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Department of the Treasury
Internal Revenue Service
Instructions for Form 1118

(Rev. December 2023)

(Use with the December 2022 revision of Form 1118, the December 2023 revision of
separate Schedule L, the December 2021 revision of separate Schedule I, the
December 2020 revision of separate Schedule J, and the December 2018 revision of
separate Schedule K.)
Foreign Tax Credit—Corporations

Section references are to the Internal taxpayers are required to use the
Revenue Code unless otherwise noted. revised Form 4626 for determining General Instructions
foreign tax credits for purposes of
Future Developments calculating the CAMT tax liability, if Purpose of Form
For the latest information about any, under section 55. Use Form 1118 to compute a
developments related to Form 1118 corporation's foreign tax credit for
and its instructions, such as legislation Reminders certain taxes paid or accrued to
enacted after they were published, go On December 22, 2017, Congress foreign countries or U.S. possessions.
to IRS.gov/Form1118. enacted the Tax Cuts and Jobs Act, See Taxes Eligible for a Credit, later.
P.L. 115-97 (the “Act”). The Act
What’s New changes the computation of foreign Who Must File
tax credits for post-2017 tax years as Any corporation that elects the
Final foreign tax credit regulations. follows. benefits of the foreign tax credit under
Final foreign tax credit regulations • Two new separate categories of section 901 must complete and attach
were published January 4, 2022. The income under section 904(d): (i) any Form 1118 to its income tax return. In
new regulations made changes to the amount includible in gross income addition, even if a corporation has not
rules relating to the creditability of under section 951A (other than elected to credit foreign taxes, it must
foreign taxes under sections 901 and passive category income) (“section complete and attach Schedules A and
903, the applicable period for claiming 951A category income”), and (ii) J of a Form 1118 to its income tax
a credit or deduction for foreign taxes, foreign branch category income. return if it has any additions to,
and the new election to claim a • Repeal of section 902 indirect reductions to, or recapture of any new
provisional credit for contested foreign credits with respect to dividends from or existing overall foreign loss, overall
taxes. A Notice was subsequently foreign corporations. domestic loss, or separate limitation
released on July 21, 2023, allowing • Modified indirect credits under loss accounts. See Regulations
taxpayers to apply prior rules in place section 960 for inclusions under section 1.904(f)-1(b).
of certain rules provided in the new sections 951(a)(1) and 951A.
regulations. The rules described in • Modified section 78 gross-up with Also, even if a taxpayer has not
this Notice were modified in part by a respect to inclusions under sections elected to credit foreign taxes, if it has
Notice released on December 11, 951(a)(1) and 951A. a foreign tax redetermination under
2023, to address their application to • Revised sourcing rule for certain section 905(c), it must complete and
partnerships and their partners and to income from the sale of inventory attach Schedule L of a Form 1118 to
extend the relief period until further under section 863(b). its income tax return for the taxable
notice. For more information, see • Repeal of the fair market value year in which the foreign tax
Treasury Decision 9959, 2022-03 method for apportioning interest redetermination occurs. Schedule L
I.R.B. 328, available at IRS.gov/irb/ expense under section 864(e). must be submitted irrespective of
2022-03_IRB#TD-9959, Notice • New adjustments for purposes of whether the foreign tax
2023-55, 2023-32 I.R.B. 427, section 904 with respect to expenses redetermination changed the
available at IRS.gov/irb/ allocable to certain stock or dividends taxpayer's U.S. tax liability."
2023-32_IRB#NOT-2023–55, and for which a dividends received Also, individuals must complete
Notice 2023-80, 2023-52 I.R.B. 1583, deduction is allowed under section and attach a Form 1118 to their
available at IRS.gov/irb/ 245A. income tax return if they make the
2023-52_IRB#NOT-2023-80. • Election to increase pre-2018 election under section 962 to be taxed
Corporate Alternative Minimum section 904(g) overall domestic loss at corporate rates on the amount they
Tax Foreign Tax Credit. Form 1118 (ODL) recapture. must include in gross income under
is not used to determine foreign tax • Limited foreign tax credits with sections 951(a) and 951A from their
credits for purposes of calculating the respect to inclusions under section controlled foreign corporations in
Corporate Alternative Minimum Tax 965. order to be eligible to claim a foreign
(CAMT) under section 55, enacted tax credit based on their share of
under the Inflation Reduction Act of foreign income taxes paid or accrued
2022, P.L. 117-169. Corporate by the controlled foreign corporation.

