1118 Instructions for Form 1118

Instructions for Form 1118

Department of the Treasury
Internal Revenue Service

(Rev. December 2019)

(Use with the December 2018 revisions of Form 1118, and separate Schedules I, J,
and K.)
Foreign Tax Credit—Corporations
Section references are to the Internal
Revenue Code unless otherwise noted.

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

Changes have been made throughout
these instructions based on final
foreign tax credit regulations (T.D.
9882, 84 FR 69022, December 17,
2019).
There is a change in the manner in
which foreign source exchange losses
are now reported on Schedule A. See
the specific instructions for
Schedule A, columns 9, 10, 11, and
14(h), for details. Also see the specific
instructions for Schedule H, Part II,
column (c).

There is a change in the manner in
which Schedule D, Part II, is
completed. As a result of recently
issued final regulations (T.D. 9866, 84
FR 29288, June 21, 2019), most
domestic partnerships and S
corporations are no longer required to
include amounts under section 951A.
See specifically 84 FR 29315-29317
and Regulations section 1.951A-1(e).
As a result, most domestic
corporations need only complete one
line in Schedule D, Part II. See Notice
2019-46, 2019-37 I.R.B. 695, which
allows domestic partnerships and S
corporations to include amounts
under section 951A for tax years
ending before June 22, 2019, by
relying on Proposed Regulations
section 1.951A-5.

Reminders

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.

Feb 07, 2020

• 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 category 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
2019 if such domestic corporation
owns the foreign corporation through
certain pass-through entities. For
example, if a domestic corporation
Cat. No. 10905I

with a tax year ending September 30,
2020, owns a domestic partnership
with a tax year ending October 31,
2019, and the domestic partnership
owns a foreign corporation with a U.S.
tax year beginning on December 1,
2017, and ending on November 30,
2018, for its 2019 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, 2019, and
ending on December 31, 2019, for its
2019 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.

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.

Computer-Generated
Form 1118

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
reductions.
• 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 (also referred to as
previously taxed earnings and profits
(PTEP)).
• Use Schedule F-1 to compute
taxes deemed paid by the domestic
corporation filing the return with

respect to dividends paid and
inclusions with respect to pre-2018
foreign corporate tax years.
• Use Schedules F-2 and F-3 to
compute taxes deemed paid by firstand lower-tier foreign corporations
with respect to dividends paid with
respect to 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.

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

Category of Income
Section 951A Category Income

FB

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.

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Section 951A Category Income

Section 951A category income is any
amount of global low-taxed intangible
income (GILTI) includible in gross
income under section 951A (other
than passive category income).
Section 951A defines GILTI.
• When completing a Form 1118 for
section 951A category income, enter
the code "951A" on line a at the top of
page 1.
• 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. For more
information on the computation of
foreign branch category income, see
Regulations section 1.904-4(f).
• When completing a Form 1118 for
foreign branch category income, enter
the code "FB" on line a at the top of
page 1.
• 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.

Passive Category Income

Passive category income includes
passive income and specified passive
category income. When completing a
Form 1118 for passive category
income, enter the code "PAS" on line
a at the top of page 1.

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
Instructions for Form 1118 (Rev. 12-2019)

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).

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.
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, enter the
code “901j” on line a at the top of
Instructions for Form 1118 (Rev. 12-2019)

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.
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.

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.
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See Regulations sections 1.904-4(k)
and 1.904-5(m)(7) for grouping rules
and exceptions. On each Form 1118,
enter the code “RBT” for income
re-sourced by treaty on line a at the
top of page 1 and identify the
applicable country using the two-letter
codes (from the list at IRS.gov/
CountryCodes).
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, enter code "GEN" on line a at
the top of page 1. 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:
• 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.

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,
GILTI, 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

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 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) and GILTI inclusions
under section 951A(a) to the extent
attributable to income of the CFC in
the passive category.
For more information and
examples, see section 904(d)(3) and
Regulations section 1.904-5.
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,
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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.
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,
Instructions for Form 1118 (Rev. 12-2019)

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 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.
Instructions for Form 1118 (Rev. 12-2019)

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).
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.
• 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)).

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• 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.
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)).
• Taxes paid with respect to the
amount treated as included under
section 965(b).

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 is:

• 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.
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)).
• 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). See Regulations sections
1.960-4 through 1.960-6.
• Carryback of foreign taxes paid or
accrued in post-2017 foreign
corporate tax years and carryforward
of foreign taxes paid or accrued in
pre-2018 foreign corporate tax years.
See Regulations section 1.904-2(j).

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, must
generally 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.

