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Instructions for Form 1118
Department of the Treasury
Internal Revenue Service
(Rev. December 2018)
Foreign Tax Credit—Corporations
Section references are to the Internal Revenue
Code unless otherwise noted.
domestic corporation with a calendar tax
year owns a foreign corporation with a
U.S. tax year beginning on December 1,
2017, and ending on November 30, 2018,
for its 2018 tax year such domestic
corporation is subject to certain
pre-enactment provisions with respect to
such foreign corporation. However, if such
domestic corporation also owns a foreign
corporation with a U.S. tax year beginning
on January 1, 2018, and ending on
December 31, 2018, for its 2018 tax year
such domestic corporation is subject to
certain post-enactment provisions with
respect to such foreign corporation.
Therefore, the Form 1118 continues to
require reporting under pre-enactment
provisions, as well as requiring new
reporting for post-enactment provisions.
Computer-Generated
Form 1118
DRAFT AS OF
October 15, 2018
Future Developments
For the latest information about
developments related to Form 1118 and
its instructions, such as legislation
enacted after they were published, go to
IRS.gov/Form1118.
What’s New
On December 22, 2017, Congress
enacted the Tax Cuts and Jobs Act, P.L.
115-97 (the “Act”). The Act changes the
computation of foreign tax credits for
post-2017 tax years as follows.
• Two new separate categories of income
under section 904(d): (i) any amount
includible in gross income under section
951A (other than passive category
income) (“section 951A category income”)
and (ii) foreign branch income.
• Repeal of section 902 indirect credits
with respect to dividends from foreign
corporations.
• Modified indirect credits under section
960 for inclusions under sections 951(a)
(1) and 951A.
• Modified section 78 gross up with
respect to inclusions under sections
951(a)(1) and 951A.
• Revised sourcing rule for certain
income from the sale of inventory under
section 863(b).
• Repeal of the fair market value method
for apportioning interest expense under
864(e).
• New adjustments for purposes of
section 904 with respect to expenses
allocable to certain stock or dividends for
which a dividends received deduction is
allowed under section 245A.
• Election to increase pre-2018 section
904(g) Overall Domestic Loss (ODL)
recapture.
• Limited foreign tax credits with respect
to inclusions under section 965.
Several of the foreign tax credit provisions
of the Act are applicable in tax years of
foreign corporations beginning after
December 31, 2017, and to tax years of
U.S. shareholders in which or with which
such tax years of the foreign corporations
end (“post-2017 foreign corporate tax
year”). As such, if the foreign corporation's
year begins before 2018 (“pre-2018
foreign corporate tax year”), some
pre-enactment rules continue to apply in
the domestic corporation's tax year
beginning in 2018. For example, if a
Oct 11, 2018
To incorporate the provisions of the Act,
extensive changes have been made to the
form, as explained throughout these
instructions.
General Instructions
Purpose of Form
Use Form 1118 to compute a
corporation's foreign tax credit for certain
taxes paid or accrued to foreign countries
or U.S. possessions. See Taxes Eligible
for a Credit, later.
Who Must File
Any corporation that elects the benefits of
the foreign tax credit under section 901
must complete and attach Form 1118 to
its income tax return.
When To Make the
Election
The election to claim the foreign tax credit
(or a deduction in lieu of a credit) for any
tax year may be made or changed at any
time before the end of a special 10-year
period described in section 6511(d)(3) (or
section 6511(c) if the period is extended
by agreement). Note that while the
limitations period for refund claims relating
to a foreign tax credit generally runs
parallel with the election period, the
limitations period for refund claims relating
to a deduction of foreign tax does not, and
may expire before the end of the election
period.
Cat. No. 10905I
The corporation may submit a
computer-generated Form 1118 and
schedules if they conform to the IRS
version. However, if a software program is
used, it must be approved by the IRS for
use in filing substitute forms. This ensures
the proper placement of each item
appearing on the IRS version. For more
information, see Pub. 1167, General Rules
and Specifications for Substitute Forms
and Schedules.
How To Complete
Form 1118
Important. Complete a separate
Schedule A; Schedule B, Parts I & II;
Schedules C through G; Schedule I; and
Schedule K for each applicable separate
category of income. See Categories of
Income, later. Complete Schedule B, Part
III; Schedule H; and Schedule J only once.
• Use Schedule A to compute the
corporation's income or loss before
adjustments for each applicable category
of income.
• Use Schedule B to determine the total
foreign tax credit after certain limitations.
• Use Schedule C to compute taxes
deemed paid by the domestic corporation
filing the return with respect to inclusions
under section 951(a)(1) in post-2017
foreign corporate tax years.
• Use Schedule D to compute taxes
deemed paid by the domestic corporation
filing the return with respect to inclusions
under section 951A in post-2017 foreign
corporate tax years.
• Use Schedule E to compute taxes
deemed paid by the domestic corporation
filing the return with respect to
distributions of previously taxed income
(PTI).
• Use Schedule F-1 to compute taxes
deemed paid by the domestic corporation
filing the return with respect to dividends
paid and inclusions in pre-2018 foreign
corporate tax years.
• Use Schedules F-2 and F-3 to
compute taxes deemed paid by first- and
lower-tier foreign corporations with
respect to dividends paid in pre-2018
foreign corporate tax years.
• Use Schedule G to report required
reductions of tax paid, accrued, or
deemed paid.
• Use Schedule H to apportion
deductions that cannot be allocated to an
item or class of income identified on
Schedule A.
• Use Schedule I (a separate schedule)
to compute reductions of taxes paid,
accrued, or deemed paid on foreign oil
and gas income.
• Use Schedule J (a separate schedule)
to compute adjustments to separate
limitation income or losses in determining
the numerators of limitation fractions,
year-end recharacterization balances, and
overall foreign and domestic loss account
balances.
• Use Schedule K (a separate schedule)
to reconcile the corporation's prior year
foreign tax carryover with its current year
foreign tax carryover.
• When completing a Form 1118 for
foreign branch category income, insert the
following code at the top of page 1: FB.
• Foreign branch category income does
not include passive category income.
• Foreign branch category income is
effective for tax years of U.S. persons
beginning after December 31, 2017.
Section 901(j) Income
No credit is allowed for foreign taxes
imposed by and paid or accrued to certain
sanctioned countries. However, a foreign
tax credit may be claimed for foreign taxes
paid or accrued with respect to section
901(j) income if such tax is paid or
accrued to a country other than a
sanctioned country.
DRAFT AS OF
October 15, 2018
Categories of Income
Compute a separate foreign tax credit
(using a separate Form 1118) for each
applicable separate category described
below. Enter the applicable code from the
table below in item a at the top of page 1
of Form 1118 to indicate the separate
category with respect to which you are
completing a given Form 1118.
Code
951A
FB
Category of Income
Section 951A Category Income
Foreign Branch Category Income
PAS
Passive Category Income
901j
Section 901(j) Income
RBT
Income Re-Sourced by Treaty
GEN
General Category Income
If you enter code "901j" or code "RBT"
in item a, also complete item b or item c
using the country codes provided at
IRS.gov/CountryCodes.
Section 951A Category Income
Section 951A category income is any
amount includible in gross income under
section 951A (other than passive category
income). Section 951A defines global
intangible low-taxed income.
• When completing a Form 1118 for
section 951A category income, insert the
following code at the top of page 1: 951A.
• Section 951A category income does
not include passive category income.
• Section 951A category income is
effective in post-2017 foreign corporate
tax years.
Foreign Branch Category
Income
Foreign branch income is defined under
section 904(d)(2)(J)(i) as the business
profits of a U.S. person which are
attributable to one or more qualified
business units (QBUs) (as defined in
section 989(a)) in one or more foreign
countries.
Passive Category Income
Passive category income includes passive
income and specified passive category
income. When completing a Form 1118
for passive category income, insert the
following code at the top of page 1: PAS.
Passive income. Generally, passive
income is the following.
• Any income received or accrued that
would be foreign personal holding
company income (defined in section
954(c)) if the corporation were a controlled
foreign corporation (CFC) (defined in
section 957). This includes any gain on
the sale or exchange of stock that is more
than the amount treated as a dividend
under section 1248. However, in
determining if any income would be
foreign personal holding company income,
the rules of section 864(d)(6) will apply
only for income of a CFC.
• Any amount includible in gross income
under section 1293 (which relates to
certain passive foreign investment
companies (PFICs)).
Passive income does not include:
• Any financial services income,
• Any export financing interest unless it is
also related person factoring income (see
section 904(d)(2)(G) and Regulations
section 1.904-4(h)(3)),
• Any high-taxed income, or
• Any active rents or royalties. See
Regulations section 1.904-4(b)(2)(iii) for
definitions and exceptions.
Note. Certain income received from a
CFC and certain dividends from
noncontrolled 10%-owned foreign
corporations that would otherwise be
passive income are treated as passive
category income only to the extent
provided under the look-through rules.
See Look-Through Rules, later.
Specified passive category income.
This term includes:
• Dividends from a domestic international
sales corporation (DISC) or former DISC
(as defined in section 992(a)) to the extent
such dividends are treated as foreign
source income, and
• Distributions from a former foreign sales
corporation (FSC) out of earnings and
profits attributable to foreign trade income
or interest or carrying charges (as defined
in section 927(d)(1), before its repeal)
derived from a transaction which results in
foreign trade income (as defined in section
932(b), before its repeal).
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Income derived from each sanctioned
country is subject to a separate foreign tax
credit limitation. Therefore, the corporation
must use a separate Form 1118 for
income derived from each such country.
On each Form 1118, insert the code
“901j” at the top of page 1 and identify the
applicable country using the two-letter
codes (from the list at IRS.gov/
CountryCodes).
Sanctioned 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. As of the
date these instructions were revised,
section 901(j) applied to income derived
from Iran, North Korea, Sudan, and Syria.
For more information, see section 901(j).
Note. Effective December 22, 2015,
Cuba is no longer a sanctioned country.
Note. The President of the United States
has the authority to waive the application
of section 901(j) with respect to a foreign
country if it is (a) in the national interest of
the United States and will expand trade
and investment opportunities for domestic
companies in such foreign 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.
Note. Effective December 10, 2004, the
President waived the application of
section 901(j) with respect to Libya.
If the corporation paid taxes to a
country that ceased to be a sanctioned
country during the tax year, see Rev. Rul.
92-62, 1992-2 C.B. 193, for details on how
to figure the foreign tax credit for the
period that begins after the end of the
sanctioned period.
Note. Taxpayers will complete one
Schedule H (Form 965), Inclusion of
Deferred Foreign Income Upon Transition
to Participation Exemption System, with
respect to income derived from all
sanctioned countries. However, a
separate Form 1118 must be completed
with respect to section 965 inclusions
attributable to each sanctioned country.
Instructions for Form 1118 (12-2018)
Income Re-Sourced by Treaty
If a sourcing rule in an applicable income
tax treaty treats any U.S. source income
as foreign source, and the corporation
elects to apply the treaty, the income will
be treated as foreign source.
Important. The corporation must
compute a separate foreign tax credit
limitation for any such income for which it
claims benefits under a treaty, using a
separate Form 1118 for each amount of
re-sourced income from a treaty country.
On each Form 1118, insert the code
“RBT” for income re-sourced by treaty at
the top of page 1 and identify the
applicable country using the two-letter
codes (from the list at IRS.gov/
CountryCodes). See sections 865(h),
904(d)(6), and 904(h)(10) and the
regulations under those sections
(including Regulations section 1.904-5(m)
(7)) for any grouping rules and exceptions.
• Described in section 904(d)(2)(D)(ii),
• Passive income (determined without
regard to section 904(d)(2)(B)(iii)(II)), or
• Incidental income described in
Regulations section 1.904-4(e)(4).
Note. If the corporation qualified as a
financial services entity because it treated
certain amounts as active financing
income that are not listed in Regulations
sections 1.904-4(e)(2)(i)(A) through (X),
but that are described as similar items in
Regulations section 1.904-4(e)(2)(i)(Y),
attach a statement to Form 1118 showing
the types and amounts of the similar
items.
accrued by a 10% U.S. shareholder from a
CFC, they may be assigned to other
separate categories, or may be treated as
passive category income under the
look-through rules of section 904(d)(3).
