative basis is used.
• For each such item, the alternative
basis of allocation of source used.

Worksheet for Home Mortgage Interest
—Line 4a

Keep for Your
Records

Note: Before you complete this worksheet, read the instructions for line 4a on
page 14.
1. Enter gross foreign source income* of the type shown on
Form 1116. Do not enter income excluded on Form 2555
or Form 2555-EZ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.

2. Enter gross income from all sources. Do not enter income
excluded on Form 2555 or Form 2555-EZ . . . . . . . . . . . . .

2.

3. Divide line 1 by line 2 and enter the result as a decimal
(rounded to at least four places) . . . . . . . . . . . . . . . . . . . .

3.

4. Enter deductible home mortgage interest (from lines 10
through 13 of Schedule A (Form 1040))** . . . . . . . . . . . . .

4.

5. Multiply line 4 by line 3. Enter the result here and on the
appropriate Form 1116, line 4a . . . . . . . . . . . . . . . . . . . . .

5.

*If you have to report income from more than one country on Form 1116, complete
a separate worksheet for each country. Use only the income from that country on
line 1 of the worksheet.
**If you were required to reduce the amount of your itemized deductions on
Schedule A, enter the reduced amount of home mortgage interest on line 4 of the
worksheet.

-13-

• For each such item, a computation
showing how the alternative allocation
was computed.
• A comparison of the dollar amount of
the compensation sourced within and
without the U.S. under both the
alternative basis and the time or
geographical basis for determining the
source.
You must keep documentation
showing why the alternative basis more
properly determines the source of the
compensation.

Lines 2 Through 5—
Deductions and Losses
You must reduce your foreign gross
income on line 1a by entering on lines 2
through 5:
• Any of your deductions that definitely
relate to that foreign income, and
• A ratable share of your other
deductions that do not definitely relate
to that foreign income, any other
foreign income, or U.S. source income.
Do not include:
• Deductions and losses related to
exempt or excluded income, such as
foreign earned income you have
excluded on Form 2555 or
Form 2555-EZ.
• The deduction for personal
exemptions.
Special rules apply to the allocation
of research and experimental
expenditures. See Regulations section
1.861-17.
If the law of a U.S. state to which
you pay income taxes does not
specifically exempt foreign source
income from tax, you may be required
to make a special allocation of state
taxes you paid. See Pub. 514 for more
information.
Itemized deduction limit. If you must
reduce the total amount of your
itemized deductions on line 29 of
Schedule A (Form 1040) because your
adjusted gross income was more than
$156,400 ($78,200 if married filing
separately), you must reduce each of
the itemized deductions that are subject
to the reduction by the reduction
percentage before you complete lines
2, 3a, and 4a.
Use the Itemized Deductions
Worksheet in the Instructions for
Schedule A (Form 1040) to figure the
reduction percentage. Divide the
amount on line 11 of the worksheet (the
overall reduction) by the amount on line
3 of the worksheet (total itemized
deductions subject to the reduction).
This is your reduction percentage.
Apply this percentage (expressed as a
decimal rounded to at least four places)
to each itemized deduction subject to
the reduction to determine the amount
to enter on the appropriate line of
Form 1116.
Note. You do not need to make this
computation if the entire amount of your
itemized deductions is entered on any
one of the following lines: line 2, line
3a, or line 4a. Just enter your reduced
itemized deductions on that line.
Example. You are single and have
an adjusted gross income of $216,400.
Your itemized deductions subject to the

Page 14 of 18

Instructions for Form 1116

17:47 - 27-JUL-2007

The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.

Draft as of 07/27/2007
overall reduction (line 3 of the
worksheet) total $20,000. $8,000 of
these deductions are definitely related
to the income on Form 1116, line 1a.
The other $12,000 ($20,000 – $8,000)
are real estate taxes, which are not
definitely related.
The amount of the overall reduction
on line 11 of the worksheet is $1,200.
To figure the amount of the real estate
taxes to include in the total for line 3a of
Form 1116, divide the amount on line
11 ($1,200) by the amount on line 3
($20,000). This is your reduction
percentage (6%). You must reduce
your $12,000 deduction by $720 (6% x
$12,000). The reduced deduction of
$11,280 ($12,000 – $720) is the
amount to enter on line 3a of Form
1116. Make a similar computation to
figure the amount of definitely related
itemized deductions ($7,280) to enter
on line 2.