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
Redeterminations

The corporation's foreign tax credit
and U.S. tax liability must generally 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. See also
Regulations section 1.905-3(b)(1)(i).
See Regulations section 1.905-3(b)
(1)(i) for a limited exception to a
redetermination of a U.S. tax liability
with respect to foreign income tax
claimed as a credit under section 901
(other than a tax deemed paid under
section 960). In such case, an
appropriate adjustment is made to the
taxpayer's U.S. tax liability in the tax
year during which the foreign tax
redeterminations occur.
A redetermination of U.S. tax
liability is also generally required to
account for the effect of a
redetermination of foreign tax paid or
accrued by a foreign corporation on
the amount of foreign taxes deemed
paid under section 902 (for pre-2018
foreign corporate tax years) or section
960. See Proposed Regulations
sections 1.905-3 through 1.905-5.
-6-

Reporting Requirements

If the corporation must redetermine its
U.S. tax liability, the corporation must
generally file an amended return and
Form 1118 and attach a statement
that provides the following.
• The taxpayer's name, address,
identifying number, the tax year or
years of the taxpayer that are affected
by the foreign tax redetermination,
and, in the case of foreign taxes
deemed paid, the name and
identifying number, if any, of the
foreign corporation.
• The date or dates the foreign
income taxes were accrued, if
applicable.
• The date or dates the foreign
income taxes were paid.
• The amount of foreign income taxes
paid or accrued on each date (in
foreign currency) and the exchange
rate used to translate each such
amount.
• Information sufficient to determine
any change to the characterization of
a distribution or the amount of any
inclusion under section 951(a), 951A,
1291, or 1293.
• Information sufficient to determine
any interest due from or owing to the
taxpayer, including the amount of any
interest paid by the foreign
government to the taxpayer and the
dates received.
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.
• The date of each such refund.
• The amount of such refund (in
foreign currency).
• The exchange rate that was used to
translate such amount when originally
claimed as a credit.
• The spot rate (as defined in
Regulations section 1.988-1(d)) for
the date the refund was received (for
purposes of computing foreign
currency gain or loss under section
988).
Accrued foreign income taxes that
are not paid on or before the date
that is 24 months after the close of
the tax year to which such taxes
relate.
• The amount of such taxes in foreign
currency.
Instructions for Form 1118 (Rev. 12-2019)

• The exchange rate that was used to
translate such amount when originally
claimed as a credit or added to
post-1986 foreign income taxes or
PTEP group taxes (as defined in
Regulations section 1.960-3(d)(1)).
Redetermination of U.S. tax liability results in an amount of additional tax due, and the carryback or
carryover of an unused foreign income tax under section 904(c) only partially eliminates such
amount. The information required in
Regulations section 1.904-2(f).
Foreign tax redeterminations of
foreign corporations that relate to
tax years of the foreign corporation beginning before January 1,
2018. Provide the additional
information listed under both
categories below, as applicable.
Post-1986 pools of earnings and
taxes of foreign corporations.
• The closing balances of the pools
of post-1986 undistributed earnings
and post-1986 foreign income taxes
for each affected year before and after
adjusting the pools to account for the
foreign tax redetermination.
• The dates and amounts of any
dividend distributions or other
inclusions made out of post-1986
undistributed earnings for the affected
year or years.
Pre-1987 accumulated profits of
foreign corporations.
• The dates and amounts of any
dividend distributions or other
inclusions made out of E&P for the
affected year or years.
• The rate of exchange on the date of
any such distribution or inclusion.
• The amount of E&P from which
such dividends were paid or
inclusions were made for the affected
year or years.
See Regulations sections
1.986(a)-1 and 1.905-3 and Proposed
Regulations sections 1.905-3 through
1.905-5 for further information
regarding redeterminations and the
required notification.
For special rules relating to
corporations under the jurisdiction of
the Large Business & International
Division, see Proposed Regulations
section 1.905-4.

Interest and Penalties

In most cases, interest is computed
on the deficiency or overpayment that
Instructions for Form 1118 (Rev. 12-2019)

resulted from the foreign tax
adjustment (sections 6601 and 6611
and the related regulations). See
Proposed Regulations section
1.905-4(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 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 for related
persons or their QBUs from or through
which the corporation derived foreign
source income and/or paid or accrued
creditable foreign taxes.

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. Enter the EIN or
reference ID number of related
entities and their QBUs through which
the corporation paid or accrued
creditable foreign taxes, even if no
income from these entities is reported
-7-

on Schedule A. If gross income is
received or derived from an entity
other than a related 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 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 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.
Note. This correlation requirement
applies only to the first year the new
reference ID number is used.
Branches. For each branch that is
not a foreign branch as defined under
Regulations section 1.904-4(f)(3)(vii),
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.