Dividends include any amount included in
gross income under section 951(a)(1)(B).
Look-through rules also apply to
subpart F inclusions under section 951(a)
(1)(A) to the extent attributable to E&P of
the CFC in the passive category.
For more information and examples,
see section 904(d)(3) and Regulations
section 1.904-5.
DRAFT AS OF
October 15, 2018
Note. U.S. source section 965 inclusions
will not be reported on Schedule H of the
Form 965. If a taxpayer elects to treat such
inclusions as foreign source income under
a treaty, use a separate Form 1118 for
each amount of re-sourced section 965
inclusion from a treaty country.
General Category Income
This category includes all income not
described above. When completing a
Form 1118 for the general category of
income, insert the following code at the
top of page 1: GEN. This category
includes high taxed income that is not
otherwise treated as another category of
income. Usually, income is high-taxed if
the total foreign income taxes paid,
accrued, or deemed paid by the
corporation for that income exceed the
highest rate of tax specified in section 11
(and with reference to section 15, if
applicable), multiplied by the amount of
such income (including the amount treated
as a dividend under section 78). For more
information, see Regulations section
1.904-4(c). Also see the instructions for
Schedule A, later, for additional reporting
requirements.
This category also includes financial
services income (defined below) not
described above if the corporation is a
member of a financial services group (as
defined in section 904(d)(2)(C)(ii)) or is
predominantly engaged in the active
conduct of a banking, insurance,
financing, or similar business.
Financial services income. Financial
services income is income received or
accrued by a member of a financial
services group or any corporation
predominantly engaged in the active
conduct of a banking, insurance,
financing, or similar business, if the
income is:
Instructions for Form 1118 (12-2018)
Special Rules
Source Rules for Income
Determine income or (loss) for each
separate category on Schedule A using
the general source rules of sections 861
through 865 and related regulations, the
special source rules of section 904(h)
described below, and any applicable
source rules contained in any applicable
tax treaties.
Special source rules of section 904(h).
Usually, the following income from a
U.S.-owned foreign corporation, otherwise
treated as foreign source income, must be
treated as U.S. source income under
section 904(h).
• Any subpart F income, foreign personal
holding company income, or income from
a qualified electing fund that a U.S.
shareholder is required to include in its
gross income, if such amount is
attributable to the U.S.-owned foreign
corporation's U.S. source income.
• Interest that is properly allocable to the
U.S.-owned foreign corporation's U.S.
source income.
• Dividends equal to the U.S. source ratio
(defined in section 904(h)(4)(B)).
The rules regarding interest and
dividends described above do not apply to
a U.S.-owned foreign corporation if less
than 10% of its earnings and profits (E&P)
for the tax year is from U.S. sources.
Amounts That Do Not
Constitute Income Under
U.S. Tax Principles
For tax years beginning after December
31, 2006, creditable foreign taxes that are
imposed on amounts that do not constitute
income under U.S. tax principles are
treated as imposed on income described
in section 904(d)(1)(B). See section
904(d)(2)(H).
Look-Through Rules
CFCs. Generally, dividends, interest,
rents, and royalties received or accrued by
the taxpayer are passive category income.
However, if these items are received or
-3-
Noncontrolled 10%-Owned Foreign
Corporations. Generally, dividends
received or accrued by the taxpayer are
passive category income. However,
dividends received or accrued from a
noncontrolled 10%-owned foreign
corporation may be assigned to other
separate categories under the
look-through rules of section 904(d)(4).
Certain amounts paid by a domestic
corporation to a related corporation.
Look-through rules also apply to foreign
source interest, rents, and royalties paid
by a domestic corporation to a related
corporation. See Regulations section
1.904-5(g).
Other Rules
Certain transfers of intangible property. See section 367(d)(2)(C) for a rule that
clarifies the treatment of certain transfers
of intangible property.
Reporting Foreign Tax
Information From Partnerships
If you received a Schedule K-1 from a
partnership that includes foreign tax
information, use the rules below to report
that information on Form 1118.
Gross income sourced at partner level.
This includes income from the sale of
most personal property other than
inventory, depreciable property, and
certain intangible property sourced under
section 865. This gross income will
generally be U.S.-source and therefore
will not be reported on Form 1118.
The remaining lines of the foreign tax
section of the Schedule K-1 are reported
on Form 1118 as follows.
Foreign gross income sourced at partnership level. Report on Schedule A.
Deductions allocated and apportioned
at partner level and partnership level.
Report on Schedule A or Schedule H.
Total foreign taxes paid or accrued.
Report on Schedule B.
Reduction in taxes available for credit.
Report on Schedule G.
Capital Gains
Foreign source taxable income or (loss)
before adjustments in all separate
categories in the aggregate should include
gain from the sale or exchange of capital
assets only up to the amount of foreign
source capital gain net income (which is
the smaller of capital gain net income from
sources outside the United States or
capital gain net income). Therefore, if the
corporation has capital gain net income
from sources outside the United States in
excess of the capital gain net income
reported on its tax return, enter a pro rata
portion of the net U.S. source capital loss
as a negative number on Schedule A,
column 14(h), for each separate category
with capital gain net income from sources
outside the United States. To figure the
pro rata portion of the net U.S. source
capital loss attributable to a separate
category, multiply the net U.S. source
capital loss by the amount of capital gain
net income from sources outside the
United States in the separate category
divided by the aggregate amount of capital
gain net income from sources outside the
United States in all separate categories
with capital gain net income from sources
outside the United States.
tax to what it legally owes, a credit is not
allowed for the excess amount.
Foreign corporations. Foreign
corporations are allowed (under section
906) a foreign tax credit for income, war
profits, and excess profits taxes paid or
accrued (or deemed paid under section
902 (for pre-2018 foreign corporate tax
years)) to any foreign country or U.S.
possession for income effectively
connected with the conduct of a trade or
business within the United States. The
credit is not applicable, however, if a
foreign country or U.S. possession
imposes the tax on income from U.S.
sources solely because the foreign
corporation was created or organized
under the law of the foreign country or
U.S. possession or is domiciled there for
tax purposes.
The credit may not be taken against
any tax imposed on income not effectively
connected with a U.S. business.
In computing the foreign tax credit
limitation, the foreign corporation's taxable
income includes only the taxable income
that is effectively connected with the
conduct of a trade or business within the
United States.
For pre-2018 foreign corporate tax
years, a foreign corporation claiming a
foreign tax credit will be treated as a
domestic corporation in computing tax
deemed paid (section 902(a)) and
dividend gross-up (section 78).
• Certain taxes on the purchase or sale of
oil or gas (section 901(f)).
• Certain taxes used to provide subsidies
(section 901(i)).
• Taxes paid to certain foreign countries
for which a credit was denied under
section 901(j).
• Certain taxes paid on dividends if the
minimum holding period is not met with
respect to the underlying stock, or if the
corporation is obligated to make related
payments with respect to positions in
similar or related property (section 901(k)).
• Certain taxes paid on gain and income
other than dividends if the minimum
holding period is not met with respect to
the underlying property, or if the
corporation is obligated to make related
payments with respect to positions in
similar or related property (see section
901(l)).
• In the case of a covered asset
acquisition (as defined in section 901(m)
(2)), the disqualified portion of any tax
determined with respect to the income or
gain attributable to the relevant foreign
assets (section 901(m)). Note. This rule
generally applies to covered asset
acquisitions after December 31, 2010.
See temporary and proposed Regulations
sections 1.901(m)-1 through 1.901(m)-8
for additional information. Note that the
rules contained in these regulations have
later effective dates.
DRAFT AS OF
October 15, 2018
See section 904(b)(2)(B) for special
rules regarding adjustments to account for
capital gain rate differentials (as defined in
section 904(b)(3)(D)) for any tax year. At
the time these instructions went to print,
there was no capital gain rate differential
for corporations.
Credit Limitations
Taxes Eligible for a Credit
Domestic corporations. Generally, a
domestic corporation may claim a foreign
tax credit (subject to the limitation of
section 904) for the following taxes.
• Income, war profits, and excess profits
taxes (defined in Regulations section
1.901-2(a)) paid or accrued during the tax
year to any foreign country or U.S.
possession.
• Taxes deemed paid under sections 902
(for pre-2018 foreign corporate tax years)
and 960.
• Taxes paid in lieu of income taxes as
described in section 903 and Regulations
section 1.903-1.
Some foreign taxes that are otherwise
eligible for the foreign tax credit must be
reduced. These reductions are reported
on Schedule G.
Note. A corporation may not claim a
foreign tax credit for foreign taxes paid to a
foreign country that the corporation does
not legally owe, including amounts eligible
for refund by the foreign country. If the
corporation does not exercise its available
remedies to reduce the amount of foreign
Definition of foreign corporation for
purposes of the deemed paid credit. In
computing the deemed paid credit on
Schedules F-1 through F-3, the term
“foreign corporation” includes:
• A DISC or former DISC, but only for
dividends from the DISC or former DISC
that are treated as income from sources
outside the United States; and
• A contiguous country life insurance
branch that has made an election to be
treated as a foreign corporation under
section 814(g).
Credit or Deduction
A corporation may choose to take either a
credit or a deduction for eligible foreign
taxes paid or accrued. The choice is made
annually. Generally, if a corporation elects
the benefits of the foreign tax credit for any
tax year, no portion of the foreign taxes
will be allowed as a deduction in that year
or any subsequent tax year.
Exceptions. However, a corporation that
elects the credit for eligible foreign taxes
may be allowed a deduction for certain
taxes for which a credit was not allowed.
These include the following.
• Taxes for which the credit was denied
because of the boycott provisions of
section 908.
-4-
No Credit or Deduction
No foreign tax credit (or deduction) is
allowed for certain taxes including.
• Taxes on mineral income that were
reduced under section 901(e).
• Certain taxes paid on distributions from
possessions corporations (section
901(g)).
• Taxes on combined foreign oil and gas
income that were reduced under section
907(a).
• Taxes attributable to income excluded
under section 814(a) (relating to
contiguous country branches of domestic
life insurance companies).
• Taxes paid or accrued to a foreign
country or U.S. possession with respect to
income excluded from gross income on
Form 8873, Extraterritorial Income
Exclusion. However, see section 943(d)
for an exception for certain withholding
taxes.
• The applicable percentage of taxes
paid or deemed paid with respect to an
amount included in income under section
965 (section 965(g)).
Carryback and Carryforward of
Excess Foreign Taxes
If the allowable foreign taxes paid,
accrued, or deemed paid in a tax year in a
separate category exceed the foreign tax
credit limitation for the tax year for that
separate category, the excess may be:
Instructions for Form 1118 (12-2018)
• First, carried back 1 year to offset taxes
imposed in the same category, then
• Carried forward 10 years to offset taxes
imposed in the same category.
The excess is applied first to the
earliest of the years to which it may be
carried, then to the next earliest year, etc.
The corporation may not carry a credit to a
tax year for which it claimed a deduction,
rather than a credit, for foreign taxes paid
or accrued. Furthermore, the corporation
must reduce the amount of any carryback
or carryforward by the amount it would
have used if it had chosen to claim a credit
rather than a deduction in that tax year.
These carryover provisions do not apply to
foreign taxes assigned to section 951A
category income. See section 904(c) and
Regulations section 1.904-2 for more
details.
If the corporation claims a foreign tax
credit for tax accrued but not paid, the IRS
may require a bond to be furnished on
Form 1117, Income Tax Surety Bond,
before the credit is allowed. See
Regulations section 1.905-2(c).
Foreign Tax Credit
Redeterminations
3. The exchange rate for each date
the foreign taxes were accrued and paid.
4. The amount of foreign taxes
accrued or paid on each such date (in
foreign currency).
• Foreign taxes that when paid differ
from accrued amounts claimed as
credits for a tax year beginning after
1997 because the corporation paid
more or less foreign tax than was
originally accrued or failed to pay
accrued taxes within 2 years.
1. The date on which the foreign taxes
were accrued.
2. The dates on which the foreign
taxes were paid.
3. The exchange rate used to
translate the foreign taxes in the year for
which the foreign taxes were accrued.
4. For taxes paid more than 2 years
after the year to which they relate, the
exchange rate at the time of payment.