Jan 16, 2024 Cat. No. 10905I

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See sections 960 and 962 and Pub.         respect to inclusions under section       Code Category of Income
514 for more information on how to        951A.
complete Form 1118 in this case.          • Use Schedule E to compute taxes       951A   Section 951A Category 
                                          deemed paid by the domestic                    Income
When To Make the Election                 corporation filing the return with 
The election to claim the foreign tax     respect to distributions of previously  FB     Foreign Branch Category 
credit for any tax year may be made or    taxed income (also referred to as              Income
changed at any time before the end of     previously taxed earnings and profits   PAS    Passive Category Income
a special 10-year period described in     (PTEP)).
section 6511(d)(3) (or section 6511(c)    • Use Schedule G to report required     901j   Section 901(j) Income
if the period is extended by              reductions of tax paid, accrued, or     RBT PAS U.S. Source Passive 
agreement). The election to claim a       deemed paid.                                   Category Income 
deduction in lieu of a credit for foreign • Use Schedule H to apportion                  Resourced by Treaty as 
income taxes may be made or               deductions that cannot be allocated to         Foreign Source Passive 
changed at any time before the end of     an item or class of income identified          Category Income
the period prescribed by section          on Schedule A.
6511(a) or 6511(c). See Regulations       • Use Schedule I (a separate            RBT GEN U.S. Source General 
section 1.901-1(d).                       schedule) to compute reductions of             Category Income 
                                          taxes paid, accrued, or deemed paid            Resourced by Treaty as 
Computer-Generated                        on foreign oil and gas income.                 Foreign Source General 
Form 1118                                 • Use Schedule J (a separate                   Category Income
                                          schedule) to compute adjustments to 
The corporation may submit a                                                      RBT FB U.S. Source Foreign 
                                          separate limitation income or losses in 
computer-generated Form 1118 and                                                         Branch Income 
                                          determining the numerators of 
schedules if they conform to the IRS                                                     Resourced by Treaty as 
                                          limitation fractions, year-end 
version. However, if a software                                                          Foreign Source Foreign 
                                          recharacterization balances, and 
program is used, it must be approved                                                     Branch Category Income
                                          overall foreign and domestic loss 
by the IRS for use in filing substitute 
                                          account balances.
forms. This ensures the proper                                                    RBT 951A U.S. Source Section 
                                          • Use Schedule K (a separate 
placement of each item appearing on                                                      951A Category Income 
                                          schedule) to reconcile the 
the IRS version. For more information,                                                   Resourced by Treaty as 
                                          corporation's prior-year foreign tax 
see Pub. 1167, General Rules and                                                         Foreign Source Section 
                                          carryover with its current-year foreign 
Specifications for Substitute Forms                                                      951A Category Income
                                          tax carryover.
and Schedules.                                                                    GEN    General Category Income
                                          • Use Schedule L (a separate 
                                          schedule) to report foreign tax 
How To Complete                           redeterminations that occurred in the 
Form 1118                                 current taxable year and that relate to   If you enter code "901j" or one of 
                                          prior taxable years.                    the "RBT" codes in item a, also 
Important.  Complete a separate 
                                                                                  complete item b or item c using the 
Schedule A; Schedule B, Parts I & II;     Categories of Income                    country codes provided at IRS.gov/
Schedules C through G; Schedule I; 
                                          Compute a separate foreign tax credit   CountryCodes.