Line 2
Before you complete line 2, read
Itemized deduction limit on page
CAUTION 13.
Enter your deductions that definitely
relate to the gross income from foreign
sources shown on line 1a. For example,
if you are an employee reporting
foreign earned income on line 1a,
include on line 2 expenses such as
those incurred to move to a new
principal place of work outside the
United States or supplies you bought
for your job outside the United States.
Do not include any interest expense
on line 2. See lines 4a and 4b for
special rules for interest expense.

!

Lines 3a and 3b
Some deductions do not definitely
relate to either your foreign source
income or your U.S. source income.
Enter on lines 3a and 3b any
deductions (other than interest
expense) that:
• Are not shown on line 2, and
• Are not definitely related to your U.S.
source income.
Line 3a. Before you complete line 3a,
read Itemized deduction limit starting on
page 13.
Enter the following itemized
deductions (from Schedule A (Form
1040)) on line 3a.
• Medical expenses (line 4)
• General sales tax (line 5)
• Real estate taxes (line 6)
If you do not itemize deductions,
enter your standard deduction on
line 3a.
Line 3b. Enter on line 3b any other
deductions that do not definitely relate
to any specific type of income (for
example, the deduction for alimony paid
from Form 1040, line 31a).

Lines 3d and 3e
For lines 3d and 3e, gross income
means income without regard to
deductions and losses.
Line 3d. Enter your gross foreign
source income from the category you
checked above Part I of this
Form 1116. Include any foreign earned
income you have excluded on Form

2555 or Form 2555-EZ but do not
include any other exempt income.
If you had income from more than
one country, you must enter income
from only one country in each column.
If you had to adjust your foreign
qualified dividends or capital gains (see
page 5), include those amounts without
regard to any adjustments.
Line 3e. Enter on line 3e in each
column your gross income from all
sources and all categories, both U.S.
and foreign. Include any foreign earned
income you have excluded on Form
2555 or Form 2555-EZ but do not
include any other exempt income.
If you are a nonresident alien,
include on both lines 3d and 3e your
income that is not effectively connected
with a trade or business in the United
States.
If you had to adjust your foreign
qualified dividends or capital gains (see
page 5), include those amounts without
regard to any adjustments.

Line 3f
Divide line 3d by line 3e and round off
the result to at least four decimal places
(for example, if your result is
0.8756782, round off to 0.8757, not to
0.876 or 0.88). Enter the result, but do
not enter more than “1.”

Line 4a
If your gross foreign source income
(including income excluded on Form
2555 or Form 2555-EZ) does not
exceed $5,000, you can allocate all of
your interest expense to U.S. source
income. Otherwise, deductible home
mortgage interest (including points and
qualified mortgage insurance
premiums) is apportioned using a gross
income method. Use the worksheet on
page 13 to figure the amount to enter
on line 4a. Before you complete the
worksheet, read Itemized deduction
limit on page 13.

Line 4b
Other interest expense includes
investment interest, interest incurred in
a trade or business, and passive
activity interest. If you are a U.S.
citizen, resident alien, or a domestic
estate, and your gross foreign source
income (including any income excluded
on Form 2555 or Form 2555-EZ) does
not exceed $5,000, you can allocate all
of your interest expense to U.S. source
income. Otherwise, each type of
interest expense is apportioned
separately using an “asset method.”
See Pub. 514 for more information.
Example. You have investment
interest expense of $2,000. Your assets
of $100,000 consist of stock generating
U.S. source income (adjusted basis,
$40,000) and stock generating foreign
source income (adjusted basis,
$60,000). You apportion 40% ($40,000/
$100,000) of $2,000, or $800 of your
investment interest, to U.S. source
income and 60% ($60,000/$100,000) of
$2,000, or $1,200, to foreign source
income. In this example, you will enter
the $1,200 apportioned to foreign
source income on line 4b. You would
not enter the $800 apportioned to U.S.

-14-

source income on any line of Part I of
Form 1116.

Line 5
If you have capital losses from foreign
sources, see Foreign Qualified
Dividends and Capital Gains (Losses)
starting on page 5 for information on
adjustments you may be required to
make.