5. The amount of tax accrued or paid
for each such date, and the amount of
accrued tax that was not paid within 2
years (in foreign currency).
• Foreign taxes deemed paid under
section 902 (for pre-2018 foreign
corporate tax years) or 960. If the
corporation is required to make a
redetermination of a U.S. tax liability under
Temporary Regulations section
1.905-3T(d)(3) (for pre-2018 foreign
corporate tax years) or section 905(c) (for
post-2017 foreign corporate tax years),
include the following basic information as
an attachment to the tax return for the year
for which the redetermination applies.
1. The dates and amounts of any
dividend distributions or other inclusions
from E&P for the affected year or years.
2. The amount of E&P from which
such dividends were paid for the affected
year or years.
3. The balances of the pools of E&P
and foreign taxes for pre-2018 foreign
corporate tax years or the foreign income
taxes properly attributable to inclusions for
post-2017 foreign corporate tax years
before and after the foreign tax
adjustment.
4. The information described above
for foreign taxes paid or accrued, as
applicable.
If foreign taxes deemed paid under
section 902 or 960 are adjusted in a
pre-2018 foreign corporate tax year and
the corporation is not required to
redetermine its U.S. tax liability, adjust the
appropriate pools of foreign taxes and
E&P using the rules outlined in Temporary
Regulations sections 1.905-3T(d)(2)(ii)
and 1.905-4T(b)(2).
Amended returns for all years affected
by foreign tax redeterminations that result
in U.S. tax deficiencies and that occur in
DRAFT AS OF
October 15, 2018
How to claim the excess credit. If the
corporation is carrying back the excess
credit to an earlier year, file an amended
tax return with a revised Form 1118 and
schedules (including a revised Schedule K
(Form 1118)).
Special rules apply to:
• The carryback and carryforward of
foreign taxes paid or accrued on
combined foreign oil and gas income or
related taxes (see section 907(f)), and
• An excess foreign tax credit for which
an excess limitation account was
established under section 960(b)(2)
(pre-2018 foreign corporate tax years) and
section 960(c)(2) (post-2017 foreign
corporate tax years).
Treaty-Based Return
Positions
Corporations that adopt a return position
that any U.S. treaty overrides or modifies
any provision of the Internal Revenue
Code, and causes (or potentially causes)
a reduction of any tax incurred at any time,
generally must disclose this position.
Complete Form 8833, Treaty-Based
Return Position Disclosure Under Section
6114 or Section 7701(b), and attach it to
Form 1118. See section 6114 and
Regulations section 301.6114-1 for
details.
Failure to make such a report may
result in a $10,000 penalty.
Proof of Credits
Form 1118 must be carefully filled in with
all the information called for and with the
calculations of credits indicated.
Important. Documentation (that is,
receipts of payments or a foreign tax
return for accrued taxes) is not required to
be attached to Form 1118. However, proof
must be presented upon request by the
IRS to substantiate the credit. See
Regulations section 1.905-2.
Instructions for Form 1118 (12-2018)
The corporation's foreign tax credit and
U.S. tax liability generally must be
redetermined if:
• Accrued foreign taxes when paid differ
from the amounts claimed as credits,
• Accrued foreign taxes are not paid
within 2 years after the close of the tax
year to which they relate, or
• Any foreign tax paid is fully or partially
refunded.
Except as provided in Temporary
Regulations section 1.905-3T(d)(3), a
redetermination of U.S. tax liability is not
required to account for the effect of a
redetermination in a pre-2018 foreign
corporate tax year of foreign tax paid or
accrued by a foreign corporation on the
amount of foreign taxes deemed paid
under section 902 or 960. Instead, the
foreign corporation's pools of E&P and
foreign taxes are adjusted in the year of
the foreign tax redetermination.
Reporting Requirements
If the corporation must redetermine its
U.S. tax liability, the corporation must:
• File an amended return and Form 1118
with the Service Center where it filed the
tax return on which it claimed the affected
foreign tax credit; and
• Provide identifying information such as
the corporation's name, address,
employer identification number (EIN), and
the tax year or years that are affected by
the redetermination.
Additional information required. If the
redetermination was because of one of the
following, the corporation must provide the
additional information as indicated.
• Refund of foreign taxes paid.
1. The date or dates on which the
foreign taxes were accrued, paid, and
refunded.
2. The amount of foreign taxes
accrued, paid, and refunded on each date
(in foreign currency).
3. The exchange rates used to
translate such amounts.
• Foreign taxes that when paid differ
from the accrued amounts claimed as
credits for a year beginning before
1998.
1. The date on which the foreign taxes
were accrued.
2. The dates on which the foreign
taxes were paid.
-5-
tax years beginning after November 7,
2007 (and tax years of foreign subsidiaries
ending with or within such tax years of
their domestic corporate shareholders),
are due no later than the due date (with
extensions) of the corporation's return for
its tax year in which the foreign tax
redetermination occurs. For special rules
relating to corporations under the
jurisdiction of the Large Business &
International Division, see Temporary
Regulations sections 1.905-4T(b)(3) and
1.905-4T(f)(2)(iii).
person, an EIN or reference ID number is
not required.
Example 1. Domestic corporation
earns sales income from sales to
unrelated persons. Domestic corporation
leaves column 1 blank and enters the
sales income in column 7.
Example 2. USC, a domestic
corporation, takes into account its
distributive share of partnership income
with respect to USPS, a domestic
partnership in which USC has a 60%
interest. In column 1, USC enters the
identifying number for USPS.
reference ID number assigned to the
entity.
• In the case of an entity classification
election that is made on behalf of a foreign
corporation on Form 8832, Regulations
section 301.6109-1(b)(2)(v) requires the
foreign corporation to have an EIN for this
election. For the first year that Form 1118
is filed after an entity classification election
is made on behalf of the foreign
corporation on Form 8832, both the new
EIN and the old reference ID number must
be entered in column 1, as explained in
the next paragraph.
You must correlate the identifying
numbers as follows: New EIN or reference
ID number [space] Old reference ID
number. If there is more than one old
reference ID number, you must enter a
space between each such number. As
indicated above, the length of a given
reference ID number is limited to 50
characters and each number must be
alphanumeric and no special characters
are permitted.
DRAFT AS OF
October 15, 2018
Interest and Penalties
In most cases, interest is computed on the
deficiency or overpayment that resulted
from the foreign tax adjustment (sections
6601 and 6611 and the related
regulations). See Temporary Regulations
section 1.905-4T(e) for additional
information.
If the corporation does not comply with
the requirements discussed above within
the time for filing specified, the penalty
provisions of section 6689 (and the related
regulations) will apply.
Specific Instructions
Report all amounts in U.S. dollars unless
otherwise specified. If it is necessary to
convert from a foreign currency, attach a
statement explaining how the conversion
rate was determined.
Lines a, b, and c at the top of page 1 of
the form. The corporation must complete
a separate Form 1118 for each applicable
category of income. See Categories of
Income, earlier, for the code to enter on
line a (at the top of page 1 of the form).
Also see those instructions for the country
code to enter on line b or line c, if
applicable.
Schedule A
Report gross income or (loss) from
sources outside the United States for the
applicable separate category in columns
3(a) through 12. Report the applicable
deductions to this gross income in
columns 14 and 15. Report any net
operating loss carryover in column 16.
Column 1. Column 1 requests an
employer identification number (EIN) or a
reference ID number.
Identifying Numbers
Where gross income is derived from a
related person (within the meaning of
section 267(b) or 707(b)), enter the EIN or
reference ID number of such related
person. In the case of income derived
from a QBU of the related person, enter
the EIN or reference ID number of the
QBU. If gross income is received or
derived from an entity other than a related
Reference ID numbers. A reference ID
number is required in column 1 when a
related person has no EIN. A "reference ID
number" is a number established by or on
behalf of the domestic corporation filing
Form 1118. With respect to Schedule A,
these numbers are used to uniquely
identify the payor with respect to
payments from related persons, in order to
determine the proper source of such
payment. With respect to schedules C
through F-3, these numbers are used to
uniquely identify foreign corporations in
order to keep track of those corporations
from tax year to tax year. The reference ID
number must meet the requirements set
forth below.
Note. Because reference ID numbers are
established by or on behalf of the U.S
corporation filing certain forms such as the
Form 1118, there is no need to apply to
the IRS to request a reference ID number
or for permission to use these numbers.
Requirements. The reference ID
number must be alphanumeric (defined
below) and no special characters or
spaces are permitted. The length of a
given reference ID number is limited to 50
characters.
For these purposes, the term
"alphanumeric" means the entry can be
alphabetical, numeric, or any combination
of the two.
The same reference ID number must
be used consistently from tax year to tax
year with respect to a given entity. If for
any reason a reference ID number falls out
of use (for example, the entity no longer
exists due to disposition or liquidation), the
reference ID number used for that entity
cannot be used again for another entity for
purposes of filing Form 1118.
There are some situations that require
correlation of a new reference ID number
with a previous reference ID number when
assigning a new reference ID number to
an entity. For example:
• In the case of a merger or acquisition, a
Form 1118 filer must use a reference ID
number which correlates the previous
reference ID number with the new
-6-
Note. This correlation requirement
applies only to the first year the new
reference ID number is used.
Branches. For each branch required to
file Form 8858, Information Return of U.S.
Persons With Respect to Foreign
Disregarded Entities (FDEs) and Foreign
Branches (FBs), that is not a QBU, as
defined under section 989, use a single
line to report such branch's gross income
and deductions. In column 1, enter
“Branch.” If there is more than one branch,
enter the identifying number of the branch
(as reported in Form 8858) after the word
Branch on each line. These amounts
should be reported on a Form 1118 other
than the Form 1118 for the foreign branch
income category.
Example. USC, a domestic
corporation, has a branch in Country X.
The activities of the branch do not
constitute a trade or business. In column
1, USC enters the word “Branch.” USC will
report the income and expenses of the
branch in the appropriate columns.
See below with respect to QBUs.
Column 2. Enter the two-letter codes
(from the list at IRS.gov/CountryCodes) of
all foreign countries and U.S. possessions
within which income is sourced and/or to
which taxes were paid, accrued, or
deemed paid.
Note. Complete this column with respect
to all income regardless of whether such
income is from a related person.
Special Cases for Columns 1
and 2
Qualified Business Units (QBUs). For
branches that are QBUs, use a single line
Instructions for Form 1118 (12-2018)
to report the aggregate branches' gross
income and deductions. Report
aggregated totals on a per country basis.
In column 1, enter “QBU” and enter the
country code in column 2. These amounts
should be reported on Form 1118 for
foreign branch category income or passive
category income.
column 1 blank, enter “HTKO” in column
2, and enter (as a positive number) in
column 18 the net amount of income that
is being reclassified to such category of
income. Note that the reclassifications are
being reported on a single line because it
is not necessary to report them on a
per-country basis. Also note that tax
reclassifications are needed on
Schedule B. See those instructions for
more information.
stock in that PFIC, report all income
deemed received (before gross-up) under
section 1291.
Column 4(a). Report dividends (before
gross-up) from sources outside the United
States for the applicable separate
category. This includes dividends eligible
for the dividends received deduction
under section 245A. Note that hybrid
dividends are not eligible for the dividends
received deduction.
DRAFT AS OF
October 15, 2018
Exception. If a QBU makes a
regarded payment to a related person,
use a single line for such QBU to report its
income and deductions. In column 1, enter
the identifying number of the QBU, and, in
column 2, enter the country code.
Section 863(b) gross income and deductions. Aggregate all section 863(b)
gross income and deductions and report
the totals on a single line. It may be
necessary to enter amounts in multiple
columns on that single line, depending
upon the nature of the section 863(b)
gross income and deductions. For
example, leave column 1 blank, enter
“863(b)” in column 2, and enter (as a
positive number) all section 863(b) gross
income (in columns 3 through 13) and all
section 863(b) deductions (in columns 14
through 17). Also enter the net amount in
column 18. Note that the totals are being
reported on a single line because it is not
necessary to report section 863(b) gross
income and deductions on a per-country
basis.
Regulated Investment Company (RIC)
pass-through amounts. Aggregate all
income passed through from regulated
investment companies (RICs) and report
the total on a single line. Leave column 1
blank, enter “RIC” in column 2, and report
the total in column 18. Note that the totals
are being reported on a single line
because it is not necessary to report the
RIC pass-through amounts on a
per-country basis.