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
that are foreign branches as defined
under Regulations section 1.904-4(f)
(3)(vii).
Column 2. Enter the two-letter codes
(from the list at IRS.gov/
CountryCodes) of each foreign
country and U.S. possession within
which income is sourced and/or to
which taxes were paid or accrued.
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

Except as otherwise instructed below,
income of a U.S. shareholder with
respect to the same related person
but from multiple sources should be
reported on a country-by-country
basis.
Example. USC, a domestic
corporation, has employees who
perform services in Country X and
Country Y for the same related
person. The related person has a
reference ID number of 1000016.
USC earns gross income of $10 with
respect to services performed for the
related person in Country X and USC
earns gross income of $15 with
respect to services performed for the
related person in Country Y. The
two-letter country code for Country X
is XX and the two-letter country code
for Country Y is YY. On Schedule A,
USC reports as follows.
USC makes the following entries
on the first of two lines on Schedule A.
Column

Entry

1

1000016

2

XX

8

10

USC makes the following entries
on the second of two lines on
Schedule A.

Example. USC, a domestic
corporation, has a branch in Country
-8-

Column

Entry

1

1000016

2

YY

8

15

Qualified business units (QBUs).
For branches that are QBUs, use a
single line 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.
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) foreign source 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 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 NOL carryover on a single
line. Leave column 1 blank, enter
“NOL” in column 2, and report the
Instructions for Form 1118 (Rev. 12-2019)

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 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.
Inclusions under sections 951A
and 965. 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 951A,
enter “951A” in column 2 instead of a
two-letter code. Leave column 1
blank.
For inclusions under section 965,
enter “965” 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),
section 964(e)(4), and section 965)
Instructions for Form 1118 (Rev. 12-2019)

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. See section 964(e)(4).
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), Section 1.
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 that is a
qualified electing fund, report all
income deemed received (before
gross-up) under section 1293.
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.
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)
with respect to pre-2018 foreign
-9-

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), Section 1, reduced as
provided in section 965(g)(4).
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 foreign source
gross income from sales (net of
returns and allowances and less costs
of goods sold). Include the foreign
source portion of 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 recognized
under section 986(c) on a distribution
of PTEP.
Although the headings for
Schedule A, columns 9, 10,
CAUTION and 11, contain the words "or
loss," do not enter any foreign source
exchange loss amounts in columns 9,
10, and 11. Instead, enter these
amounts in Schedule A, column 14(h),
or Schedule H, Part II, column (c)
(which may carry over to Schedule A,
column 15), as applicable.

!

Column 10. Include any foreign
source exchange gain recognized
under section 987(3) on a remittance
from a QBU.
Column 11. Include any foreign
source exchange gain recognized
under section 988.
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 allowed on foreign
source dividends 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,
that is 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, that is
allocated and apportioned to foreign
source income in the applicable
separate category of income.
Column 14(d). Enter the
depreciation, depletion, and
amortization deductions related to
rental, royalty, and licensing expenses

that are allocated and apportioned to
foreign source income in the
applicable separate category of
income.

reduce taxable income, but are not
taken into account in computing the
foreign tax credit limitation. See
section 904(b)(4).

Column 14(e). Enter the other
allocable expenses related to rental,
royalty, and licensing expenses that
are allocated and apportioned to
foreign source income in the
applicable separate category of
income.

Column 15. Enter only the
apportioned share from the applicable
portion of line 3 (that corresponds to
the category of income for which the
corporation is completing Form 1118)
of Schedule H, Part II, column (d), that
relates to gross income reported in
columns 3 through 12.

Column 14(f). Enter expenses
allocable to gross income from sales
that are allocated and apportioned to
foreign source income in the
applicable separate category of
income (the amount entered in
column 7).
Column 14(g). Enter expenses
allocable to gross income from
performance of services that are
allocated and apportioned to foreign
source income in the applicable
separate category of income (the
amount entered in column 8).
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.
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.
As indicated in the "Caution" in the
instructions for Schedule A, column 9,
earlier, also include in column 14(h)
foreign source exchange loss
amounts under sections 986(c), 987,
and 988 that are allocated to foreign
source income in the applicable
separate category of income.
In column 14(h), do not include
other expenses directly allocable to
dividends eligible for the dividends
received deduction under section
245A. 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. These expenses
-10-

It is not necessary to report the
apportioned expenses on a
related-person or per-country basis.
Therefore, only enter an amount in the
totals line 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 income or loss in each
separate category) 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
NOL deduction allowed under section
172 that is attributable to foreign
source income in the applicable
separate category. If the NOL 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 deduction on a related-person or
per-country basis. Therefore, only
enter an amount on the totals line 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 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.