Part II—Foreign Taxes
Paid or Accrued
See page 2 for descriptions of
foreign taxes that are eligible for
CAUTION the foreign tax credit and foreign
taxes that are not eligible for the foreign
tax credit.
You can take a foreign tax credit in
the tax year you paid or accrued the
foreign taxes, depending on your
method of accounting. If you report on
the cash basis, you can choose to take
the credit for accrued taxes by checking
the “accrued” box in Part II. But once
you choose to do this, you must credit
foreign taxes in the year they accrue on
all future returns.
Generally, you must enter in Part II
the amount of foreign taxes, in both the
foreign currency denomination(s) and
as converted into U.S. dollars, that
relate to the category of income
checked above Part I. Taxes are
related to the income if the income is
included in the foreign tax base on
which the tax is imposed. If the foreign
tax you paid or accrued relates to more
than one category of income, apportion
the tax among the categories. The
apportionment is based on the ratio of
net foreign taxable income in each
category to the total net income subject
to the foreign tax. See Pub. 514 for an
example.
However, if foreign tax paid on
passive income is reported to you in
U.S. dollars on a Form 1099-DIV,
1099-INT, or similar statement, you do
not have to convert the amount shown
into foreign currency. This rule applies
whether or not you can make the
election to claim the foreign tax credit
without filing Form 1116 (as explained
on page 1). Enter “1099 taxes” in Part
II, column (j), and complete columns (o)
through (s) for each foreign country
indicated in Part I.
Note. If you are taking a credit for
additional taxes paid or accrued as the
result of an audit by a foreign taxing
authority or you are filing an amended
return reflecting a foreign tax refund,
attach a statement to Form 1116
identifying these taxes.

!

Part III—Figuring the
Credit
Line 10
You can carry back 1 year and then
forward 10 years any foreign tax you
paid or accrued to any foreign country
or U.S. possession (reduced as
described on page 15) on income in a
separate category that is more than the

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limitation. First, apply the excess to the
earliest year to which it may be carried.
Then, apply it to the next earliest year,
and so on. The carryback-carryforward
period cannot be extended even if you
are unable to take a credit in one of the
intervening years.
A special rule applies when you
carry forward taxes that were in the
eliminated income categories to a tax
year beginning after 2006. Under this
rule, the taxes carried forward are
treated as paid or accrued on income in
the separate category in which the
income would have fallen if the taxes
were paid or accrued in a tax year
beginning after 2006. Thus, assign
these taxes to either passive category
income or general category income as
appropriate.
You cannot carry a credit back to a
tax year for which you claimed a
deduction, rather than a credit, for
foreign taxes paid or accrued. However,
you must reduce the amount of any
carryback or carryforward by the
amount that you would have used had
you chosen to claim a credit rather than
a deduction in that year.
If, for any year, you elected to claim
the foreign tax credit without filing Form
1116 (as explained on page 1), the
following rules apply.
• You cannot carry over unused
foreign taxes paid or accrued in a year
to which the election does not apply to
any year for which you made the
election.
• The carryback-carryforward period is
not extended if you are unable to use a
carryback or carryforward because you
made the election.
• Do not reduce the carryback or
carryforward by the amount you would
have used in the election year if you
had not made the election.
File Form 1040X or other amended
return and a revised Form 1116 for the
earlier tax year to which you are
carrying back excess foreign taxes.
Special rules apply to the carryback
and carryforward of foreign taxes paid
or accrued on foreign oil and gas
extraction income. See section 907(f).
See Pub. 514 for more information
on carryback and carryforward
provisions, including examples.

Line 12
You may have to reduce the foreign
taxes you paid or accrued by the
following items.
• Taxes on income excluded on
Form 2555 or Form 2555-EZ. Reduce
taxes paid or accrued by the taxes
allocable to any foreign earned income
excluded on Form 2555 or Form
2555-EZ. If only part of your foreign
earned income is excluded, you must
determine the amount of tax allocable
to excluded income. To do so, multiply
the foreign taxes paid or accrued on
foreign earned income received or
accrued during the tax year by the
following fraction.
Numerator: Foreign earned income
and housing amounts you excluded for
the tax year minus otherwise deductible
expenses (not including the foreign