Net operating losses (NOLs). Report
any net operating loss carryover on a
single line. Leave column 1 blank, enter
“NOL” in column 2, and report the total in
column 16. Note that the totals are being
reported on a single line because it is not
necessary to report the NOL on a
per-country basis.
Reclassifications of high-taxed income. Aggregate all reclassifications of
high-taxed income and report the total on
a single line. With respect to passive
category income, for items of income that
have been included on Schedule A and
that must be reclassified under sections
904(d)(2)(B)(iii)(II) and 904(d)(2)(F), leave
column 1 blank and enter “HTKO” in
column 2 and enter (as a negative
number) in column 18 the net amount of
income that is being reclassified from
passive category income. With respect to
the category of income to which such
passive income is reclassified, leave
Instructions for Form 1118 (12-2018)
Inclusions under sections 965 and
951A. Because computations for
inclusions under sections 951A and 965
are reported on separate forms, Form
8892, Global Intangible Low-Taxed
Income, and Form 965, Inclusion of
Deferred Foreign Income Upon Transition
to Participation Exemption System,
respectively, report the inclusion under
section 951A on a single line and the
aggregate section 965 inclusions on a
single line. Specifically, there is no need to
report the identifying numbers and various
countries associated with an inclusion
under either section 951A or section 965
on Form 1118.
For inclusions under section 965, enter
“965” in column 2 instead of a two-letter
code. Leave column 1 blank.
For inclusions under section 951A,
enter “951A” in column 2 instead of a
two-letter code. Leave column 1 blank.
Column 3(a). Report all inclusions under
sections 951(a)(1) (including amounts
under section 951(a)(1)(B) and section
965) and 951A (before gross-up). See
section 904(d)(3) and Look-Through
Rules, earlier, for more information with
respect to the separate category of such
inclusions. For each inclusion under
section 951(a)(1) (except for section 965
inclusions) with respect to a CFC, make
sure to enter the appropriate identifying
number in column 1 and the country of
residence of the CFC in column 2.
Note. Under the Act, inclusions under
section 951(a)(1) now include hybrid
dividends received by a CFC from another
CFC of the same U.S. shareholder.
Note. For the section 965 inclusions with
respect to a separate category, enter the
amount reported on line 3 of the domestic
corporation's Schedule H (Form 965).
Do not report the inclusion under
section 965(a) net of the deduction
allowed under section 965(c).
Furthermore, do not report the inclusion
under section 951A net of the deduction
allowed under section 250. The deduction
under section 965(c) and the deduction
under section 250 are taken into account
in Schedule A, columns 14(h) and (c),
respectively.
If the corporation is a U.S. shareholder
in a PFIC and receives distributions from
-7-
Note. In general, dividends from a
domestic corporation are U.S. source
income, including dividends from a
domestic corporation which has 80% or
more of its gross income from sources
outside the United States.
Columns 3(b) and 4(b). In column 3(b),
include taxes deemed paid by a domestic
corporation with respect to inclusions
under section 951(a)(1) and section 951A
as gross-ups. For inclusions under section
951(a)(1) in pre-2018 foreign corporate
tax years, the gross-up is equal to the
foreign taxes deemed paid with respect to
such inclusions as reported in
Schedule F-1. For inclusions under
section 951(a)(1) in post-2017 foreign
corporate tax years, the gross-up is the
taxes deemed paid as reported in the total
of Schedule C, column 7. The gross-up for
inclusions under section 951A is the
amount computed in Schedule D, Part II,
column 3.
Include taxes deemed paid with
respect to an inclusion under section 965
as a gross-up. This is the amount reported
on line 9 of Schedule H (Form 965)
reduced as provided in section 965(g)(4).
See Regulations section 1.960-3(b) for
exceptions.
In column 4(b), include taxes deemed
paid by a domestic corporation under
section 902 on distributions in a pre-2018
foreign corporate tax year by certain
foreign corporations in income as a
dividend gross-up. The gross-up is equal
to taxes deemed paid with respect to
dividends reported on Schedule F-1.
Column 5. Enter interest received from
foreign sources. See section 861(c) for the
treatment of interest from a domestic
corporation that meets the foreign
business requirement.
Column 7. Include gross income from
sales (net of returns and allowances and
less costs of goods sold). Include the
section 863(b) sales in this column.
Column 8. Include gross income,
including compensation, commissions,
fees, etc., for technical, managerial,
engineering, construction, scientific, or
similar services outside the United States.
Column 9. Include any foreign source
exchange gain or loss recognized under
section 986(c) on a distribution of PTI.
Column 10. Include any foreign source
exchange gain or loss recognized under
section 987(3) on a remittance.
Column 11. Include any foreign source
exchange gain or loss recognized under
section 988.
Include any reduction of foreign source
capital gain net income. If foreign source
capital gain net income from all separate
categories is more than the capital gain
net income reported on the corporation's
tax return, enter a pro rata portion of the
excess as a negative number in each
separate category. See Capital Gains,
earlier.
which this Form 1118 is being completed.
Report all amounts in U.S. dollars. If the
corporation must convert from foreign
currency, attach a schedule showing the
amounts in foreign currency and the
exchange rate used.
For corporations claiming the credit on
the accrual basis, the exchange rate for
translating foreign taxes into U.S. dollars
will generally be an average exchange
rate for the tax year to which the taxes
relate. However, the exchange rate on the
date of payment must be used if the
foreign taxes (a) are paid more than 2
years after the close of the tax year to
which they relate, or (b) are paid in a tax
year prior to which they relate. In addition.
for tax years beginning after December
31, 2004, corporations may elect to use
the exchange rate on the date of payment.
Corporations may elect to use the
payment date exchange rates for all
creditable foreign income taxes or only
those taxes that are attributable to QBUs
with U.S. dollar functional currencies. The
election is made by attaching a statement
to a timely filed (including extensions)
Form 1118 that indicates the corporation
is making the election under section
986(a)(1)(D). Once made, the election
applies for all subsequent tax years and is
revocable only with the consent of the IRS.
See section 986(a).
DRAFT AS OF
October 15, 2018
Note. Section 988 exchange gain or loss
is sourced by reference to the residence of
the taxpayer or the QBU of the taxpayer
on whose books the nonfunctional
currency asset or liability is properly
reflected.
Column 12. Include other gross income
from sources outside the United States for
the applicable separate category. Attach a
schedule identifying the gross income by
type.
Column 14(a). Enter the dividends
received deduction under section 245A.
This should be equal to the amount
reported in Schedule A, column 4(a), if all
such dividend income was paid after
December 31, 2017, and is eligible for the
dividends received deduction.
Note. Certain hybrid dividends are not
eligible for the dividends received
deduction under section 245A. See
section 245A(e)(1).
Note. An amount treated as a dividend
under section 1291(d)(2)(B) (related to
PFICs) is ineligible for the dividends
received deduction. See section 245A(f).
Column 14(b). Enter the deduction
allowed under section 250(a)(1)(A) with
respect to Foreign Derived Intangible
Income, taking into account the other
provisions of section 250, and allocated
and apportioned to foreign source income
in the applicable separate category of
income.
Column 14(c). Enter the deduction
allowed under section 250(a)(1)(B) with
respect to Global Intangible Low-Taxed
Income (section 951A inclusion), taking
into account the other provisions of
section 250, and allocated and
apportioned to foreign source income in
the applicable separate category of
income.
Column 14(f). Enter expenses allocable
to gross income from sales (the amount
entered in column 7) and allocated and
apportioned to foreign source income in
the applicable separate category of
income.
Column 14(h). Include other deductions
allocable to income from sources outside
the United States (dividends, interest, etc.)
for the applicable separate category that
are not otherwise included in Schedule H.
In column 14(h), do not include
expenses directly allocable to dividends
eligible for the dividends received
deduction under section 245A on
Schedule A. Such directly allocable
expenses may include wire transfer,
currency exchange, and similar fees
incurred in connection with the payment of
dividends eligible for the dividends
received deduction under section 245A.
See section 904(b)(4).
Note. Enter the dividends received
deduction under section 245A in column
14(a).
Column 15. Enter only the apportioned
share from the applicable portion of line 3
(that corresponds to the category of
income for which you are completing Form
1118) of Schedule H, Part II, column (d),
that relates to gross income reported in
columns 3 through 12.
It is not necessary to report the
apportioned expenses on a related-person
or per-country basis. Therefore, only enter
an amount in the total of column 15.
Note. The reduction required by section
904(b)(4) in deductions relating to
dividends eligible for the dividends
received deduction under section 245A is
taken into account (for purposes of
determining (foreign source) separate
limitation income or loss) by carrying to
Schedule A, column 15, only the amounts
on Schedule H, Part II, column (d), lines
3a(2), 3b(2), 3c(2), 3d(2), 3e(2), and 3f(2).
Column 16. Enter the corporation's net
operating loss as defined in section 172
that is attributable to foreign source
income in the applicable separate
category. If the net operating loss is part of
an overall foreign loss, see Regulations
section 1.904(g)-3 for allocation rules that
apply in determining the amount to enter in
column 16.
It is not necessary to report the NOL
adjustment on a related person or
per-country basis. Therefore, only enter an
amount in the total of column 16. See Net
operating losses, earlier.
Schedule B
Part I—Foreign Taxes Paid,
Accrued, and Deemed Paid
Report only foreign taxes paid, accrued, or
deemed paid for the separate category for
-8-
The information entered on each
line of Schedule B, Part I, must
CAUTION pertain to an identifying number
and/or country code specified on the
corresponding line of Schedule A, column
1 and/or column 2, even if no other
information is entered in Schedule A. If
foreign tax was paid to more than one
country on the same income, enter the
letter corresponding to that income on
multiple lines. For example, if the taxpayer
entered on Schedule A, line A, foreign
source sales income and paid tax to both
Country A and Country B on such income,
the filer would complete two lines A on
Schedule B with the tax paid to Country A
on one line and the tax paid to Country B
on the other line.
!
Column 1. Claim the foreign tax credit for
the tax year in which the taxes were paid
or accrued, depending on the method of
accounting used.
Note. For any given tax year, the
corporation can use the cash method or
the accrual method, but not both. If a
credit for taxes accrued is claimed, show
both the date accrued and the date paid (if
paid).
If the cash method of accounting is
used, an election under section 905(a)
may be made to claim the credit based on
accrued taxes. If this election is made,
figure the foreign tax credit for all
subsequent tax years on the same basis.
Instructions for Form 1118 (12-2018)
Also, the credits are subject to the
redetermination provisions of section
905(c). See Foreign Tax Credit
Redeterminations, earlier, for details.
• The tax deemed paid with respect to
inclusions under section 965 equal to the
amount reported on line 9 of Schedule H
(Form 965).
Column 2(a). Include foreign taxes
withheld at source on actual distributions
from a first-tier foreign corporation. After
December 31, 2017, such taxes are not
creditable to the extent the distribution is a
dividend eligible for a dividends received
deduction under section 245A. However,
continue to report the taxes in this column
2(a) and reverse the taxes on Schedule G.
Note. In column 3, do not reduce the tax
deemed paid with respect to the inclusion
under section 965 by the disallowed taxes.
See section 965(g). Such disallowance
will be entered on Schedule G, line F, and
included on Schedule B, Part II, line 3.
Column 2(b). Include foreign taxes
withheld at source on PTI distributions
from a first-tier foreign corporation. See
sections 901 and 903. Do not include
foreign taxes withheld at source on PTI
distributions from a lower-tier foreign
corporation to an upper-tier foreign
corporation and then deemed paid by the
domestic corporation under section 960(a)
(3) (pre-2018 foreign corporate tax years)
or 960(b)(post-2017 foreign corporate tax
years) on a distribution from the upper-tier
foreign corporation to the domestic
corporation. These amounts are reported
on Schedule E.
Line 1b. If the corporation had a foreign
tax credit splitting event in a prior tax year
that resulted in a suspension of foreign
taxes under section 909, enter the amount
of those taxes attributable to related
income taken into account in the current
tax year. The amount of taxes suspended
in a prior tax year should have appeared
on Schedule G, line E, on your Form 1118
for that prior tax year. See the regulations
under section 909 for rules for determining
when related income is taken into account
and the amount of previously suspended
taxes that are attributable to that related
income.