Instructions for Form 1118 (Rev. 12-2019)

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, 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)(1)(D).
The information entered on
each line of Schedule B, Part
CAUTION I, must pertain to an
identifying number and/or country
code specified on the corresponding
line of Schedule A, column 1 and/or
column 2. 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 the cash method of accounting is
used, an election under section
905(a) may be made to claim the
Instructions for Form 1118 (Rev. 12-2019)

credit based on accrued taxes. If this
election is made, figure the foreign tax
credit for all subsequent tax years on
the same basis. Also, the credits are
subject to the redetermination
provisions of section 905(c). See
Foreign Tax Credit Redeterminations,
earlier, for details.
Column 2(a). Include foreign taxes
withheld at source on dividends 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.
Column 2(b). Include foreign taxes
withheld at source on PTEP
distributions from a first-tier foreign
corporation. See sections 901 and
903. Do not include foreign taxes
withheld at source on PTEP
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.
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. Enter in column 3 the total
of the taxes deemed paid that
corresponds with the identifying
number specified on the
corresponding line of Schedule A,
column 1, with respect to the following
amounts.
-11-

• The taxes deemed paid under
section 960(a) as reported in
Schedule C, column 7.
• The taxes deemed paid under
section 960(b) as reported in
Schedule E, Part I, column 5.
• The taxes deemed paid under
section 902 and section 960 as
reported in Schedule F-1, Part I,
column 12; Part II, column 8(b); and
Part III, column 8.
Enter on the Schedule B, Part I line
that corresponds with the Schedule A
line with “951A” in column 2 the tax
deemed paid under section 960(d)
equal to the total amount reported in
Schedule D, Part II, column 4.
Enter on the Schedule B, Part I line
that corresponds with the Schedule A
line with “965” in column 2 the tax
deemed paid with respect to
inclusions under section 965 equal to
the amount reported on line 9 of
Schedule H (Form 965), Section 1.
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.

Part II—Separate
Foreign Tax Credit
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.
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 (Form 1118), 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 reported on
line 8c (see the line 8c instructions
below).
Enter as a negative amount
adjustments that increase the net
worldwide taxable income reported on
line 8c (see the line 8c instructions
below). 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 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.
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 PTEP distribution. If an increase in
the limit 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). See
section 960(c)(5) (section 960(b)(5)
for pre-2018 foreign corporate tax
years).

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.

Schedule C

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 and
subpart F income group. If there is a
subpart F inclusion related to more
-12-

than one subpart F income group,
complete a separate line for each
subpart F income group. 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 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 2019 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
November 30, 2019, enter "201911."
Column 3. Enter the applicable
two-letter codes from the list at
IRS.gov/CountryCodes.
Column 4. For each line, enter the
CFC’s current year E&P in functional
currency by subpart F income group
as defined in Regulations section
1.960-1(d)(2)(ii)(B)(1) for the tax year
indicated in column 2. If there is a
subpart F inclusion related to more
than one subpart F income group,
complete a separate line for each
subpart F income group.
Column 5. Enter foreign taxes paid
or accrued by subpart F income group
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).
Example. USC is a domestic
corporation. CFC1 and CFC2 are
controlled foreign corporations
incorporated in Country X. The U.S.
Instructions for Form 1118 (Rev. 12-2019)

tax year for USC, CFC1, and CFC2
ends on December 31. At all relevant
times, 1u = $1. For its U.S. tax year
ending December 31, 2019, after
foreign taxes, CFC1 has 1,000,000u
of E&P attributable to passive
category dividend income subject to a
withholding tax of less than 15%
(“CFC1 income group 1”) and
2,400,000u of E&P attributable to
passive category interest income
subject to no withholding tax (“CFC1
income group 2”). CFC1 has current
year taxes (including the withholding
tax) of $50,000 in CFC1 income group
1 and $240,000 in CFC1 income
group 2. USC has a subpart F
inclusion with respect to CFC1 of
which 800,000u is attributable to
CFC1 income group 1 and
1,920,000u is attributable to CFC1
income group 2. For its U.S. tax year
ending December 31, 2019, after
foreign taxes, CFC2 has 1,800,000u
of passive category gain from
commodities transactions subject to
no withholding tax (“CFC2 income
group”). CFC2 has current year taxes
of $450,000 in the CFC2 income
group. USC has a subpart F inclusion
of 1,440,000u attributable to the CFC2
income group. The country code for
Country X is “OC.” CFC1 and CFC2
have reference ID numbers of 100011
and 100012, respectively.
USC completes Schedule C of its
Form 1118 with respect to the passive
category as follows.
USC makes the following entries
on the first of three lines on
Schedule C.
Column

Entry

1a

CFC1

1b

100011

2

201912

3

OC

4

1,000,000

5

50,000

6a

800,000

6b

800,000

7

40,000

USC makes the following entries
on the second of three lines on
Schedule C.