housing deduction) allocable to that
income.
Denominator: Your total foreign
earned income received or accrued
during the tax year minus deductible
expenses (including the foreign housing
deduction) allocable to that income.
However, if the foreign jurisdiction
charges tax on foreign earned income
and some other income (for example,
earned income from U.S. sources or a
type of income not subject to U.S. tax)
and the taxes on the other income
cannot be segregated, the denominator
is the total amount of income subject to
foreign tax minus deductible expenses
allocable to that income.
See Pub. 514 for a comprehensive
example.
• Taxes on income from Puerto Rico
exempt from U.S. tax. The reduction
applies if you have income from Puerto
Rican sources that is not taxable on
your U.S. tax return. To figure the
credit, reduce your foreign taxes paid or
accrued by the taxes allocable to the
exempt income. See Pub. 570 for more
information.
• Taxes on income from American
Samoa excluded from U.S. tax. If you
are a bona fide resident of American
Samoa, reduce taxes paid or accrued
by any taxes attributable to excluded
income from sources in American
Samoa. For more information, see Pub.
570.
• Taxes on foreign-oil-related
income. Reduce taxes paid or accrued
by foreign taxes paid or accrued on
foreign-oil-related income, but only to
the extent the tax imposed by the
foreign country on the oil-related
income is considered to be materially
greater than the tax generally imposed
by that country on other kinds of
income. See Regulations section
1.907(b)-1. The amount of tax not
allowed as a credit under this rule is
allowed as a business expense
deduction.
• Taxes on foreign oil and gas
extraction income. Reduce taxes paid
or accrued by taxes imposed on foreign
oil and gas extraction income. The
amount of the reduction is the amount
by which your foreign oil and gas
extraction taxes exceed the amount of
your foreign oil and gas extraction
income for the year multiplied by a
fraction equal to your pre-credit U.S. tax
liability (for example, Form 1040, line
44) divided by your worldwide income.
You may be entitled to carry over to
other years taxes reduced under this
rule. See section 907(f).
• Taxes on foreign mineral income.
Reduce taxes paid or accrued on
mineral income from a foreign country
or U.S. possession if you took a
deduction for percentage depletion
under section 613 for any part of the
mineral income.
• Reduction for failure to file Form
5471. U.S. shareholders who control a
foreign corporation must file Form
5471, Information Return of U.S.
Persons With Respect To Certain
Foreign Corporations. If you do not file
Form 5471 and furnish all of the
information required by the due date of
your tax return, reduce by 10% all

-15-

foreign taxes that you otherwise may
take into account for the foreign tax
credit. You may have to make
additional reductions if the failure
continues. See section 6038(c) for
details and exceptions.
Note. The reduction in foreign taxes is
reduced by any dollar penalty imposed
under section 6038(b).
• Reduction for failure to file Form
8865. U.S. partners who control a
foreign partnership must file Form
8865, Return of U.S. Persons With
Respect to Certain Foreign
Partnerships. If you do not file Form
8865 and furnish all of the information
required by the due date of your tax
return, reduce by 10% all foreign taxes
that you otherwise may take into
account for the foreign tax credit. You
may have to make additional reductions
if the failure continues. See section
6038(c) for details and exceptions.
Note. The reduction in foreign taxes is
reduced by any dollar penalty imposed
under section 6038(b).
• Reduction of taxes or credit due to
international boycott operations. In
general, if you agree to participate in, or
cooperate with, an international boycott,
you must file Form 5713, International
Boycott Report, and attach all
supporting schedules. In addition, you
must reduce either the total taxes
available for credit or the credit
otherwise allowable by your foreign
taxes resulting from boycott activities. If
you can figure the taxes specifically
attributable to boycott operations, enter
the amount on line 12. If you cannot
figure the amount of taxes specifically
attributable to boycott operations,
multiply the credit otherwise allowable
by the international boycott factor
(figured on Schedule A (Form 5713),
International Boycott Factor) and enter
the result on Form 1116, line 28. Attach
a statement to Form 1116 showing in
detail how you figured the reduction.
For more information, see Form
5713 and its instructions.

Line 14
The amount on line 14 is your taxable
income (or loss), before adjustments,
from sources outside the United States.
If the amount on line 14 is zero or a
loss, you generally have no foreign tax
credit for the category of income
checked above Part I of this Form
1116. However, you must complete line
15 and continue with the form even if
line 14 is zero or a loss.

Line 15
You are required to increase or
decrease the amount on line 14 by the
following adjustments. The adjustments
must be made in the order listed. If you
have more than one adjustment, enter
the net adjustment on line 15 and
attach a detailed statement showing
your computation. See Pub. 514 for
more details on each of these
adjustments.
The adjustments are:
1. Allocation of foreign losses. If
you have a loss on line 14 of one Form
1116 and you have income on line 14
of one or more other Forms 1116, you