For example, the net worldwide taxable
income you report on line 8c should not
include expenses allocated and
apportioned to dividends for which a
dividends received deduction is allowed
under section 245A (see section 904(b)
(4)). Because the line 8a amount (taxable
income from your tax return) includes
these expenses, a positive adjustment is
needed on line 8b to back out these
expenses (thus increasing the net
worldwide taxable income reported on
line 8c). As such, include as a negative
adjustment on line 8b these expense
amounts from Schedule H, lines 5 and 6.
DRAFT AS OF
October 15, 2018
Column 2(c). Include foreign taxes
withheld on branch distributions or
transfers as determined under section
987. See sections 901 and 903.
Column 2(f). Include foreign taxes
withheld at source on income not
specifically reportable in columns 2(a)
through 2(e). For example, some
countries withhold at source on sales of
stock of their resident companies and
such foreign tax paid or accrued by the
domestic corporate seller would be
reported in column 2(f).
Column 2(g). Include foreign taxes paid
or accrued on the portion of sales income
sourced to a foreign country. This does
not include taxes withheld at source
reported in column (f).
Column 3. The amounts reported in
column 3 will not correspond with the
identifying number and countries listed in
Schedule A, columns 1 and 2. Add the
following amounts and enter on the Totals
line of this column.
• The tax deemed paid under section
960(a) equal to the total reported in
Schedule C, column 7.
• The tax deemed paid under section
960(d) equal to the total amount reported
in Schedule D, Part II, column 4.
• The tax deemed paid under section
960(b) equal to the total reported in
Schedule E, Part I, column 5.
• The tax deemed paid under section 902
and section 960 equal to the total of the
following amounts reported in
Schedule F-1—the total of Part I, column
12; the total of Part II, column 8(b); and the
total of Part III, column 8.
Instructions for Form 1118 (12-2018)
Part II—Separate
Foreign Tax Credit
Line 4. If the corporation is reclassifying
high-taxed income from passive category
income, enter the related tax adjustment
on line 4. Indicate whether the adjustment
is positive or (negative).
Line 5. Enter the total amount of foreign
taxes carried forward or back to the
current year. The amount of foreign taxes
carried forward to the current tax year is
the amount from Schedule K (Form 1118),
line 3, column (xiv), plus the amount from
Schedule I, Part III, line 3. Attach
Schedule I (Form 1118) and Schedule K
(Form 1118) to Form 1118.
Line 7. If the corporation has a current
year overall domestic loss or recapture of
an overall domestic loss account, or, in
any of its separate categories, a current
year separate limitation loss, an overall
foreign loss, recapture of an overall
foreign loss, or current year separate
limitation income in a category in which it
has a beginning balance of income that
must be recharacterized, adjustments
must be made. See the separate
instructions for Schedule J to determine if
that schedule must be filed.
Line 8b. Enter as a positive amount
taxable income that should not be taken
into account in computing the foreign tax
credit limitation. These adjustments will
decrease the net worldwide taxable
income you report on line 8c (see the
line 8c instructions below).
Enter as a negative amount
adjustments that increase the net
worldwide taxable income you report on
line 8c (see the line 8c instructions below).
-9-
Line 8c. If the negative adjustments
included on line 8b (such as those
amounts coming in from Schedule H, lines
5 and 6) exceed any positive adjustments
that are also included on line 8b, the net
line 8b adjustment will be negative. When
this net negative amount on line 8b is
subtracted from a positive taxable income
amount on line 8a, the result will be a
positive line 8c amount that is larger than
the positive amount on line 8a.
Line 9. Divide line 7 by line 8c to
determine the limitation fraction. Enter the
fraction on line 9 as a decimal with the
same number of places as the number of
digits to the left of the decimal in adjusted
taxable income on line 8c. For example, if
adjusted taxable income on line 8c is
$100,000, compute the limitation fraction
to 6 decimal places.
Line 11. The limitation may be increased
under section 960(c) (section 960(b) for
pre-2018 foreign corporate tax years) for
any tax year that the domestic corporation
receives a PTI distribution. If an increase
in the limit under section 960(c)(5)
(section 960(b)(5) for pre-2018 foreign
corporate tax years) exceeds the
domestic corporation's U.S. income tax
liability, the excess is deemed an
overpayment and can be claimed on the
domestic corporation's income tax return
as a refundable credit (Form 1120,
Schedule J, Part III, line 20d, or the
corresponding line of other corporate
income tax returns).
Part III—Summary of
Separate Credits
Complete Part III only once. Enter on lines
1 through 6 the separate foreign tax
credits from Part II, line 12, for each
applicable separate category.
Note. Complete Part III only on the Form
1118 with the largest amount entered on
Part II, line 12.
Line 8. If the corporation participates in or
cooperates with an international boycott,
the foreign tax credit may be reduced.
Complete Form 5713, International
Boycott Report. If the corporation chooses
to apply the international boycott factor to
calculate the reduction in the credit, enter
the amount from line 2a(3) of Schedule C
(Form 5713) on line 8.
Part I—Foreign Corporation's
Tested Income and Foreign
Taxes
reported on Schedule E. Such taxes are
reported on Schedule B, Part I, column
2(b), as Distributions of Previously Taxed
Income.
Schedule C
Column 1a. Enter the name of each CFC
that has tested income, as defined in
section 951A(c)(2)(A). Do not report
information of CFCs with tested losses, as
defined in section 951A(c)(2)(B).
Part I—Tax Deemed Paid by
Domestic Corporation
Report taxes deemed paid by the
domestic corporation under section 960(a)
with respect to inclusions under section
951(a)(1). This schedule should be
completed by separate category of
income. Do not report taxes deemed paid
with respect to inclusions under section
965 on Schedule C. Report such amounts
on Schedule F (Form 965) and
Schedule H (Form 965).
Column 1a. Enter the name of each
first-tier foreign corporation that had
foreign income taxes properly attributable
to PTI distributions to a domestic
corporation that were not previously
deemed paid by a domestic corporation.
Report corresponding distributions by a
lower-tier foreign corporation to an
upper-tier foreign corporation, including
the first-tier CFC, which are entered in
Schedule E, Part II, column 7. In column
1a, preceding the name of the distributing
foreign corporation, enter a unique
alphabetic character (see the instructions
for Part II, column 1a, for more
information, including an example).
DRAFT AS OF
October 15, 2018
Column 1a. Enter the name of the foreign
corporation whose earnings were included
in income by the domestic corporation
filing the return.
Column 1b. See Reference ID numbers,
earlier.
Column 2. Enter the year and month in
which the foreign corporation's U.S. tax
year ended using format YYYYMM.
Example. When figuring foreign taxes
deemed paid in 2018 by a calendar year
domestic corporation with respect to
inclusions out of E&P not previously taxed
for the foreign corporation's tax year that
ended June 30, 2018, enter "201806."
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4. For each line, enter the E&P in
functional currency for the tax year
indicated in column 2.
Column 5. Enter foreign taxes paid or
accrued by the foreign corporation in U.S.
dollars for the tax year indicated in column
2.
Note. See the instructions for
Schedule G, later, for information on
reduction of foreign taxes for failure to
furnish information required under section
6038.
Column 6(b). Enter the amount from
column 6(a) translated into U.S. dollars at
the appropriate exchange rate specified in
section 989(b).
Column 7. Enter the tax deemed paid
computed under section 960(a).
Schedule D
Report taxes deemed paid by the
domestic corporation under section 960(d)
with respect to inclusions under section
951A. This schedule should only be
completed with respect to the Form 1118
filed for the section 951A category, and, in
rare cases, the passive income category.
Column 1b. See Reference ID numbers,
earlier.
Column 2. Enter the year and month in
which the CFC's U.S. tax year ended
using the format YYYYMM.
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4. Enter the pro rata share of
each CFC's tested income as reported on
Form 8992, Schedule A, column (e). Do
not offset such tested income by tested
losses of another CFC.
Column 5. Enter the pro rata share of
foreign income taxes paid or accrued by
the CFC which are properly attributable to
the tested income of such foreign
corporation taken into account by such
domestic corporation under section 951A.
Note. See the instructions for
Schedule G, later, for information on
reduction of foreign taxes for failure to
furnish information required under section
6038.
Part II—Foreign Income Tax
Deemed Paid
Column 1. Enter the Global Intangible
Low-Taxed Income (that is, the section
951A inclusion) from Form 8992, Part II,
line 3.
Column 3. This amount as determined
on this line is the section 78 gross-up with
respect to an inclusion under section 951A
which is reported on Schedule A, column
3(b).
Schedule E
Report taxes deemed paid by the
domestic corporation under section 960(b)
with respect to PTI distributions. Taxes
reported on this schedule are with respect
to foreign taxes levied on distributions of
PTI from a lower-tier foreign corporation to
an upper-tier foreign corporation when
those taxes are subsequently deemed
paid by the domestic corporation upon
distribution of such PTI by the upper-tier
foreign corporation to the domestic
corporation.
Note. Foreign taxes levied on a domestic
corporation as a result of distributions of
PTI from a first-tier foreign corporation to
such domestic corporation are not
-10-
Column 1b. See Reference ID numbers,
earlier.
Column 2. Enter the year and month for
the U.S. tax year of the first-tier foreign
corporation in which the first-tier foreign
corporation made the PTI distribution to
the domestic corporation. Use the format
YYYYMM. If the PTI is with respect to
more than one type, for example, PTI with
respect to inclusions under section 965
and PTI with respect to inclusions under
section 951A, this should be distinguished
on Form 5471, Information Return of U.S.
Persons With Respect to Foreign
Corporations, Schedule J, but is not
distinguished on Schedule E.
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4. Enter the PTI distribution in
the functional currency of the first-tier
foreign corporation.
Column 5. Enter the U.S. dollar amount
of the first-tier foreign corporation's
income taxes properly attributable to the
PTI distribution reported in column 4 and
not deemed to have been paid by the
domestic corporation for the tax year or
any prior tax year. To determine the
appropriate translation rate, see section
986. Report the total taxes attributable to
such PTI distributions on Schedule B, Part
I, column 3.
Note. With respect to distributions of PTI
resulting from inclusions under section
965, report the taxes properly attributable
to such PTI without reduction for the
foreign tax credit disallowance. The
disallowance is taken into account in
Schedule G. See the instructions later.
Instructions for Form 1118 (12-2018)
Part II—Tax Paid or Deemed
Paid by First- and Lower-Tier
Foreign Corporations
The purpose of Part II is to track the
current year and historical PTI
distributions between foreign corporations
and taxes paid or accrued by upper-tier
foreign corporations on such PTI
distributions. These amounts are to be
reported on this Part II only to the extent
that there is a PTI distribution to the
domestic corporation entered in Part I.
The amounts entered in Part II could relate
to current year or prior year PTI
distributions between foreign
corporations, so the applicable year
should be noted in column 2 using the
format YYYYMM.
Column 5. Enter the U.S. tax year of the
recipient foreign corporation which
includes the date the foreign corporation
received the PTI distribution.
Column 6. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column
Entry
1a
A CFC2
1b
10042
2
201912
3
XX
4a
CFC1
4b
10041
5
201912
6
XX
7
80u
8
20
DRAFT AS OF
October 15, 2018
Column 1a. Enter the name of each
lower-tier foreign corporation that
distributed PTI to an upper-tier foreign
corporation, that in turn was distributed in
the current year to a domestic corporation.
In column 1a, preceding the name of the
distributing foreign corporation, enter a
unique alphabetic character that
corresponds to a PTI distribution reported
in Part I. For example, in the case of a PTI
distribution from CFC3, third-tier foreign
corporation, to CFC2, second-tier foreign
corporation, to CFC1, first-tier foreign
corporation, to USP, a domestic
corporation, the domestic corporation
correlates the distributions as follows.
Part I, column 1a. Enter “A CFC1” (to
report distribution from CFC1 to domestic
corporation).
Part II, column 1a. Enter “A CFC2” (to
report distribution from CFC2 to CFC1),
and enter “A CFC3” (to report distribution
from CFC3 to CFC2).