Instructions for Form 1118 (Rev. 12-2019)

Column

Entry

1a

CFC1

1b

100011

2

201912

3

OC

4

2,400,000

5

240,000

6a

1,920,000

6b

1,920,000

7

192,000

USC makes the following entries
on the third of three lines on
Schedule C.
Column

Entry

1a

CFC2

1b

100012

2

201912

3

OC

4

1,800,000

5

450,000

6a

1,440,000

6b

1,440,000

7

360,000

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 category.

Part I—Foreign Corporation's
Tested Income and Foreign
Taxes
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).
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.
-13-

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.
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

Note. As a result of recently issued
final regulations (T.D. 9866, 84 FR
29288, June 21, 2019), domestic
partnerships and S corporations are
no longer required to include amounts
under section 951A. See specifically
84 FR 29315-29317 and Regulations
section 1.951A-1(e). As a result, the
domestic corporation need only
complete one line in this part.
Column 1. Enter the Global
Intangible Low-Taxed Income (that is,
the section 951A inclusion) from Form
8992, Part II, line 5.
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 PTEP
distributions. Taxes reported on this
schedule are with respect to foreign
taxes levied on distributions of PTEP
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 PTEP by the
upper-tier foreign corporation to the
domestic corporation.
Note. Foreign withholding taxes
levied on a domestic corporation as a
result of distributions of PTEP from a
first-tier foreign corporation to such
domestic corporation are not reported
on Schedule E. Such taxes are
reported on Schedule B, Part I,

column 2(b), as tax withheld on
distributions of previously taxed
income.

Part I—Tax Deemed Paid by
Domestic Corporation
Column 1a. Enter the name of each
first-tier foreign corporation that had
foreign income taxes properly
attributable to PTEP distributions to a
domestic corporation that were not
previously deemed paid by a
domestic corporation. For
distributions of PTEP that originated in
lower-tier foreign corporations, enter a
unique alphabetic character before
the name of the distributing foreign
corporation to identify the source of
the PTEP distribution. See the
instructions for Part II, column 1a, for
more information, including an
example.
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
PTEP distribution to the domestic
corporation. Use the format YYYYMM.
If there is a PTEP distribution related
to more than one PTEP group within
an annual PTEP account, complete a
separate line for each PTEP group
within an annual PTEP account. See
Regulations section 1.960-3(c)(2).
Column 3. Enter the applicable
two-letter codes from the list at
IRS.gov/CountryCodes.
Column 4. Enter the PTEP
distribution by PTEP group within an
annual PTEP account as defined in
Regulations section 1.960-3(c)(2) in
the functional currency of the first-tier
foreign corporation. If there is a PTEP
distribution related to more than one
PTEP group within an annual PTEP
account, complete a separate line for
each PTEP group within an annual
PTEP account.
Column 5. Enter the U.S. dollar
amount of the foreign income taxes
properly attributable to the PTEP
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.

Note. With respect to distributions of
PTEP resulting from inclusions under
section 965, report the taxes properly
attributable to such PTEP without
reduction for the foreign tax credit
disallowance. The disallowance is
taken into account in Schedule G. See
the instructions later.

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 PTEP
distributions between foreign
corporations and taxes paid, accrued,
or deemed paid by upper-tier foreign
corporations on such PTEP
distributions. These amounts are to be
reported on this Part II only to the
extent that there is a PTEP distribution
to the domestic corporation entered in
Part I. The amounts entered in Part II
could relate to current year or prior
year PTEP distributions between
foreign corporations, so the applicable
year should be noted in column 2
using the format YYYYMM.
If foreign income taxes paid,
accrued, or deemed paid by a first-tier
foreign corporation are properly
attributable to a PTEP distribution
from one or more lower-tier foreign
corporations, report all such PTEP
distributions by the lower-tier foreign
corporations in Part II, even if the
distributing lower-tier foreign
corporations did not pay or accrue
(and were not deemed to pay) any
foreign income taxes with respect to
the PTEP distributions. For each tier,
report the amount of the PTEP
distribution from the first-tier foreign
corporation that is attributable to a
PTEP distribution from the lower-tier
foreign corporation and the amount of
foreign income taxes paid, accrued, or
deemed paid by that lower-tier foreign
corporation with respect to that
portion of the PTEP distribution.
Because only foreign taxes imposed
on the receipt of a PTEP distribution
from a lower-tier foreign corporation
are eligible for credit under section
960(b), no foreign taxes of the
lowest-tier foreign corporation to
which the PTEP distribution is
attributable are properly attributable to
a PTEP distribution made to an
upper-tier foreign corporation. See
Regulations section 1.960-1(d)(3)(ii)
(C).
-14-