Schedule K; and Schedule L, Parts I, 
                                          (using a separate Form 1118) for each 
II, III, & V for each applicable separate                                         Section 951A Category Income
                                          applicable separate category 
category of income. See Categories                                                Section 951A category income is any 
                                          described below. Enter the applicable 
of Income, later. Complete                                                        amount of global intangible low-taxed 
                                          code from the table below, in item a at 
Schedule B, Part III; Schedule H;                                                 income (GILTI) includible in gross 
                                          the top of page 1 of Form 1118, to 
Schedule J and Schedule L, Part IV                                                income under section 951A (other 
                                          indicate the separate category with 
only once.                                                                        than passive category income). 
                                          respect to which you are completing a 
• Use Schedule A to compute the                                                   Section 951A defines GILTI.
                                          given Form 1118.
corporation's income or loss before                                               • When completing a Form 1118 for 
adjustments for each applicable                                                   section 951A category income, enter 
category of income.                                                               the code "951A" on line a at the top of 
• Use Schedule B to determine the                                                 page 1.
total foreign tax credit after certain                                            • Section 951A category income 
reductions.                                                                       does not include passive category 
• Use Schedule C to compute taxes                                                 income.
deemed paid by the domestic 
corporation filing the return with                                                Foreign Branch Category 
respect to inclusions under section                                               Income
951(a)(1).                                                                        Foreign branch income is defined 
• Use Schedule D to compute taxes                                                 under section 904(d)(2)(J)(i) as the 
deemed paid by the domestic                                                       business profits of a U.S. person 
corporation filing the return with                                                which are attributable to one or more 
                                                                                  qualified business units (QBUs) (as 
2                                                                                 Instructions for Form 1118 (Rev. 12-2023)

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defined in section 989(a)) in one or Specified passive category in- companies in such foreign country,
more foreign countries. For more come. This term includes: and (b) the President reports to the
information on the computation of • Dividends from a domestic Congress, not less than 30 days
foreign branch category income, see international sales corporation (DISC) before the waiver is granted, the
Regulations section 1.904-4(f). or former DISC (as defined in section intention to grant such a waiver and
• When completing a Form 1118 for 992(a)) to the extent such dividends the reason for such waiver.
foreign branch category income, enter are treated as foreign source income,
Note. Effective December 10, 2004,
the code "FB" on line a at the top of and
the President waived the application
page 1. • Distributions from a former foreign
of section 901(j) with respect to Libya.
• Foreign branch category income sales corporation (FSC) out of
does not include passive category earnings and profits attributable to Income Re-Sourced by Treaty
income. foreign trade income or interest or If a sourcing rule in an applicable
• Foreign branch category income is carrying charges (as defined in income tax treaty treats any U.S.
effective for tax years of U.S. persons section 927(d)(1), before its repeal) source income as foreign source, and
beginning after December 31, 2017. derived from a transaction which the corporation elects to apply the
Passive Category Income results in foreign trade income (as treaty, the income will be treated as
defined in section 932(b), before its
Passive category income includes foreign source.
repeal).
passive income and specified passive
category income. When completing a Section 901(j) Income Important. The corporation must
compute a separate foreign tax credit
Form 1118 for passive category No credit is allowed for foreign income limitation for any such income for
income, enter the code "PAS" on line taxes imposed by and paid or accrued which it claims benefits under a treaty.
a at the top of page 1. to certain sanctioned countries. See Regulations sections 1.904-4(k)
Passive income. Generally, passive However, a foreign tax credit may be and 1.904-5(m)(7) for grouping rules
income is the following: claimed for foreign income taxes paid and exceptions. On each Form 1118,
• Any income received or accrued or accrued with respect to section enter one of the RBT codes listed
that would be foreign personal holding 901(j) income if such tax is paid or below on line a at the top of page 1
company income (defined in section accrued to a country other than a and identify the applicable treaty
954(c)) if the corporation were a sanctioned country. country on line c at the top of page 1
controlled foreign corporation (CFC) using the two-letter codes (from the
Income derived from each
(defined in section 957). This includes list at IRS.gov/CountryCodes).
sanctioned country is subject to a
any gain on the sale or exchange of
separate foreign tax credit limitation.
stock that is more than the amount Code “RBT PAS.” If an applicable
Therefore, the corporation must use a
treated as a dividend under section income tax treaty treats any U.S.
separate Form 1118 for income
1248. However, in determining if any source passive category income as
derived from each such country.