If no foreign income taxes are properly
attributable to such PTI distribution, there
is no need to enter any information with
respect to the foreign corporations
involved and such PTI distribution.
Column 1b. See Reference ID numbers,
earlier.
Column 2. Enter the U.S. tax year of the
distributing foreign corporation which
includes the date when the foreign
corporation distributed the PTI to the
upper-tier foreign corporation.
Note. If the PTI distributed in Part I relates
to PTI distributions from lower-tier foreign
corporations made in more than one tax
year, figure and show the tax deemed paid
on a separate line for each distribution.
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4b. See Reference ID numbers,
earlier.
Instructions for Form 1118 (12-2018)
Column 7. Enter the PTI distribution in
the functional currency of the CFC.
Column 8. Enter the U.S. dollar amount
of the recipient foreign corporation's
income taxes properly attributable to the
PTI distribution reported in column 7 and
not deemed to have been paid by the
domestic corporation for any prior tax
year. To determine the appropriate
translation rate, see section 986.
Note. See the “Note” in the instructions
for Part I, column 5, for purposes of
reporting foreign income taxes properly
attributable to PTI distributions resulting
from inclusions under section 965.
Note. See the instructions for
Schedule G, later, for information on
reduction of foreign taxes for failure to
furnish information required under section
6038.
Example 1. USC is a domestic
corporation. CFC1, CFC2, and CFC3 are
all incorporated or organized in Country X.
The U.S. tax year for USC, CFC1, CFC2,
and CFC3 ends on December 31. During
the U.S. tax year ending December 31,
2019, CFC2 and CFC3, both second-tier
CFCs, each distribute all of their
respective PTI balances of 100u to CFC1,
a first-tier CFC that wholly owns CFC2 and
CFC3. CFC1 pays 40u equal to $40 of
taxes to Country X on the 200u PTI
distributions, reducing the PTI to 160u. In
that same year, CFC1 distributes all 160u
of PTI to USC. CFC1 does not have any
other PTI balances. The reference ID
number for CFC1, CFC2, and CFC3 are
10041, 10042, and 10043, respectively.
The country code for Country X is XX.
USC makes the following entries on a
single line on Schedule E, Part I.
Column
Entry
1a
A CFC1
1b
10041
2
201912
3
XX
4
160u
5
40
USC makes the following entries on the
first of two lines on Schedule E, Part II.
-11-
USC makes the following entries on the
second of two lines on Schedule E, Part II.
Column
Entry
1a
A CFC3
1b
10043
2
201912
3
XX
4a
CFC1
4b
10041
5
201912
6
XX
7
80u
8
20
Example 2. USC is a domestic
corporation. CFC1, CFC2, and CFC3 are
all incorporated or organized in Country X.
The U.S. tax year for USC, CFC1, CFC2,
and CFC3 ends on December 31. During
CFC3’s U.S. tax year ending December
31, 2018, CFC3 distributes its entire PTI
balance of 100u to CFC2, a CFC that
wholly owns CFC3. CFC2 pays tax of 20u
to Country X equal to $20 on the 100u PTI
distribution, reducing the PTI to 80u. In
CFC2’s U.S. tax year ending December
31, 2019, CFC2 distributes 40u of the PTI
to CFC1, a CFC that wholly owns CFC2.
CFC1 pays no tax on such distribution, but
is deemed to pay $10 of the tax paid by
CFC2. In CFC1’s U.S. tax year ending
December 31, 2020, CFC1 distributes 40u
to USC, who wholly owns CFC1. USC
pays no tax on such distribution, but is
deemed to pay $10 of the tax paid by
CFC2. The reference ID numbers for
CFC1, CFC2, and CFC3 are 20041,
20042, and 20043, respectively. The
country code for Country X is XX.
Schedule E reporting is not necessary for
USC’s tax years ending December 31,
2018, and December 31, 2019. For USC's
tax year ending December 31, 2020, USC
makes the following entries on a single
line on Schedule E, Part I.
Column
Entry
1a
A CFC1
1b
20041
2
202012
3
XX
4
40u
5
10
section 902(c)(7) prior to its repeal by P.L.
115-97.
Identifying Numbers
On Schedules F-1, F-2, and F-3, columns
1b request an employer identification
number (EIN) and columns 1c request a
reference ID number. A reference ID
number is required in columns 1c only in
cases where no EIN was entered for the
foreign corporation in column 1b.
However, filers are permitted to enter both
an EIN in column 1b and a reference ID
number in column 1c.
Example. When figuring foreign taxes
deemed paid in 2018 by a calendar year
domestic corporation with respect to
dividends and inclusions out of post-1986
undistributed earnings for the foreign
corporation's tax year that ended June 30,
2018, enter "201806."
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
DRAFT AS OF
October 15, 2018
USC makes the following entries on the
first of two lines on Schedule E, Part II.
Column
Entry
1a
A CFC2
1b
20042
2
201912
3
XX
4a
CFC1
4b
20041
5
201912
6
XX
7
40u
8
10
USC makes the following entries on the
second of two lines on Schedule E, Part II.
Column
Entry
1a
A CFC3
1b
20043
2
201812
3
XX
4a
CFC2
4b
20042
5
201812
6
XX
7
40u
8
10
Reference ID numbers. For basic
information about reference ID numbers
(including the requirements as to the
characters permitted), see Reference ID
numbers in the instructions for
Schedule A. Because of the fact that, on
Schedules F-1, F-2, and F-3, EINs and
reference ID numbers are requested in
two separate columns (1a and 1b),
whereas on Schedule A, these numbers
are entered in one column (column 1), the
following additional clarification is
provided regarding certain situations that
require correlation of a new reference ID
number with a previous reference ID
number when assigning a new reference
ID number to a foreign corporation. For
example:
In the case of an entity classification
election that is made on behalf of a foreign
corporation on Form 8832, Regulations
section 301.6109-1(b)(2)(v) requires the
foreign corporation to have an EIN for this
election. For the first year that Form 1118
is filed after an entity classification election
is made on behalf of the foreign
corporation on Form 8832, the new EIN
must be entered in column 1b and the old
reference ID number must be entered in
column 1c. In subsequent years, the Form
1118 filer may continue to enter both the
EIN and the reference ID number, but
must enter at least the EIN in column 1b.
See the instructions for Schedule A for
additional examples in which different
reference ID numbers should be reported
in columns 1a and 1b.
Schedule F-1
Schedules F-1, F-2, and
F-3
Note. As explained earlier, Schedules
F-1, F-2, and F-3, should only be
completed with respect to dividends and
inclusions in pre-2018 foreign corporate
tax years.
If a corporation is a partner in a
partnership, for taxes of foreign
corporations for tax years beginning after
October 22, 2004, stock owned directly or
indirectly, by or for a partnership shall be
considered as being owned
proportionately by its partners. See
Part I—Dividends and Deemed
Inclusions From Post-1986
Undistributed Earnings
Column 1a. Enter the name of the foreign
corporation (or DISC or former DISC)
whose earnings were distributed to, or
included in income by, the domestic
corporation filing the return.
Column 1b and 1c. See Reference ID
numbers above.
Column 2. Enter the year and month in
which the foreign corporation's U.S. tax
year ended using the format YYYYMM.
-12-
Column 4. Enter the distributing
corporation's post-1986 undistributed
earnings pool for the separate category for
which the schedule is being completed.
Generally, this amount is the
corporation's E&P (computed in the
corporation's functional currency
according to sections 964(a) and 986)
accumulated in tax years beginning after
1986, determined as of the close of the
corporation's tax year without reduction for
any earnings distributed or otherwise
included in income (that is, under section
304, 367(b), 951(a), 1248, or 1293) during
the current tax year.
Post-1986 undistributed earnings are
reduced to account for distributions or
deemed distributions that reduced E&P
and inclusions that resulted in previously
taxed amounts described in section 959(c)
(1) and (2) or section 1293(c) in prior tax
years beginning after 1986. See
Regulations section 1.902-1(a)(9). Also,
see section 902(c)(3) and Regulations
section 1.902-1(a)(13) for special rules
treating earnings accumulated in
post-1986 years as pre-1987 accumulated
profits when no U.S. shareholder was
eligible to claim a section 902 credit with
respect to taxes paid by the foreign
corporation.
Column 5. Enter the opening balance in
the distributing corporation's post-1986
foreign income taxes pool for the tax year
indicated. This amount is the foreign
income taxes paid, accrued, or deemed
paid (in U.S. dollars) by the foreign
corporation for prior tax years beginning
after 1986, reduced by foreign taxes
attributable to distributions or deemed
inclusions of earnings in prior tax years.
See Regulations section 1.902-1(a)(8)(i).
Column 6(a). Enter the foreign income
taxes paid or accrued by the foreign
corporation for the tax year indicated,
translated into U.S. dollars using the
exchange rate specified in section 986(a).
Column 6(b). Enter the foreign income
taxes deemed paid (under section 902(b))
by the corporation for the tax year
indicated. This is generally the amount(s)
from Schedule F-2, Part I, Section A,
column 10, and Section B, column 8(b).
However, when determining deemed paid
taxes under section 960(a) related to a
subpart F inclusion from a lower-tier
corporation (that is, a corporation below
Instructions for Form 1118 (12-2018)
the first-tier foreign corporation), enter the
applicable amounts for that lower-tier
foreign corporation. For example, when
determining deemed paid taxes under
section 960(a) related to a subpart F
inclusion from a second-tier foreign
corporation, enter the applicable
amount(s) from Schedule F-2, Part II,
Section A, column 10, and Schedule F-2,
Part II, Section B, column 8(b).
Column 4. For each line, enter the
pre-1987 accumulated profits for the tax
year indicated in column 2, computed in
functional currency under section 902.
See Regulations section 1.902-1(a)(10)(i)
and (ii).
Column 5. Enter the foreign taxes paid
and deemed paid (in functional currency)
with respect to the pre-1987 accumulated
profits entered in column 4 for the tax year
indicated in column 2. See the instructions
for Schedule G, later, for information on
reduction of foreign taxes for failure to
furnish information required under section
6038.
income of the domestic corporation filing
the return.
Columns 1b and 1c. See Reference ID
numbers, earlier.
Column 2. Enter the year and month in
which the corporation's pre-1987 tax year
ended using the format YYYYMM. If the
deemed inclusion is from the accumulated
E&P of more than one tax year, figure and
show the tax deemed paid on a separate
line for each year.
DRAFT AS OF
October 15, 2018
Column 8(a). Report the sum (in the
foreign corporation's functional currency)
of all dividends paid and deemed
inclusions out of post-1986 undistributed
earnings for the tax year indicated.
Column 8(b). Report the column 8(a)
amounts, translated into U.S. dollars at the
appropriate exchange rates (as defined in
section 989(b)). If the foreign corporation's
functional currency is the U.S. dollar, do
not complete column 8(b).
Column 11. Enter foreign income taxes
deemed paid during the current tax year
that exceed the limit (with respect to
section 956 inclusions) described in
section 960(c).
Part II—Dividends Paid Out of
Pre-1987 Accumulated Profits
Use a separate line for each dividend
paid. If a dividend is paid out of the
accumulated profits of more than 1
pre-1987 tax year, figure and show the tax
deemed paid on a separate line for each
tax year. In applying section 902, the IRS
may determine from which tax year's
accumulated profits the dividends were
paid. See Regulations section 1.902-3(g)
(4).
Important. The formula for calculating
foreign taxes deemed paid under section
902 with respect to dividends paid in a
post-1986 year out of pre-1987
accumulated profits requires that all
components (dividends, accumulated
profits, and taxes) be maintained in the
foreign corporation's functional currency
and translated into U.S. dollars at the
exchange rate in effect on the date of the
dividend distribution. See Regulations
section 1.902-1(a)(10)(ii) and (iii).
Column 1a. Enter the name of the
first-tier foreign corporation (or DISC or
former DISC) that paid a dividend out of
pre-1987 profits to the domestic
corporation filing the return.
Column 1b and 1c. See Reference ID
numbers, earlier.
Column 2. Enter the year and month in
which the foreign corporation's pre-1987
tax year ended using the format YYYYMM.