Column 1a. Enter the name of each
lower-tier foreign corporation that
distributed PTEP to an upper-tier
foreign corporation, in the current year
or a prior year, that in turn was
distributed in the current year to a
domestic corporation. In column 1a,
preceding the name of the distributing
lower-tier foreign corporation, enter a
unique alphabetic character that
corresponds to a PTEP distribution
reported in Part I. For example, in the
case of a PTEP 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
sourced from PTEP distributions from
CFC2 and CFC3).
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).
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
PTEP to the upper-tier foreign
corporation.
Note. If the PTEP distributed in Part I
relates to PTEP 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.
Column 5. Enter the U.S. tax year of
the recipient foreign corporation which
includes the date the foreign
corporation received the PTEP
distribution.
Column 6. Enter the applicable
two-letter codes from the list at
IRS.gov/CountryCodes.
Column 7. Enter the PTEP
distribution by PTEP group within an
Instructions for Form 1118 (Rev. 12-2019)

annual PTEP account as defined in
Regulations section 1.960-3(c)(2) in
the functional currency of the CFC. If
there is a PTEP distribution related to
more than one PTEP group within an
annual PTEP account, complete a
separate line for each PTEP group
within an annual PTEP account. Only
report the amount of PTEP that was
ultimately distributed to the domestic
corporation in the current year, even if
the amount of PTEP distributed to the
upper-tier foreign corporation was
greater than that amount.
Column 8. Enter the U.S. dollar
amount of the recipient foreign
corporation's income taxes paid,
accrued, and deemed paid that are
properly attributable to the PTEP
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(a).
Note. See the Note in the instructions
for Part I, column 5, for purposes of
reporting foreign income taxes
properly attributable to PTEP
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, a Country Y
corporation, wholly owns Country X
corporations CFC2 and CFC3. 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 100u, comprising all of their
respective section 965(a) PTEP within
the annual PTEP account for the 2017
tax year (“2017 section 965(a) PTEP”)
within the general category, to CFC1,
a first-tier CFC. CFC1 pays 40u equal
to $40 of taxes to Country X on the
200u PTEP distributions, reducing the
2017 section 965(a) PTEP to 160u. In
that same year, CFC1 distributes all
160u of the 2017 section 965(a) PTEP
to USC. CFC1 does not have any
other PTEP balances. The reference
ID numbers for CFC1, CFC2, and
CFC3 are 10041, 10042, and 10043,
respectively. The country codes for
Instructions for Form 1118 (Rev. 12-2019)

Country X and Country Y are OC and
BC, respectively.
USC makes the following entries
on a single line on Schedule E, Part I.
Column

Entry

1a

A CFC1

1b

10041

2

201912

3

BC

4

160u

5

40

USC makes the following entries
on the first of two lines on Schedule E,
Part II.
Column

Entry

1a

A CFC2

1b

10042

2

202012

3

OC

4a

CFC1

4b

10041

5

202012

6

BC

7

80u

8

0

USC makes the following entries
on the second of two lines on
Schedule E, Part II.
Column

Entry

CFC3 ends on December 31. During
CFC3’s U.S. tax year ending
December 31, 2018, CFC3 distributes
100u, comprising its entire section
965(a) PTEP within the annual PTEP
account for the 2017 tax year (“2017
section 965(a) PTEP”) within the
general category, to CFC2, a CFC
that wholly owns CFC3. CFC2 pays
tax of 20u to Country X equal to $20
on the 100u PTEP distribution,
reducing the 2017 section 965(a)
PTEP to 80u. In CFC2’s U.S. tax year
ending December 31, 2019, CFC2
distributes 40u of the 2017 section
965(a) PTEP 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 codes for
Country X and Country Y are OC and
BC, respectively. 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

OC

1a

A CFC3

4

40u

1b

10043

5

10

2

202012

3

OC

4a

CFC1

4b

10041

5

202012

6

BC

7

80u

8

0

Example 2. USC is a domestic
corporation. CFC1 and CFC2 are
Country X corporations, and CFC3 is
a Country Y corporation. The U.S. tax
year for USC, CFC1, CFC2, and
-15-