income would be foreign personal foreign source passive category
holding company income, the rules of On each Form 1118, enter the code income, and the corporation elects to
section 864(d)(6) will apply only for “901j” on line a at the top of page 1 apply the treaty, on Form 1118, enter
income of a CFC. and identify the applicable country code “RBT PAS” on line a at the top of
• Any amount includible in gross using the two-letter codes (from the page 1.
income under section 1293 (which list at IRS.gov/CountryCodes).
relates to certain passive foreign Code “RBT GEN.” If an applicable
investment companies (PFICs)). Sanctioned countries are those income tax treaty treats any U.S.
designated by the Secretary of State source general category income as
Passive income does not include:
as countries that repeatedly provide foreign source general category
• Any financial services income,
support for acts of international income, and the corporation elects to
• Any export financing interest unless
terrorism, countries with which the apply the treaty, on Form 1118, enter
it is also related person factoring
United States does not have code “RBT GEN” on line a at the top
income (see section 904(d)(2)(G) and
diplomatic relations, or countries of page 1.
Regulations section 1.904-4(h)(3)),
whose governments are not
• Any high-taxed income (see Code “RBT FB.” If an applicable
recognized by the United States. As of
Regulations section 1.904-4(c)), or income tax treaty treats any U.S.
the date these instructions were
• Any active rents or royalties. See source foreign branch category
revised, section 901(j) applied to
Regulations section 1.904-4(b)(2)(iii) income as foreign source foreign
income derived from Iran, North
for definitions and exceptions. branch category income, and the
Korea, Sudan, and Syria. For more
Note. Certain income received from a information, see section 901(j). corporation elects to apply the treaty,
on Form 1118, enter code “RBT FB”
CFC and certain dividends from
Note. The President of the United on line a at the top of page 1.
noncontrolled 10%-owned foreign
States has the authority to waive the
corporations that would otherwise be Code “RBT 951A.” If an applicable
application of section 901(j) with
passive income are treated as passive income tax treaty treats any U.S.
respect to a foreign country if it is (a)
category income only to the extent source section 951A category income
in the national interest of the United
provided under the look-through rules. as foreign source section 951A
States and will expand trade and
See Look-Through Rules, later. category income, and the corporation
investment opportunities for domestic

Instructions for Form 1118 (Rev. 12-2023) 3

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elects to apply the treaty, on Form       Special Rules                            any amount included in gross income 
1118, enter code “RBT 951A” on line a                                              under section 951(a)(1)(B).
at the top of page 1.                     Source Rules for Income
                                                                                   Look-through rules also apply to 
                                          Determine income or (loss) for each 
General Category Income                                                            subpart F inclusions under section 
                                          separate category on Schedule A          951(a)(1)(A) and GILTI inclusions 
This category includes all income not     using the general source rules of        under section 951A(a) to the extent 
described above. When completing a        sections 861 through 865 and related     attributable to income of the CFC in 
Form 1118 for the general category of     regulations, the special source rules    the passive category.
income, enter code "GEN" on line a at     of section 904(h) described below, 
                                                                                   For more information and 
the top of page 1. This category          and any applicable source rules 
                                                                                   examples, see section 904(d)(3) and 
includes high-taxed income that is not    contained in any applicable tax 
                                                                                   Regulations section 1.904-5.
otherwise treated as another category     treaties.
of income. Usually, income is high                                                 Noncontrolled 10%-owned foreign 
taxed if the total foreign income taxes   Special source rules of section 
                                                                                   corporations.  Generally, dividends 
paid, accrued, or deemed paid by the      904(h).  Usually, the following income 
                                                                                   received or accrued by the taxpayer 
corporation for that income exceed        from a U.S.-owned foreign 
                                                                                   are passive category income. 
the highest rate of tax specified in      corporation, otherwise treated as 
                                                                                   However, dividends received or 
section 11 (and with reference to         foreign source income, must be 
                                                                                   accrued from a noncontrolled 
section 15, if applicable), multiplied by treated as U.S. source income under 
                                                                                   10%-owned foreign corporation may 
the amount of such income (including      section 904(h).