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Instructions for Form 1118 (12-2018)
Column 6(a). Enter the amount of each
dividend paid by the first-tier foreign
corporation (or DISC or former DISC) to
the domestic corporation (in functional
currency) out of the accumulated profits of
the pre-1987 tax year indicated in column
2.
Column 6(b). Enter the amount from
column 6(a) translated into U.S. dollars
using the spot exchange rate in effect on
the date of distribution. See Regulations
sections 1.902-1(a)(10)(ii) and 1.902-3(g)
(1).
Column 8(a). Multiply column 5 by
column 7. Enter this amount in column
8(a) in functional currency.
Column 8(b). Enter the amount from
column 8(a) translated into U.S. dollars at
the spot exchange rate in effect on the
date of distribution. See Regulations
section 1.902-1(a)(10)(iii).
Part III—Deemed Inclusions
From Pre-1987 Earnings and
Profits
Important. The formula for calculating
foreign taxes deemed paid under section
960 with respect to deemed inclusions
(that is, under section 956 or 1248) in a
post-1986 year out of pre-1987 E&P
requires that earnings and profits and
foreign taxes be calculated in U.S. dollars
under the rules of Regulations section
1.964-1, and then translated into the
foreign corporation's functional currency at
the exchange rate in effect on the first day
of the foreign corporation's first post-1986
tax year. See Notice 88-70, 1988-2 C.B.
369. The deemed inclusion is then
translated into U.S. dollars at the
appropriate exchange rate specified in
section 989(b). Foreign income taxes paid
in pre-1987 tax years are translated into
U.S. dollars for purposes of section 960 at
the exchange rate in effect when the
foreign taxes were paid. See Regulations
section 1.964-1 and Temporary
Regulations section 1.905-5T(b)(1).
Column 1a. Enter the name of the first- or
lower-tier foreign corporation whose
earnings were deemed included in the
-13-
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4. For each line, enter the E&P
calculated in U.S. dollars under
Regulations section 1.964-1, translated
into functional currency under Notice
88-70 for the tax year indicated in column
2.
Column 5. Enter foreign taxes paid and
deemed paid (in U.S. dollars) with respect
to the E&P entered in column 4. See the
instructions for Schedule G, later, for
information on reduction of foreign taxes
for failure to furnish information required
under section 6038.
Column 6(b). Enter the amount from
column 6(a) translated into U.S. dollars at
the appropriate exchange rate specified in
section 989(b).
Schedule F-2
Part I—Tax Deemed Paid by
First-Tier Foreign Corporations
Section A—Dividends Paid Out of
Post-1986 Undistributed Earnings
Column 1a. Enter the name of the
second-tier foreign corporation and the
name of the first-tier foreign corporation to
which it paid a dividend out of post-1986
undistributed earnings.
Example. The domestic corporation
filing the return owns all of the stock of
CFC1 and CFC2. CFC1 and CFC2 each
own 50% of the stock of CFC3. In 2017,
CFC3 pays a dividend to CFC1 and
CFC2. Use one line to report dividends
from CFC3 to CFC1 and another line to
report dividends from CFC3 to CFC2.
Columns 1b and 1c. See Reference ID
numbers, earlier.
Column 2. Enter the year and month in
which the distributing second-tier foreign
corporation's tax year ended using the
format YYYYMM.
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4. Enter the second-tier foreign
corporation's post-1986 undistributed
earnings pool (in functional currency) for
the separate category for which the
schedule is being completed. See the
instructions for Schedule F-1, Part I,
column 4.
Column 5. Enter the opening balance in
the second-tier foreign corporation's
post-1986 foreign income taxes pool for
the tax year indicated. See the instructions
for Schedule F-1, Part I, column 5.
corporation's post-1986 foreign income
taxes, at the exchange rate in effect on the
date of the dividend distribution. See
Regulations section 1.902-1(a)(8)(ii).
Column 1a. Enter the name of the
second-tier foreign corporation and the
name of the first-tier foreign corporation to
which it paid a dividend out of pre-1987
accumulated profits.
corporation" for references to the
"second-tier foreign corporation."
Note. In completing Section A, column 5,
note that section 902(b), as in effect prior
to the Taxpayer Relief Act of 1997, did not
treat any foreign taxes as deemed paid by
a third- or lower-tier foreign corporation
with respect to dividends received from
lower-tier foreign corporations.
DRAFT AS OF
October 15, 2018
Column 6(a). Enter the foreign income
taxes paid or accrued by the second-tier
foreign corporation for the tax year
indicated, translated from foreign currency
into U.S. dollars using the exchange rate
specified in section 986(a).
Column 6(b). Enter the foreign income
taxes deemed paid (under section 902(b))
by the second-tier foreign corporation for
the tax year indicated (from Schedule F-2,
Part II, Section A, column 10, and Part II,
Section B, column 8(b)).
Column 8(a). Report the sum (in the
second-tier foreign corporation's
functional currency) of all dividends paid
out of its post-1986 undistributed earnings
for the tax year indicated.
Column 8(b). Report the sum of the
column 8(a) amounts translated into the
functional currency of the first-tier foreign
corporation at the spot rate in effect on the
date of each distribution.
Section B—Dividends Paid Out of
Pre-1987 Accumulated Profits
Use a separate line for each dividend
paid. If a dividend is paid out of the
accumulated profits of more than 1
pre-1987 tax year, figure and show the tax
deemed paid on a separate line for each
tax year. In applying section 902, the IRS
may determine from which tax year's
accumulated profits the dividends were
paid. See Regulations section 1.902-3(g)
(4).
Important. The formula for calculating
foreign taxes deemed paid by a first-tier
foreign corporation under section 902(b)
with respect to dividends paid by a
second-tier foreign corporation in a
post-1986 year out of pre-1987
accumulated profits requires that all
components (dividends, accumulated
profits, and taxes) be maintained in the
second-tier foreign corporation's
functional currency. Dividends are
translated into the first-tier foreign
corporation's functional currency and
added to its post-1986 undistributed
earnings at the exchange rate in effect on
the date of the dividend distribution. See
Regulations section 1.902-1(a)(9)(ii).
Foreign taxes are translated into U.S.
dollars, and added to the first-tier foreign
Columns 1b and 1c. See Reference ID
numbers, earlier.
Column 2. For each pre-1987 tax year,
enter the year and month in which the
second-tier foreign corporation's tax year
ended using the format YYYYMM.
Column 3. Enter the applicable two-letter
codes from the list at IRS.gov/
CountryCodes.
Column 4. For each line, enter the
pre-1987 accumulated profits for the tax
year indicated in column 2, computed in
the second-tier corporation's functional
currency under section 902. See
Regulations sections 1.902-1(a)(10)(i) and
(ii).
Column 5. Enter the foreign taxes paid
and deemed paid under section 902(b) (in
functional currency) with respect to the
accumulated profits entered in column 4
for the pre-1987 tax year indicated in
column 2. See the instructions for
Schedule G, later, for information on
reduction of foreign taxes for failure to
furnish information required under section
6038.
Column 6(a). Enter each dividend paid
by the second-tier foreign corporation (in
functional currency) to the first-tier foreign
corporation out of the accumulated profits
of the pre-1987 tax year indicated in
column 2.
Column 6(b). Enter the amount from
column 6(a), translated into the first-tier
foreign corporation's functional currency
using the spot exchange rate in effect on
the date of distribution. See Regulations
sections 1.902-1(a)(10)(ii) and 1.902-3(g)
(1).
Column 8(a). Multiply column 5 by
column 7. Enter the result in column 8(a).
Column 8(b). Enter the amount from
column 8(a), translated in U.S. dollars at
the spot exchange rate in effect on the
date of distribution. See Regulations
section 1.902-1(a)(10)(iii).
Part II—Tax Deemed Paid by
Second-Tier Foreign Corporations
Follow the instructions for the
corresponding columns of Schedule F-2,
Part I, substituting "second-tier foreign
corporation" for references to the "first-tier
foreign corporation" and "third-tier foreign
-14-
Schedule F-3
Use Schedule F-3 to report foreign taxes
deemed paid with respect to dividends
from certain fourth-, fifth-, and sixth-tier
CFCs out of earnings accumulated in tax
years beginning after August 5, 1997.
Follow the instructions for the
corresponding columns of Schedule F-2,
Part I, Section A, substituting references
to the next lower-tier foreign corporation
as appropriate.
The post-1986 undistributed earnings
and taxes pools for the eligible CFCs
begin on the first day of the CFC's first tax
year beginning after August 5, 1997.
Earnings accumulated in tax years
beginning before August 6, 1997, will be
treated as pre-1987 accumulated profits
for section 902 purposes. See section
902(c)(6) and Regulations section
1.902-1(a)(10)(i). Foreign income taxes
attributable to these pre-pooling profits
must be reduced when the associated
earnings are distributed. However, such
taxes are generally not eligible for the
deemed paid credit. See Regulations
sections 1.902-1(a)(10)(iii) and 1.902-1(c)
(8).
Note. In completing Part III, column 5,
note that, under section 902(b) as
amended by the Taxpayer Relief Act of
1997, no taxes are deemed paid by a
sixth- or lower-tier foreign corporation with
respect to dividends received from
lower-tier foreign corporations.
Schedule G
Part I
Line A. If the corporation claims a
deduction for percentage depletion under
section 613 with respect to any part of its
foreign mineral income (as defined in
section 901(e)(2)) for the tax year, any
foreign taxes on that income must be
reduced by the smaller of:
1. The foreign taxes minus the tax on
that income, or
2. The tax on that income determined
without regard to the deduction for
percentage depletion minus the tax on that
income.
The reduction must be made on a
country-by-country basis (Regulations
Instructions for Form 1118 (12-2018)
section 1.901-3(a)(1)). Attach a separate
schedule showing the reduction.
Line C. If the corporation chooses to
calculate the reduction in the foreign tax
by identifying taxes specifically
attributable to participation in or
cooperation with an international boycott,
enter the amount from Form 5713,
Schedule C, line 2b. See Form 5713 and
its separate Schedule C and instructions.
method of apportioning research and
experimental (R&E) deductions),
• Has section 901(j) income from more
sanctioned countries than space permits
within line 3, and
• Has income re-sourced by treaty from
more countries than space permits within
line 3.
Line 2. Reduce the line 1 totals by legally
mandated R&E (Regulations section
1.861-17(a)(4)), and a 50% exclusive
apportionment amount (Regulations
section 1.861-17(b)(1)(i)), if applicable.
The legally mandated R&E rules apply
to R&E undertaken solely to meet legal
requirements imposed by a particular
political entity for improvement or
marketing of specific products or
processes if the corporation does not
reasonably expect the results of that
research to generate gross income
(beyond de minimis amounts) outside a
single geographic source.
Under the exclusive apportionment
rules, 50% of the R&E deductions are
apportioned exclusively to the statutory
grouping of gross income, or the residual
grouping of gross income, as the case
may be, from the geographic source
where the R&E activities which account for
more than 50% of the amount of such
deduction were performed. If the 50% test
is not met, then no part of the deduction is
apportioned under these rules.
DRAFT AS OF
October 15, 2018
Line D. If the corporation controls a
foreign corporation or partnership and fails
to furnish any return or any information in
any return required under section 6038(a)
by the due date, reduce the foreign taxes
available for credit under sections 901,
902 (for pre-2018 foreign corporate tax
years), and 960 by 10%. If the failure
continues for 90 days or more after the
date of written notice by the IRS, reduce
the tax by an additional 5% for each
3-month period or fraction thereof during
which the failure continues after the
90-day period has expired. See section
6038(c) for limitations and special rules.
In addition, a $10,000 penalty is
imposed under section 6038(b) for failure
to supply the information required under
section 6038(a) for each entity within the
time prescribed. If the required information
is not submitted within 90 days after the
IRS has mailed notice to the U.S. person,
additional penalties may apply.
Note. The reduction in foreign taxes
available for credit is reduced by any
dollar penalty imposed under section
6038(b).
Line E. Enter foreign income taxes paid
or accrued during the current tax year that
have been suspended due to the rules of
section 909.
Line F. Enter other reductions in tax here.
For disallowed taxes under section 965(g),
enter the following code on the line
provided: “965.”
For disallowed taxes under section
245A, enter the following code in the line
provided: “245A.”
For any other reductions in taxes, enter
the code “OTH” and attach a statement
with the amount and the nature of such
other reduction.