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

BC

4a

CFC1

4b

20041

5

201912

6

OC

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

BC

4a

CFC2

4b

20042

5

201812

6

BC

7

40u

8

0

Example 3. USC is a domestic
corporation. CFC1 is a Country X
corporation, CFC2 is a Country Y
corporation, and CFC3 is a Country Z
corporation. The U.S. tax year of
USC, CFC1, CFC2, and CFC3 ends
on December 31. During CFC3’s U.S.
tax year ending December 31, 2017,
CFC3 distributes 1,000u, comprising
all of its subpart F PTEP within the
annual PTEP account for the 2016 tax
year (“2016 section 951(a)(1)(A)
PTEP”) within the general category, to
CFC2, a CFC that wholly owns CFC3.
CFC2 pays tax of 100u to Country Y
equal to $100 on the 1,000u PTEP
distribution, reducing the 2016 section
951(a)(1)(A) PTEP to 900u. In CFC2’s
tax year ending December 31, 2018,
CFC2 distributes 250u, comprising all
of its section 951A PTEP within the
annual PTEP account for the 2018 tax
year (“2018 section 951A PTEP”), to
CFC1, a CFC that wholly owns CFC2.
CFC1 pays tax of 25u to Country X
equal to $25 on the 250u PTEP

distribution, reducing the 2018 section
951A PTEP to 225u. During CFC2’s
tax year ending December 31, 2019,
CFC2 also distributes 450u out of its
2016 section 951(a)(1)(A) PTEP
balance of 900u to CFC1. CFC1 pays
tax of 45u to Country X equal to $45
on the 450u PTEP distribution,
reducing the 2016 section 951(a)(1)
(A) PTEP to 405u. CFC1 is also
deemed to pay $50 of the tax paid by
CFC2 on the 2017 distribution of the
PTEP from CFC3. In the same year,
CFC1 distributes 630u to USC, who
wholly owns CFC1, which includes all
of CFC1’s 2016 section 951(a)(1)(A)
PTEP of 405u and 2018 section 951A
PTEP of 225u. USC pays no tax on
such distribution, but is deemed to
pay $50 of the tax deemed paid by
CFC1 and the $70 tax paid by CFC1
on the 2018 and 2019 distributions of
the PTEP from CFC2.
The reference ID numbers for
CFC1, CFC2, and CFC3 are 10041,
10042, and 10043, respectively. The
country codes for Country X, Country
Y, and Country Z are OC, CC, and
BC, respectively.
USC completes Form 1118,
Schedule E, as follows:
USC makes the following entries
on a line on Schedule E, Part I, of its
Form 1118 with respect to general
category income.

Column

Entry

1a

A CFC2

1b

10042

2

201912

3

CC

4a

CFC1

4b

10041

5

201912

6

OC

7

405u

8

50

USC makes the following entries
on the second of two lines on
Schedule E, Part II, of its Form 1118
with respect to general category
income.
Column

Entry

1a

A CFC3

1b

10043

2

201712

3

BC

4a

CFC2

4b

10042

5

201712

6

CC

7

405u

8

0

USC makes the following entries
on a line on Schedule E, Part I, of its
Form 1118 with respect to section
951A category income.

Column

Entry

1a

A CFC1

1b

10041

2

201912

3

OC

Column

Entry

4

405u

1a

B CFC1

5

95

1b

10041

2

201912

3

OC

4

225u

5

25

USC makes the following entries
on the first of two lines on Schedule E,
Part II, of its Form 1118 with respect
to general category income.

USC makes the following entries
on a line on Schedule E, Part II, of its
Form 1118 with respect to section
951A category income.

-16-

Instructions for Form 1118 (Rev. 12-2019)

Column

Entry

1a

B CFC2

1b

10042

2

201812

3

CC

4a

CFC1

4b

10041

5

201812

6

OC

7

225u

8

0

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 with respect
to 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 section 902(c)(7) prior
to its repeal by the Act.