                                                                                   be assigned to other separate 
the amount treated as a dividend          • Any subpart F income, foreign 
                                                                                   categories under the look-through 
under section 78). For more               personal holding company income, 
                                                                                   rules of section 904(d)(4).
information, see Regulations section      GILTI, or income from a qualified 
1.904-4(c). Also see the instructions     electing fund that a U.S. shareholder    Certain amounts paid by a domes-
for Schedule A, later, for additional     is required to include in its gross      tic corporation to a related corpo-
reporting requirements.                   income if such amount is attributable    ration.  Look-through rules also apply 
                                          to the U.S.-owned foreign                to foreign source interest, rents, and 
  This category also includes             corporation's U.S. source income.        royalties paid by a domestic 
financial services income (defined        • Interest that is properly allocable to corporation to a related corporation. 
below) not described above if the         the U.S.-owned foreign corporation's     See Regulations section 1.904-5(g).
corporation is a member of a financial    U.S. source income.
                                                                                   Other Rules
services group (as defined in section     • Dividends equal to the U.S. source 
904(d)(2)(C)(ii)) or is predominantly     ratio (defined in section 904(h)(4)(B)). Certain transfers of intangible 
engaged in the active conduct of a          The rules regarding interest and       property. See section 367(d)(2)(C) 
banking, insurance, financing, or         dividends described above do not         for a rule that clarifies the treatment of 
similar business.                         apply to a U.S.-owned foreign            certain transfers of intangible property.
Financial services income.                corporation if less than 10% of its      Reporting Foreign Tax 
Financial services income is income       earnings and profits (E&P) for the tax 
                                                                                   Information From Partnerships
received or accrued by a member of a      year is from U.S. sources.
financial services group or any                                                    If you received a Schedule K-3 (Form 
                                          Amounts That Do Not
corporation predominantly engaged in                                               1065) or a Schedule K-3 (Form 8865) 
the active conduct of a banking,          Constitute Income Under                  from a partnership that includes 
insurance, financing, or similar          U.S. Tax Principles                      foreign tax information, use the rules 
business if the income is:                Creditable foreign taxes that are        below to report that information on 
• Described in section 904(d)(2)(D)       imposed on amounts that do not           Form 1118.
(ii),                                     constitute income under U.S. tax 
• Passive income (determined              principles are treated as imposed on     Schedule K-3, Part II, Section 1
without regard to section 904(d)(2)(B)    income described in section 904(d)(1)    Gross income sourced at partner 
(iii)(II)), or                            (B). See section 904(d)(2)(H).           level. This includes income from the 
• Incidental income described in                                                   sale of most personal property other 
Regulations section 1.904-4(e)(4).        Look-Through Rules
                                                                                   than inventory, depreciable property, 
                                          CFCs.    Generally, dividends, interest, and certain intangible property 
Note. If the corporation qualified as a   rents, and royalties received or         sourced under section 865. This gross 
financial services entity because it      accrued by the taxpayer are passive      income will generally be U.S. source 
treated certain amounts as active         category income. However, if these       and therefore will not be reported on 
financing income that are not listed in   items are received or accrued by a       Form 1118.
Regulations sections 1.904-4(e)(2)(i)     10% U.S. shareholder from a CFC, 
(A) through (X), but that are described   they may be assigned to other            Foreign gross income sourced at 
as similar items in Regulations section   separate categories, or may be           partnership level. Report on 
1.904-4(e)(2)(i)(Y), attach a statement   treated as passive category income       Schedule A.
to Form 1118 showing the types and        under the look-through rules of 
amounts of the similar items.             section 904(d)(3). Dividends include 

4                                                                                  Instructions for Form 1118 (Rev. 12-2023)

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Schedule K-3, Part II, Section 2 attributable to a separate category, Some foreign taxes that are
multiply the net U.S. source capital otherwise eligible for the foreign tax
Deductions allocated and appor- loss by the amount of capital gain net credit must be reduced. These
tioned at partner level and partner- income from sources outside the reductions are reported on
ship level. Report on Schedule A or United States in the separate Schedule G.