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Draft as of 07/27/2007
must reduce the foreign income by a
pro rata share of the loss before you
use any remaining loss to reduce U.S.
source income.
If the loss reduces foreign source
income, you must recharacterize the
income you receive in the loss category
in later years. See Recharacterization
of income on this page. In situations
where the loss to be allocated exceeds
foreign income in other categories, the
excess reduces U.S. source income (as
modified below under Capital losses)
and for later years, you must follow the
rules described under Recapture of
prior year overall foreign loss on this
page.
Capital losses. In determining your
U.S. source income, reduce the amount
of any capital losses from U.S. sources
by the amount you entered on line 4 of
Worksheet A or line 5 of the Line 2
Worksheet for Worksheet B. If you have
capital losses from U.S. sources and
you did not use either Worksheet A or
Worksheet B, see Pub. 514 to
determine your U.S. source income.
Example. For 2007, you completed
three Forms 1116. The first had a loss
from general category income of $2,000
on line 14, the second had passive
category income of $4,000 from
sources on line 14, and the third had
income of $1,000 from the certain
income re-sourced by treaty category
on line 14. You must allocate the
$2,000 loss between the passive
category income and the certain
income re-sourced by treaty category in
the same proportion as each category’s
income bears to the total foreign
income.
The amount of the loss that would
reduce passive category income would
be 80% ($4,000/$5,000) of the $2,000
loss or $1,600. Include the $1,600 (in
parentheses) on line 15 of the passive
category income Form 1116. Assuming
you have no other line 15 adjustments,
enter $2,400 ($4,000 − $1,600) on line
16 of that form.
The amount of the loss that would
reduce the certain income re-sourced
by treaty would be 20% ($1,000/
$5,000) of the $2,000 loss or $400.
Include the $400 in parentheses on line
15 of the certain income re-sourced by
treaty Form 1116. Assuming you have
no other line 15 adjustments, enter
$600 ($1,000 − $400) on line 16 of that
form.
In this case, all of the $2,000 loss
was allocated between the foreign
source passive category income and
the certain income re-sourced by treaty
category and no reduction was made to
U.S. source income.
If you receive general category
income in a later year, you must
recharacterize all or part of that income
as passive category income and certain
income re-sourced by treaty in that later
year. See the example under
Recharacterization of income on this
page.
2. Recapture of prior year overall
foreign loss. If you had an overall
foreign loss in a prior year that offset
U.S. source income, a part of your
foreign income (in the same category

as the loss) is treated as U.S. source
income in each following tax year. The
part that is treated as U.S. source
income is the smallest of:
a. The amount of overall foreign
loss not recaptured in earlier years,
b. 50% (or more, if you choose) of
your taxable income from foreign
sources, or
c. The amount from line 14, less
any adjustment for allocation of losses
from other categories, as described
under Allocation of foreign losses
beginning on page 15.
Reduce the income on line 14 by
including (in parentheses) on line 15
the smallest of a, b, or c above. This is
the amount of the recapture. Be sure to
attach your computation. If you elect to
recapture more of an overall foreign
loss than is required (b above), show in
your computation the percentage of
taxable income recaptured and the
dollar amount of the recapture.
Dispositions of certain property.
If you recognized foreign source gain in
the same category as the overall
foreign loss on a disposition of property
that was used predominantly in a
foreign trade or business and that
generated foreign source income in the
same category as the overall foreign
loss, then the gain on the disposition
may be subject to recapture as U.S.
source income to the extent of 100% of
your foreign source taxable income.
See section 904(f)(3).
The above rule also generally
applies to a gain on the disposition of
stock in a controlled foreign corporation
(CFC), if you owned more than 50
percent (by vote or value) of the stock
right before you disposed of it. See
section 904(f)(3)(D) for more
information and exceptions.
Reduce line 14 by including (in
parentheses) on line 15 the smallest of
(a) the amount of the gain not
recaptured under the two preceding
paragraphs, (b) the remaining amount
of the overall foreign loss not
recaptured in earlier years or in the
current year under the two preceding
paragraphs, or (c) the amount from line
14, less any adjustment for allocation of
losses from other categories and any
adjustment under the two preceding
paragraphs. See Pub. 514 if you
disposed of property described above
and you recognized foreign source gain
in a different category than the overall
foreign loss, you recognized U.S.
source gain, or you did not recognize
gain.
Attach a statement to Form 1116
showing the balance in each separate
limitation overall foreign loss account.
See Regulations section 1.904(f)-1(b)
for more information.
3. Recharacterization of income.
If, in a prior tax year, you reduced your
foreign taxable income in the category
checked above Part I by a pro rata
share of a loss from another category,
you must recharacterize in 2007 all or
part of any income you receive in 2007
in that loss category. You
recharacterize the income by:
• Increasing the amount on line 14
(adjusted by any of the other