Identifying Numbers

On Schedules F-1, F-2, and F-3,
column 1b requests an employer
identification number (EIN) and
column 1c requests a reference ID
number. A reference ID number is
required in column 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.
Reference ID numbers. For basic
information about reference ID
numbers (including the requirements
as to the characters permitted), see
Reference ID numbers, earlier, 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
Instructions for Form 1118 (Rev. 12-2019)

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
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.
Columns 1b and 1c. See Reference
ID numbers, earlier.
Column 2. Enter the year and month
in which the foreign corporation's U.S.
tax year ended using the format
YYYYMM.
Example. When figuring foreign
taxes deemed paid by a domestic
corporation with a September 30,
2020, year end that owns a foreign
corporation through a domestic
partnership with an October 31, 2019,
year end with respect to dividends
and inclusions out of post-1986
undistributed earnings for the foreign
corporation's tax year that ended
November 30, 2018, enter "201811."
Column 3. Enter the applicable
two-letter codes from the list at
IRS.gov/CountryCodes.

-17-

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 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 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) (as in
effect prior to its amendment by the
Act).

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.
Columns 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.
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.
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).

-18-

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 E&P 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 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, calculate and show
the tax deemed paid on a separate
line for each year.
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

Instructions for Form 1118 (Rev. 12-2019)

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.
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).

Instructions for Form 1118 (Rev. 12-2019)

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 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
-19-

corporation to which it paid a dividend
out of pre-1987 accumulated profits.
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
section 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
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.

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
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
Schedule C (Form 5713), line 2b. See
Form 5713 and its separate
Schedule C and instructions.
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.

-20-

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.” Such
disallowed taxes may also include, for
example, gain on certain sales of CFC
stock treated as dividends. See
section 964(e)(4).
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 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.

Part I—Research and
Experimental Deductions

Note. These instructions refer to the
regulations existing on the date of the
enactment of the Act. Taxpayers on
the sales method for tax years
beginning after December 31, 2017,
and before January 1, 2020, may
choose to apply Proposed
Regulations section 1.861-17 (REG
105495-19, 84 FR 69124) in lieu of
the regulations existing on the date of
the enactment of the Act, if such
regulation is applied consistently.
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.

Instructions for Form 1118 (Rev. 12-2019)

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.
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
Instructions for Form 1118 (Rev. 12-2019)

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.
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, earlier.
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
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Option 1 only if certain conditions are
met. See Regulations section
1.861-17(d)(2).
Note. If the corporation has more
than two product lines, see
Computer-Generated Schedule H,
earlier.
Columns (b)(v) and (b)(vii)
Line 1. Enter the total gross income
(excluding exempt income according
to Regulations section 1.861-8(d)(2)
and 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 proposed,
final, and temporary Regulations
sections 1.861-8 through 1.861-14 for
rules on the apportionment of interest
deductions based on the tax book
value or adjusted tax book value of
assets.
A corporation may elect to use the
alternative tax book value method.
See Regulations section 1.861-9(i).
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.
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
Regulations section 1.861-9(g)(2) and
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 Regulations section 1.861-10(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 Regulations section
1.861-10 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 (Regulations
section 1.861-8(d)(2) and 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.
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.
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
Regulations section 1.861-10(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.
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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, proposed, and temporary
Regulations sections 1.861-8 and
1.861-14.
As indicated in the "Caution" in the
instructions for Schedule A, column 9,
earlier, also include in Schedule H,
Part II, column (c), foreign source
exchange loss amounts under
sections 986(c), 987, and 988 that are
subject to the apportionment
described in the previous paragraph.
Line 1a. Enter the total other
deductions. Examples include
stewardship expenses; legal and
accounting expenses; and other
expenses related to certain supportive
functions such as overhead, general
and administrative, advertising, and
marketing. Deductions for charitable
contributions are generally 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.

Instructions for Form 1118 (Rev. 12-2019)

Column (d)
In column (d), for each line beginning
with line 3a(1) and ending with
line 3f(3), enter the sum of the
amounts in Part I, column (c); Part II,
columns (b)(iii) and (b)(iv); and Part II,
column (c) for that line. For example,
on line 3a(1), column (d), enter the
sum of Part I, column (c), line 3a(1);
Part II, column (b)(iii), line 3a(1); Part
II, column (b)(iv), line 3a(1); and Part
II, column (c), line 3a(1).
Note. Be sure to also enter the totals
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
the amounts entered in column (d) for
lines 3a(3), 3b(3), 3c(3), 3d(3), 3e(3),
and 3f(3) of Schedule H, Part II.
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).
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 entered 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, 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. This is the
adjustment required by section 904(b)
(4) to total taxable income from all
sources (worldwide income). See the

Note in the instructions for
Schedule A, column 15 for information
regarding the adjustment required by
section 904(b)(4) to foreign source
income or loss in each category.
Line 6. On line 6, enter expenses
apportioned to the dividends that are
eligible for a dividends received
deduction under section 245A and are
treated as U.S. source income under
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.

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.

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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
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Instructions for Form 1118 (Rev. 12-2019)

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