Schedule K (Form 1118) - Foreign Tax Carryover Reconciliation Schedule

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Instructions for Schedule K (Form 1118)

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Instructions for Schedule K
(Form 1118)

Department of the Treasury
Internal Revenue Service

(Rev. December 2009)
Section references are to the Internal
Revenue Code unless otherwise noted.

General Instructions
Purpose of Schedule
Schedule K (Form 1118) is used to
reconcile the corporation’s prior year
foreign tax carryover with its current year
foreign tax carryover. Corporations are
thus reporting running balances of their
foreign tax carryovers showing all activity
since the filing of the prior year income
tax return.
Lines 1 through 3. On these lines, the
corporation computes its adjusted foreign
tax carryover from the prior tax year
which is available for credit in the current
tax year. The line 3 total is included on
Form 1118, Schedule B, Part II, line 5.
Line 4. If the corporation has a current
year excess limitation (defined below),
some or all of the line 3 adjusted foreign
tax carryover amount will be utilized in the
current tax year. This activity is shown on
line 4 of the Schedule K (Form 1118).
Lines 5 through 8. If the corporation
has current year excess foreign taxes
(defined below), none of the line 3
adjusted foreign tax carryover amount will
be utilized in the current tax year. If the
corporation has any remaining carryover
from the 10th preceding tax year, this
carryover amount will expire unused. This
activity is shown on line 5 of the Schedule
K (Form 1118). Furthermore, the
corporation will generate a foreign tax
carryover in the current tax year which
can be carried back to the prior tax year
and/or carried forward to future tax years
(see Carryback and Carryforward of
Excess Foreign Taxes in the instructions
for Form 1118 for details). This activity is
shown on lines 6 through 8 of the
Schedule K (Form 1118).

Who Must File
With respect to each separate category of
income, any corporation filing Form 1118
that has a foreign tax carryover in the
prior tax year, the current tax year, or
both must file Schedule K (Form 1118) for
that separate category of income.

Definitions
Excess limitation. If the corporation’s
foreign tax credit limitation (Schedule B,
Part II, line 11) exceeds its current year
foreign taxes available for credit (the sum
of Schedule B, Part II, lines 1 through 4),
the corporation has excess limitation.

Excess foreign taxes. If the
corporation’s current year foreign taxes
available for credit (the sum of Schedule
B, Part II, lines 1 through 4) exceed its
foreign tax credit limitation (Schedule B,
Part II, line 11), the corporation has
excess foreign taxes.

Specific Instructions

the 2008 tax year (entered on line 7 of the
Schedule K filed for the 2009 tax year)
exceeds the actual carryback of $15, on
the Schedule K for the 2010 tax year,
Corporation A enters the $5 excess ($20 $15) on line 2a as a positive number.
Assuming no other adjustments are
needed, the total carryover amount from
2009 entered on line 3, column (xii) of the
2010 Schedule K will be $85 ($80 + $5).

Important: All information reported on
Schedule K (Form 1118) must be in
English. All amounts must be stated in
U.S. dollars.
Checkboxes at top of page 1.
Complete Schedule K separately for each
category of income. Check the box for the
category of income for which this
schedule is being completed.
Line 1. Foreign tax carryover from the
prior tax year. Enter on line 1 the
amount from line 6 of the worksheet on
page 3 of these instructions. See Line 1
Reconciliation Worksheet instructions on
page 2 before completing the worksheet.
Line 2. Adjustments to line 1. Report
on lines 2a, 2b, 2c, 2d, etc. any
adjustments resulting from events that
occurred between the filing of the prior
year tax return and the filing of the current
year tax return.

Line 2b. Adjustments for section
905(c) redeterminations. Enter on line
2b any adjustments needed for section
905(c) redeterminations. See Foreign
Tax Credit Redeterminations in the
instructions for Form 1118 for additional
information.
Lines 2c, 2d, 2e, etc. Include on
these additional lines the following types
of adjustments needed to reflect:
• Carryovers gained or lost due to
reorganizations of the corporation’s
controlled/consolidated group.
• Domestic audit adjustments.
• Any other adjustments needed to
properly reflect the total carryover amount
from the prior tax year that is available for
credit in the current tax year.
Note. Be sure to enter a brief description
of each applicable adjustment item
immediately after the lower case letter in
the first column of the schedule.

Line 2a. Carryback adjustment.
Enter on line 2a, column (xii) the
difference between any estimated
carryback amount you may have used on
your prior year carryover schedule (i.e.,
the equivalent of any estimated carryback
amount that would have been entered on
line 7, column (xiii) of the Schedule K
(Form 1118) had that schedule existed
last year) and the actual carryback
amount.
Example. In the 2009 tax year,
Corporation A has excess foreign taxes of
$100 (i.e., the sum of lines 1 through 4 of
Form 1118, Schedule B, Part II exceeds
Form 1118, Schedule B, Part II, line 11 by
$100) entered on Schedule K (Form
1118), line 6. Corporation A enters $20 on
line 7 as the estimated amount of line 6 to
be carried back to the 2008 tax year.
Corporation A enters $80 on line 8 as the
carryover amount for following years. The
actual carryback amount to the 2008 tax
year is later determined to be $15. In the
2010 tax year, Corporation A enters $80
on line 1, column (xii) as the carryover
from the 2009 tax year, corresponding to
the amount entered on line 8, column (xiii)
of the Schedule K filed for the 2009 tax
year. Because the estimated carryback
amount of $20 from the 2009 tax year to