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adjustments previously mentioned in
these line 15 instructions) of the Form
1116 for each of the separate
categories, other than the loss
category, previously reduced by
including on line 15 any recharacterized
income and
• Decreasing the amount on line 14
(adjusted by any of the other
adjustments previously mentioned in
these line 15 instructions) of the Form
1116 for the loss category by including
on line 15 the amount of
recharacterized income as a negative
number (in parentheses).
Example. Using the facts in the
example under Allocation of foreign
losses on this page, in the next year
(2008), you have $5,000 of general
category income, $3,000 of passive
category income, and $500 of certain
income re-sourced by treaty. Because
$1,600 of the general category income
loss was used to reduce your passive
category income in 2007, $1,600 of
your 2008 general category income
must be recharacterized as passive
category income. Similarly, $400 of the
general category income must be
recharacterized as certain income
re-sourced by treaty. On your 2008
Form 1116 for passive category
income, you would include $1,600 on
line 15. On your 2008 Form 1116 for
certain income re-sourced by treaty,
you would include $400 on line 15. On
your 2008 Form 1116 for general
category income, you would include
($2,000) on line 15.
Recharacterizing income from a
TIP separate category does not
result in recharacterizing any
tax.
4. Allocation of U.S. losses. If you
have a net loss from U.S. sources in
2008, proportionately allocate that loss
among the separate categories of your
foreign income. Reduce the income on
line 14 (adjusted by any of the other
adjustments previously mentioned in
these line 15 instructions) by including
(in parentheses) on line 15 the
allocable portion of any U.S. loss. A
U.S. loss includes a rental loss on
property located in the United States. If
you have any qualified dividends or
capital gains (including capital gain
distributions) or losses for the taxable
year and you are required to make any
adjustments to those amounts, as
explained earlier under Foreign
Qualified Dividends and Capital Gains
(Losses) starting on page 5 or the
instructions for line 17, the amount of
your U.S. loss is the excess of:
1. The total of the amounts entered
on line 14 for each Form 1116 you are
filing, over
2. The amount entered on line 17 of
the Form 1116.

Line 17
If you have qualified dividends or
capital gains, you may be required to
make adjustments to those qualified
dividends and gains before you take
those amounts into account on line 17.

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Instructions for Form 1116

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Draft as of 07/27/2007
Individuals Who Completed a
Qualified Dividends and Capital
Gain Tax Worksheet
If you completed the Qualified
Dividends and Capital Gain Tax
Worksheet in the instructions for your
tax return, you must use the Worksheet
for Line 17 on this page to figure the
amount to enter on line 17 if:
1. You file Form 1040 and
a. Line 7 of your Qualified Dividends
and Capital Gain Tax Worksheet is
greater than zero, and
b. Line 17 of your Qualified
Dividends and Capital Gain Tax
Worksheet is less than line 18 of that
worksheet, OR
2. You file Form 1040NR and
a. Line 5 of your Qualified Dividends
and Capital Gain Tax Worksheet is
greater than zero, and
b. Line 15 of your Qualified
Dividends and Capital Gain Tax
Worksheet is less than line 16 of that
worksheet.
Adjustment exception. If you qualify
for the adjustment exception, you can
elect not to adjust your qualified
dividends and capital gains. You make
this election by not completing the
Worksheet for Line 17. If you make this
election, you must elect not to adjust
any of your qualified dividends or
capital gains.
If you are not required to complete
the Worksheet for Line 17 or you
qualify for the adjustment exception and
elect not to adjust your qualified
dividends and capital gains, enter on
line 17 of Form 1116 your taxable
income without the deduction for your
exemption (for example, the amount
from Form 1040, line 41).
Adjustment exception for Form
1040 filers. You qualify for the
adjustment exception if you meet both
of the following requirements:

1. Line 7 of the Qualified Dividends
and Capital Gain Tax Worksheet does
not exceed:
• $195,850 if married filing jointly or
qualifying widow(er);
• $97,925 if married filing
separately;
• $160,850 if single; or
• $178,350 if head of household.
2. The amount of your foreign
source net capital gain, plus the
amount of your foreign source qualified
dividends is less than $20,000. For this
purpose, ignore any capital gain
distributions or qualified dividends you
elected to include on Form 4952, line
4g.
Adjustment exception for Form
1040NR filers. You qualify for the
adjustment exception if you meet both
of the following requirements:
1. Line 5 of the Qualified Dividends
and Capital Gain Tax Worksheet does
not exceed:
a. $195,850 if you checked filing
status box 6,
b. $97,925 if you checked filing
status box 3,4, or 5, or
c. $160,850 if you checked filing
status box 1 or 2.
2. The amount of your foreign
source net capital gain, plus the
amount of your foreign source qualified
dividends is less than $20,000.
Your foreign source net capital

TIP gain is the excess of your

foreign source net long-term
capital gain over your foreign source
net short-term capital loss.
Completing the Worksheet for
Line 17. If you do need to complete
the Worksheet for Line 17, do the
following.
Lines 2 through 5. Skip these
lines.