Schedule H
Computer-Generated
Schedule H
A computer-generated Schedule H may
be filed if it conforms to the IRS version. In
some cases, Schedule H can be
expanded to properly apportioned
deductions. This applies in cases such as
when the corporation:
• Has more than two product lines (under
the sales method or the gross income
Instructions for Form 1118 (12-2018)
Part I—Research and
Experimental Deductions
Use Part I to apportion the R&E
deductions that cannot be definitely
allocated to some item or class of gross
income. Use either the sales method or
one of the gross income methods
described in Regulations section
1.861-17.
Note. The line 4 totals will generally be
less than the totals on lines 1 and 2
because the line 4 totals do not include
the gross income and deductions that are
implicitly apportioned to the residual
grouping.
Column (a) Sales Method
Complete these columns only if the
corporation elects the sales method of
apportioning R&E deductions described in
Regulations section 1.861-17(c). Enter in
the spaces provided the SIC Code
numbers (based upon the Standard
Industrial Classification System) of the
product lines to which the R&E deductions
relate. See Regulations section
1.861-17(a)(2)(ii) and (iii) for details on
choosing SIC codes and changing a
product category.
Note. If the corporation has more than
two product lines, see
Computer-Generated Schedule H, earlier.
Columns (a)(i) and (a)(iii)
Line 1. Enter the worldwide gross sales
for the product lines.
Lines 3a through 3f. Enter the gross
sales that resulted in gross income for
each statutory grouping. For lines 3a
through 3f, enter the code for the
applicable separate category of income.
See Categories of Income, earlier. Then
divide gross sales between dividend
income and all other types of gross
income. Such dividend income must be
eligible to be offset by the deduction under
section 245A. However, when
apportioning expenses, do not report the
dividend income net of the deduction
under section 245A.
Columns (a)(ii) and (a)(iv)
Line 1. Enter the total R&E deductions
connected with the product lines.
-15-
Lines 3a through 3f. To figure the
amount of R&E deductions to apportion to
each statutory grouping, divide the gross
sales apportioned to the statutory
grouping by the worldwide gross sales for
the product line. Multiply the result by the
R&E deductions to be apportioned.
Note. If the corporation had section 901(j)
income from more sanctioned countries
than space permits on line 3 or had
income re-sourced by treaty for more
countries than space permits on line 3,
see Computer-Generated Schedule H,
above.
Example 1. To determine the amount
to enter on line 3a(1), column (a)(ii), do the
following.
1. Divide the amount on line 3a(1),
column (a)(i), by the amount on line 1,
column (a)(i).
2. Multiply the result by the amount on
line 2, column (a)(ii).
Example 2. To determine the amount
to enter on line 3b(2), column (a)(iv), do
the following.
1. Divide the amount on line 3b(2),
column (a)(iii), by the amount on line 1,
column (a)(iii).
2. Multiply the result by the amount on
line 2, column (a)(iv).
Column (b) Gross Income Methods
Complete these columns only if the
corporation elects one of the gross income
methods of apportioning R&E deductions
described in Regulations section
1.861-17(d)(2) and (3). Check the box for
the option used. Use Option 1 only if
certain conditions are met. See
Regulations section 1.861-17(d)(2).
method. See Regulations section
1.861-9(i).
Note. If the corporation has more than
two product lines, see
Computer-Generated Schedule H, earlier.
Columns (a) and (b) are subdivided
into “Nonfinancial Corporations” and
“Financial Corporations.” In allocating
interest deductions, members of an
affiliated group that are financial
corporations must be treated as a
separate affiliated group. Complete
columns (a)(ii) and (b)(iv) for members of
the corporation's affiliated group that are
financial corporations and columns (a)(i)
and (b)(iii) for members that are
nonfinancial corporations.
Columns (b)(v) and (b)(vii)
Columns (b)(iii) and (b)(iv)
Line 1a. Enter the total interest
deductions for the members of the
corporation's affiliated group. These
include any expense that is currently
deductible under section 163 (including
original issue discount), and interest
equivalents. See Temporary Regulations
section 1.861-9T for the definition of
interest equivalents and a list of the
sections that disallow or suspend interest
deductions or require the capitalization of
interest deductions.
DRAFT AS OF
October 15, 2018
Line 1. Enter the total gross income
(excluding exempt income according to
Temporary Regulations section
1.861-8T(d)(2)).
Lines 3a through 3f. For lines 3a
through 3f, enter the code for the
applicable separate category of income.
See Categories of Income, earlier. Then
enter the gross income in the statutory
category divided between dividend
income eligible to be offset by the
deduction under section 245A and all
other income. Report the gross dividend,
not the dividend income net of the
deduction under section 245A, in columns
(b)(v) and (b)(vii).
Columns (b)(vi) and (b)(viii)
Line 1. Enter the total R&E deductions.
Line 2. Reduce the line 1 totals by legally
mandated R&E deductions (Regulations
section 1.861-17(a)(4)), and a 25%
exclusive apportionment amount
(Regulations section 1.861-17(b)(1)(ii)).
Lines 3a through 3f. For lines 3a
through 3f, enter the code for the
applicable separate category of income. If
Option 1 is checked, divide the gross
income apportioned to the statutory
grouping by the total gross income and
multiply the result by the R&E deductions
to be apportioned. If Option 2 is checked,
enter the appropriate amount as described
in Regulations section 1.861-17(d)(3).
Part II—Interest Deductions,
All Other Deductions,
and Total Deductions
Note. The line 4 totals will generally be
less than the totals on lines 1 and 2
because the line 4 totals do not include
the gross income and deductions that are
implicitly apportioned to the residual
grouping.
Columns (a)(i) Through (b)(iv)
Use these columns to apportion interest
deductions. See final and temporary
Regulations sections 1.861-8 through
1.861-13 for rules on the apportionment of
interest deductions based on the tax book
value or adjusted tax book value of assets.
For tax years beginning on or after
March 26, 2004, a corporation may elect
to use the alternative tax book value
See Regulations section 1.861-11 for
the definition of an affiliated group.
Columns (a)(i) and (a)(ii)
Line 1a. Enter the average of the total
assets of the affiliated group. See
Temporary Regulations section
1.861-9T(g)(2) for the definition of
“average” for these purposes.
Line 1b. Enter the assets included on
line 1a that are characterized as excess
related party indebtedness. See
Temporary Regulations section
1.861-10T(e) for an exception to the
general rule of fungibility for excess
related party indebtedness.
Line 1c. Enter all other assets that attract
specifically allocable interest deductions.
See Temporary Regulations section
1.861-10T for other exceptions to the
general rule of fungibility (such as qualified
nonrecourse indebtedness and integrated
financial transactions).
Line 1d. Enter the total of the exempt
assets and assets without directly
identifiable yield that are to be excluded
from the interest apportionment formula
(Temporary Regulations sections
1.861-8T(d)(2) and 1.861-9T(g)(3)).
Lines 3a through 3f. For lines 3a
through 3f, enter the code for the
applicable separate category of income.
See Categories of Income, earlier. The
assets in each statutory grouping are
further divided between those assets
generating dividend income eligible to be
offset by the deduction under section
245A versus those generating all other
types of gross income. The assets on
line 2 are characterized as assets in one
of the statutory groupings or as belonging
to the residual grouping. Enter the value of
the assets in each of the statutory
groupings on lines 3a through 3f. See
Temporary Regulations sections
1.861-9T(g)(3), 1.861-12T(g)(2), and
1.861-12T(h)(2) for the rules for
characterizing the assets.
-16-
Line 1b. Enter the interest deductions
associated with the assets on line 1b of
columns (a)(i) and (a)(ii), respectively, that
attract specifically allocable interest
deductions under Temporary Regulations
section 1.861-10T(e).
Note. These interest deductions will be
divided among the statutory groupings
and will appear as a definitely allocable
deduction in Schedule A, column 14(h).
Line 1c. Enter the interest deductions
associated with the assets on line 1c of
columns (a)(i) and (a)(ii), respectively, that
attract specifically allocable interest
deductions.
Lines 3a through 3f. To figure the
amount of interest deductions to apportion
to each subgroup of the statutory
grouping, divide the assets apportioned to
the subgroup by the total assets
apportioned and multiply the result by the
interest deductions to be apportioned.
Example 1. To determine the amount
to enter on line 3a(1), column (b)(iii), do
the following.
1. Divide the amount entered on
line 3a(1), column (a)(i), by the amount on
line 2, column (a)(i).
2. Multiply the result by the amount on
line 2, column (b)(iii).
Example 2. To determine the amount
to enter on line 3b(2), column (b)(iv), do
the following.
1. Divide the amount on line 3b(2),
column (a)(ii), by the amount on line 2,
column (a)(ii).
2. Multiply the result by the amount on
line 2, column (b)(iv).
Column (c)
Complete this column to apportion all
other deductions not definitely allocable
(other than interest deductions and R&E
deductions). See final and temporary
Regulations sections 1.861-8 and
1.861-14.
Line 1a. Enter the total other deductions.
Examples include stewardship expenses;
legal and accounting expenses; and other
expenses related to certain supportive
Instructions for Form 1118 (12-2018)
functions such as overhead, general and
administrative, advertising, and marketing.
Deductions for charitable contributions
made on or after July 28, 2004, generally
are definitely related and allocable to all
gross income and apportioned solely to
domestic source income.
Lines 3a through 3f. For lines 3a
through 3f, enter the code for the
applicable separate category of income.
See Categories of Income, earlier. Enter
the amount of expenses apportioned to
each separate category of income as
further apportioned between dividend
income eligible to be offset by the
deduction under section 245A and all
other gross income.
relevant amount from lines 3a(2), 3b(2),
3c(2), 3d(2), 3e(2), and 3f(2) in column 15
of the corresponding Schedule A.
Line 4. Enter on this line the sum of
amounts entered in 3a(3), 3b(3), 3c(3),
3d(3), 3e(3), and 3f(3).
Lines 5 and 6. An adjustment is required
to worldwide taxable income and foreign
source income taken into account to
eliminate the expenses properly allocated
or apportioned to stock or dividend
income for which a dividends received
deduction is allowed under section 245A.
See section 904(b)(4).
column (c), so there is no need to add the
amounts from Schedule H, Part I. Include
the amount in column (d), line 5, as a
negative number in Schedule B, Part II,
line 8b.
Line 6. On line 6, enter expenses
apportioned to the U.S. source dividends
that are eligible for a dividends received
deduction under section 245A. See
section 904(h). This is the residual amount
of expenses allocated to such dividend
income and not otherwise apportioned to
the foreign source portion of such
dividends. Include the amount in column
(d), line 6, as a negative number in
Schedule B, Part II, line 8b.
DRAFT AS OF
October 15, 2018
Column (d)
In column (d), for all amounts in line 3, add
the corresponding amounts from column
(c), Part I, columns (b)(iii) and (b)(iv), Part
II; and column (c), Part II. Enter the
Line 5. On line 5, enter expenses
apportioned to foreign source dividends
which are eligible for a deduction under
section 245A. This is the sum of the
amounts listed in column (d), lines 3a(1),
3b(1), 3c(1), 3d(1), 3e(1), and 3f(1) of
Schedule H, Part II. Schedule H, Part II,
column (d), includes the sum of all
amounts entered in Schedule H, Part I,
Schedules I, J, and K
See the separate instructions for
Schedule I, Schedule J, and Schedule K
to see if the corporation must file these
schedules.
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 business
taxpayers filing this form is approved under OMB control number 1545-0123 and is included in the estimates shown in the instructions
for their business income tax return.
If you have suggestions for making Form 1118 and related schedules simpler, we would be happy to hear from you. You can send
us comments from IRS.gov/FormComments. Or you can send your comments to Internal Revenue Service, Tax Forms and
Publications Division, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this office. Instead,
see Where To File in the instructions for the tax return with which this form is filed.
Instructions for Form 1118 (12-2018)
-17-
| File Type | application/pdf |
| File Title | Instructions for Form 1118 (Rev. December 2018) |
| Subject | Instructions for Form 1118, Foreign Tax Credit—Corporations |
| Author | W:CAR:MP:FP |
| File Modified | 2018-10-15 |
| File Created | 2018-10-11 |