Line 3. Adjusted foreign tax carryover
from prior tax year. Combine lines 1
and 2. The total amount in line 3, column
(xiv) is the adjusted carryover amount
from the prior tax year. It is included on
Schedule B, Part II, line 5 (and, if filing an
amended return, combined with
carrybacks into the current tax year) to
determine the total amount of foreign
taxes that are available for credit in the
current tax year.
Line 4. Foreign tax carryover utilized in
current tax year. With respect to a
given separate limitation, line 4 is
completed only if the corporation has a
current year excess limitation (defined
above).
Enter in each column the foreign tax
carryover utilized in the current tax year.
Starting with column (i), the amount to be
entered on line 4 of a given column will be
the amount on line 3 of that column, but
only to the extent that it does not exceed:
• The amount of the current year excess
limitation (defined above), less
• The sum of all amounts entered in all
previous columns of line 4.
Example. For the current tax year,
Corporation A has an excess limitation of
$250 (i.e., Form 1118, Schedule B, Part

Cat. No. 52009v

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Instructions for Schedule K (Form 1118)

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II, line 11 exceeds the sum of lines 1
through 4 of Form 1118, Schedule B, Part
II by $250). The amount on line 3, column
(i) is $80. The amount on line 3, column
(ii) is $60. The amount on line 3, column
(iii) is $130. The amount on line 3 of all
subsequent columns is irrelevant for
purposes of this example. Corporation A
enters $80 on line 4, column (i); $60 on
line 4, column (ii), $110 on line 4, column
(iii), the $250 subtotal on the line 4,
column (vii), the $250 subtotal on line 4,
column (viii), and the $250 total on line 4,
column (xiv).

!

CAUTION

The line 4, column (xiv) total
cannot exceed the amount of the
current year excess limitation.

Line 5. Foreign tax carryover expired
unused in current tax year. Line 5 is
completed only with respect to the 10th
preceding tax year (and the “Subtotal”
and “Totals” columns). For the 10th
preceding tax year (column (i)), combine
lines 3 and 4 and enter the result on line
5, column (i).
Line 6. Foreign tax carryover
generated in current tax year. With
respect to a given separate limitation, line

6 is completed only if the corporation has
current year excess foreign taxes (defined
on page 1). Enter in column (xiii) (the
current tax year column) the amount of
the corporation’s unused foreign tax for
the current tax year (i.e., the amount by
which the sum of lines 1 through 4 of
Form 1118, Schedule B, Part II, exceeds
the amount on Form 1118, Schedule B,
Part II, line 11). Also enter the same
amount in the “Totals” column (column
(xiv)).
Line 7. Actual or estimated amount of
line 6 carried back to the prior tax year.
Enter the amount of line 6 carried back to
the first preceding tax year. If, at the time
the corporation files its 2009 income tax
return, the actual amount is not available,
an estimated or tentative amount may be
entered on line 7. If an estimated amount
is entered on line 7 and this amount
differs from the actual carryback amount,
the difference will be entered on line 2a of
the subsequent year Schedule K (Form
1118).
Note. In order to carry back amounts to
the first preceding tax year, that first

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preceding tax year must be an excess
limitation year (as defined on page 1).
Note. When this line 7 carryback amount
is subtracted from line 6, the difference is
the amount of the foreign tax carryover
generated in the current tax year which
will be carried forward to the subsequent
tax year.

Line 1 Reconciliation
Worksheet
Use the worksheet on page 3 to compute
the amounts to be entered on line 1 of the
corporation’s Schedule K.
Lines 2 through 5. Use the instructions
for lines 4 through 7 of the Schedule K
above to complete lines 2 through 5,
respectively, of the Line 1 Reconciliation
Worksheet.

Additional Information
For more information, see section 904(c)
and Regulations section 1.904-2 and
Temporary Regulations section 1.904-2T.

Foreign tax carryover used in the
corporation’s tax year beginning
in 2008 (enter as a negative
number).

Foreign tax carryover expired
unused in the corporation’s tax
year beginning in 2008 (enter as
a negative number).

Foreign tax carryover generated
in the corporation’s tax year
beginning in 2008.

Amount of line 4 carried back to
the corporation’s tax year
beginning in 2007 (enter as a
negative number).

Combine lines 1 through 5 and
enter the results here and on line
1 of the corporation’s Schedule K
(Form 1118).

2

3

4

5

6

(iii)
Tax year
beginning
in 2000

(iv)
Tax year
beginning
in 2001

(i)
(ii)
(iii)
10th
9th
8th
preceding preceding preceding
tax year
tax year
tax year

(ii)
Tax year
beginning
in 1999

(iv)
(v)
(vi)
(ix)
(x)
(xi)
(xii)
7th
6th
5th
4th
3rd
2nd
1st
preceding preceding preceding preceding preceding preceding preceding
tax year
tax year tax year
tax year
tax year
tax year
tax year

(xii)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Totals
Tax year Tax year Tax year Tax year Tax year Tax year Tax year
(add
beginning beginning beginning beginning beginning beginning beginning columns (i)
in 2002
in 2003
in 2004
in 2005
in 2006
in 2007
in 2008
through
(xi))

Instructions for Schedule K (Form 1118)

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Note: The line 6 amounts above are to
be entered on the following
corresponding columns of line 1 of
corporation’s Schedule K (Form 1118)
for its tax year beginning in 2009.

For each column, enter the
applicable portion of the amount
from Schedule B, Part II, line 5 of
the corporation’s Form 1118 for
its tax year beginning in 2008.

1

(i)
Tax year
beginning
in 1998

Caution: This worksheet is to be completed only for purposes of computing the amounts to be entered on line 1 of the corporation’s
Schedule K (Form 1118) for its tax year beginning in 2009.

Line 1. Reconciliation Worksheet

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