Line 6. Enter the amount from:

• Line 14 of the Qualified Dividends

and Capital Gain Tax Worksheet in the
Form 1040 instructions, or
• Line 12 of the Qualified Dividends
and Capital Gain Tax Worksheet in the
Form 1040NR instructions.
Complete all other lines as instructed
on the worksheet.

Estates and Trusts That
Completed a Qualified
Dividends Tax Worksheet or
Schedule D
If you completed the Qualified
Dividends Tax Worksheet in the
instructions for Form 1041 or you
completed Part V of Schedule D (Form
1041), you must use the Worksheet for
Line 17 on this page to figure the
amount to enter on line 17 if:
1. You figured your tax using the
Qualified Dividends Tax Worksheet,
line 5 of that worksheet is greater than
zero, and line 15 of your Qualified
Dividends Tax Worksheet is less than
line 16 of that worksheet, or
2. You figured your tax using the
Part V of Schedule D (Form 1041), line
23 of the Schedule D is greater than
zero, and line 33 of the Schedule D is
less than line 34.
Adjustment exception. If you qualify
for the adjustment exception, you can
elect not to adjust your qualified
dividends and capital gains. You make
this election by not completing the
Worksheet for Line 17. If you make this
election, you must elect not to adjust
any of your qualified dividends or
capital gains. You qualify for the
adjustment exception if:
1. Line 5 of the Qualified Dividends
Tax Worksheet or line 23 of Schedule
D (Form 1041) does not exceed
$7,650, and
2. The amount of your foreign
source net capital gain, plus the
amount of your foreign source qualified
dividends, is less than $20,000. For this

Keep for Your
Records

Worksheet for Line 17 (Worldwide Qualified Dividends and Capital Gains)
Caution: See the instructions for Line 17 beginning on page 16 before starting this worksheet.
1. Individuals: Enter the amount from Form 1040, line 41. If you are a nonresident alien, enter the
amount from Form 1040NR, line 38.
Estates and trusts: Enter taxable income without the deduction for your exemption . . . . . . . . . .
2. Enter your worldwide 28% gains (see instructions) . . . . . . . . . . . . . . .

2.

3. Multiply line 2 by 0.2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.

4. Enter your worldwide 25% gains (see instructions) . . . . . . . . . . . . . . .

4.

5. Multiply line 4 by 0.2857 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5.

6. Enter your worldwide 15% gains and qualified dividends (see
instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6.

7. Multiply line 6 by 0.5714 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7.

1.

8. Add lines 3, 5, and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8.

9. Subtract line 8 from line 1. Enter the result here and on Form 1116, line 17 . . . . . . . . . . . . . . . . .

9.

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Instructions for Form 1116

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Draft as of 07/27/2007
purpose, ignore any foreign source
qualified dividends or capital gains that
you elected to include on Form 4952,
line 4g.
Your foreign source net capital

TIP gain is the excess of your

foreign source net long-term
capital gain over your foreign source
net short-term capital loss.
If you are not required to complete
the Worksheet for Line 17 or you
qualify for the adjustment exception and
elect not to adjust your qualified
dividends and capital gains, enter on
line 17 of Form 1116 the estate’s or
trust’s taxable income without the
deduction for its exemption.
Completing the Worksheet for
Line 17. If you do need to complete
the Worksheet for Line 17, do the
following.
Lines 2 through 5. Skip these
lines.
Line 6. Enter the amount from line
12 of the Qualified Dividends Tax
Worksheet or line 30 of Schedule D.
Complete all other lines as instructed
on the worksheet.

Taxpayers Who Completed the
Schedule D Tax Worksheet
If you figured your tax using the
Schedule D Tax Worksheet (in the
Schedule D (Form 1040) instructions or
in the Form 1041 instructions), you
must use the Worksheet for Line 17 on
page 17 to figure the amount of tax to
enter on line 17 of Form 1116 if:
• Line 17 of the Schedule D Tax
Worksheet is greater than zero, and
• Line 35 of the Schedule D Tax
Worksheet is less than line 36.
Adjustment exception. If you qualify
for the adjustment exception, you can
elect not to adjust your qualified
dividends and capital gains. You make
this election by not completing the
Worksheet for Line 17. If you make this
election, you must elect not to adjust
any of your qualified dividends or
capital gains. You qualify for the
adjustment exception if:
1. The amount of your foreign
source qualified dividends plus the
amount of your foreign source net
capital gain is less than $20,000, and
2. Line 17 of the Schedule D Tax
Worksheet (Form 1040) is less than or
equal to:
• $195,850 if married filing jointly or
qualifying widow(er);
• $97,925 if married filing separately;
• $160,850 if single; or
• $178,350 if head of household
(or, for trusts and estates, line 17 of the
Schedule D Tax Worksheet (Form
1041) is less than or equal to $7,650).
Your foreign source net capital
TIP gain is the excess of your
foreign source net long-term
capital gain over your foreign source
net short-term capital loss. Ignore any
foreign source qualified dividends or
capital gains that you elected to include

