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.
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. See section 986(a).
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. If a credit for
taxes accrued is claimed, show both the date accrued and the date paid (if paid).
If the cash method of accounting is used, an election under section 905(a) can be made to claim the credit based on accrued taxes. If this
election is made, figure the foreign tax credit for all subsequent tax years on the same basis. Also, the credits are subject to the redetermination
provisions of section 905(c). See page 4 for details.
Column 2(d).
Include foreign taxes paid or accrued on foreign branch taxable income to which the rules of section 863(b) apply.
Note:
Do not include these overlapping amounts in column 2(e).
Part II - Separate Credit Limitation
Line 4.
Enter the total amount of foreign taxes carried forward or back to the current year (see page 4 for general rules). Include all taxes carried
forward, whether or not such taxes are used. Attach a schedule reconciling the prior year's carryover with this year's carryover, identifying
carrybacks and any other adjustments.
Line 6.
If the corporation has, in any of its separate categories, a current year separate limitation loss, an overall domestic 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 instructions for Schedule J to determine if that schedule must be filed.
Line 7b.
Enter taxable income that should not be taken into account in computing the foreign tax credit limitation. For example, enter the income taken into
account in computing the possessions corporation tax credit under section 936 (without regard to sections 936(a)(4) and 936(i)) or section 30A.
Line 8.
Divide line 6 by line 7c to determine the limitation fraction. Enter the fraction on line 8 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 7c. For example, if adjusted taxable income on line 7c is $100,000,
compute the limitation fraction to 6 decimal places.
Line 10.
The limitation may be increased under section 960(b) for any tax year that the corporation receives a distribution of previously taxed E&P. See
section 960(b).
Part III - Summary of Separate Foreign Tax Credit Limitations
Complete Part III only once. Enter on lines 1 through 9 the separate foreign tax credits from Part II, line 11 for each applicable separate
category.
Line 11.
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 12.
Schedule C
Part I - Dividends and Inclusions From Post-1986 Undistributed Earnings
Column 1.
Enter the name of the foreign corporation (or DISC or former DISC) whose earnings were distributed to, or included in income by, the domestic
corporation filing the return.
Column 2.
Enter the year and month in which the foreign corporation's U.S. tax year ended.
Example.
When figuring foreign taxes deemed paid in 2001 by a calendar year domestic corporation with respect to dividends and inclusions out of post-1986
undistributed earnings for the foreign corporation's tax year that ended June 30, 2001, enter 0106.
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 (e.g., under section 304, 367(b), 551, 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 (from Schedule D, Part I, Section
A, column 10, and 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).
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 one 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 1.
Enter the name of the first-tier foreign corporation (or DISC or former DISC) that paid a dividend out of pre-1987 profits to the domestic
corporation filing the return.
Column 2.
Enter the year and month in which the foreign corporation's pre-1987 tax year ended.
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 on page 8 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).
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 (e.g., under section 956 or 1248) in a
post-1986 year out of pre-1987 E&P requires that earnings and profits and foreign taxes be calculated in U.S. dollars under the rules of
Regulations section 1.964-1(a) through (e), 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(d) and Temporary
Regulations section 1.905-5T(b)(1).
Column 1.
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.
Column 2.
Enter the year and month in which the corporation's pre-1987 tax year ended. If the deemed inclusion is from the accumulated E&P of more than 1
tax year, figure and show the tax deemed paid on a separate line for each year.
Column 4.
For each line, enter the E&P calculated in U.S. dollars under Regulations sections 1.964-1(a) through (e), 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 on
page 8 for information on reduction of foreign taxes for failure to furnish information required under section 6038.
Column 6(b).
Enter the amount from column 6(a) translated into U.S. dollars at the appropriate exchange rate specified in section 989(b).
Schedule D
Part I - Tax Deemed Paid by First-Tier Foreign Corporations
Section A - Dividends Paid Out of Post-1986 Undistributed Earnings
Column 1.
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 U.S. corporation filing the return owns all of the stock of CFC1 and CFC2. CFC1 and CFC2 each owns 50% of the stock of CFC3. In 2001, 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.
Column 2.
Enter the year and month in which the distributing second-tier foreign corporation's tax year ended.
Example.
If a first-tier foreign corporation that uses the calendar year 2001 as its taxable year receives dividends out of post-1986 undistributed earnings
of a second-tier foreign corporation for a tax year that ended June 30, 2001, enter 0106.
Column 3.
Enter the second-tier foreign corporation's applicable two-digit foreign country or U.S. possession code from the list beginning on page 10.
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 C, 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 C, 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).
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
D, 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 one 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 1.
Enter the name of the second-tier foreign corporation and the name of the first-tier foreign corporation to which it paid a dividend out of
pre-1987 accumulated profits.
Column 2.
For each pre-1987 tax year, enter the year and month in which the second-tier foreign corporation's tax year ended.
Column 4.
For each line, enter the pre-1987 accumulated profits for the tax year indicated in column 2, computed in the second-tier corporation's functional
currency under section 902. See Regulations sections 1.902-1(a)(10)(i) and (ii).
Column 5.
Enter the foreign taxes paid and deemed paid under section 902(b) (in functional currency) with respect to the accumulated profits entered in
column 4 for the pre-1987 tax year indicated in column 2. See the instructions for Schedule G on page 8 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 this amount 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 - Dividends Deemed Paid by Second-Tier Foreign Corporation
Follow the instructions for the corresponding columns of Schedule D, 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.
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