on Form 4952, line 4g, in determining
the amount of your foreign source
qualified dividends and net capital gain.
If you are not required to complete
the Worksheet for Line 17 or you
qualify for the adjustment exception and
elect not to adjust your qualified
dividends and capital gains, enter on
line 17 of Form 1116 your taxable
income without the deduction for your
exemption (for example, the amount
from Form 1040, line 41).
If you do need to complete the
Worksheet for Line 17, do the following.
Line 2. Enter the amount (if any)
from line 32 of the Schedule D Tax
Worksheet.
Line 4. Enter the amount (if any)
from line 29 of the Schedule D Tax
Worksheet.
Line 6. Enter the amount (if any)
from line 23 of the Schedule D Tax
Worksheet.
Complete all other lines as instructed
on the worksheet.

Line 19
If you are completing line 19 for
separate category e (lump-sum
distributions), enter the amount from
line 5 of the Worksheet for Lump-Sum
Distributions on page 4.
Do not complete line 19 for separate
category c (section 901(j) income). See
page 3.
For all other applicable categories,
complete line 19 as follows.
Form 1040 filers. Enter the amount
from Form 1040, line 44, less any tax
included on line 44 from Form 4972.
Form 1040NR filers. Enter the
amount from Form 1040NR, line 41,
less any tax included on line 41 from
Form 4972.
Form 1041 filers. Enter the amount
from Form 1041, Schedule G, line 1a.

Line 21
The maximum foreign tax credit you
can claim in the current year is
generally limited to the allocated
amount of U.S. tax imposed on the
foreign income, or the actual amount of
foreign tax paid or accrued on the
foreign income (after reductions
required on line 12), whichever is less.
However, see Foreign Taxes Eligible
for a Credit on page 2 for additional
information.
If the amount on line 20 is smaller
than the amount on line 13, see
Pub. 514 for more information on
carryback and carryforward provisions,
including examples.

Part IV—Summary of
Credits From Separate
Parts III
Complete lines 22 through 25 in
Part IV only if you must complete more
than one Form 1116 because you have

-18-

more than one of the categories of
income listed above Part I.
Complete Part IV on only one Form
1116 (the one with the largest amount
entered on line 21) to summarize the
credits you figured on all of your Forms
1116. However, if you completed a
Form 1116 for category e (lump-sum
distributions) or c (section 901(j)
income), do not use Part IV of that
Form 1116 as your summary. Enter the
credits from line 21 of all of your Forms
1116 on lines 22 through 25 of the
Form 1116 with the largest amount
entered on line 21 to summarize your
credits. File the other Forms 1116 as
attachments.

Line 31
Enter the smaller of line 19 or line 26.
Note. Generally, line 26 will exceed
line 19 only if you have U.S. capital
gains or qualified dividends that are
subject to the capital gain rate
differential (figured in the Worksheet for
Line 17 on page 17).
Paperwork Reduction Act Notice.
We ask for the information on this form
to carry out the Internal Revenue laws
of the United States. You are required
to give us the information. We need it to
ensure that you are complying with
these laws and to allow us to figure and
collect the right amount of tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB
control number. Books or records
relating to a form or its instructions
must be retained as long as their
contents may become material in the
administration of any Internal Revenue
law. Generally, tax returns and return
information are confidential, as required
by section 6103.
The time needed to complete and
file this form will vary depending on
individual circumstances. The
estimated burden for individual
taxpayers filing this form is approved
under OMB control number 1545 – 0074
and is included in the estimates shown
in the instructions for their individual
income tax return. The estimated
burden for all other taxpayers who file
this form is: Recordkeeping, 2 hr., 43
min.; Learning about the law or the
form, 1 hr., 5 min.; Preparing the
form, 2 hr., 39 min.; Copying,
assembling, and sending the form to
the IRS,
34 min.
If you have comments concerning
the accuracy of these time estimates or
suggestions for making this form
simpler, we would be happy to hear
from you. You can write to the IRS at
the address listed in the instructions of
the tax return with which this form is
filed.