Schedule H. category divided by the aggregate
amount of capital gain net income Note. A corporation may not claim a
Schedule K-3, Part III, Sections 1 from sources outside the United foreign tax credit for foreign income
through 3 States in all separate categories with taxes paid to a foreign country that the
capital gain net income from sources corporation does not legally owe,
R&E expenses apportionment fac- outside the United States. including amounts eligible for refund
tors. Report on Schedule H, Part I. by the foreign country. If the
See section 904(b)(2)(B) for
Interest expense apportionment corporation does not exercise its
special rules regarding adjustments to
factors. Report on Schedule H, Part available remedies to reduce the
account for capital gain rate
II. amount of foreign income tax to what
differentials (as defined in section it legally owes, a credit is not allowed
Foreign-derived intangible income 904(b)(3)(D)) for any tax year. At the for the excess amount.
(FDII) deduction apportionment time these instructions went to print,
factors. Report on Schedule H, Part there was no capital gain rate Foreign corporations. Foreign
II. differential for corporations. corporations are allowed (under
section 906) a foreign tax credit for
Schedule K-3, Part III, Section 4 Credit Limitations foreign income taxes paid or accrued
to any foreign country or U.S. territory
Total foreign taxes paid or ac- Taxes Eligible for a Credit for income effectively connected with
crued. Report on Schedule B. Domestic corporations. Generally, the conduct of a trade or business
Foreign tax redeterminations. a domestic corporation may claim a within the United States. The credit is
Report on Schedule L. foreign tax credit (subject to the not applicable, however, if a foreign
limitation of section 904) for the country or U.S. territory imposes the
Reduction in taxes available for tax on income from U.S. sources
following taxes.
credit. Report on Schedule G. solely because the foreign corporation
• Income, war profits, and excess
profits taxes paid or accrued during was created or organized under the
Schedule K-3 (Form 1065), Part VIII the tax year to any foreign country or law of the foreign country or U.S.
Partner’s interest in foreign corpo- U.S. territory. territory or is domiciled there for tax
ration income (Section 960). • Taxes paid in lieu of income taxes purposes.
Report on Schedule C or D, as as described in section 903. The credit may not be taken
applicable. • Taxes deemed paid under section against any tax imposed on income
960. not effectively connected with a U.S.
Note. Schedule K-3 (Form 8865) Income, war profits, and excess business.
does not contain a part equivalent to profits taxes and in lieu of taxes are In computing the foreign tax credit
Schedule K-3 (Form 1065), Part VIII. collectively referred to as foreign limitation, the foreign corporation's
Capital Gains income taxes. See Regulations taxable income includes only the
sections 1.901-2(a) and (b) and taxable income that is effectively
Foreign source taxable income or 1.903-1 for rules for determining connected with the conduct of a trade
(loss) before adjustments in all whether a foreign tax qualifies as a or business within the United States.
separate categories in the aggregate foreign income tax. Credit or Deduction
should include gain from the sale or
exchange of capital assets only up to Final foreign tax credit A corporation may choose to take
the amount of foreign source capital ! regulations issued on January either a credit or a deduction for
gain net income (which is the smaller CAUTION 4, 2022 (T.D. 9959, 87 FR
eligible foreign income taxes paid or
of capital gain net income from 374) revised the creditability accrued. The choice is made annually.
sources outside the United States or requirements under Regulations Generally, if a corporation elects the
capital gain net income). Therefore, if sections 1.901-2 and 1.903-1, benefits of the foreign tax credit for
the corporation has capital gain net applicable for foreign taxes paid or any tax year, no portion of the foreign
income from sources outside the accrued in taxable years beginning on income taxes paid or accrued in such
United States in excess of the capital or after December 28, 2021. A Notice year will be allowed as a deduction in
gain net income reported on its tax was subsequently released on July that year or any subsequent tax year.
return, enter a pro rata portion of the 21, 2023, providing taxpayers the
net U.S. source capital loss as a option to apply modified rules in place Exceptions. However, a corporation
negative number on Schedule A, of certain provisions of the new that elects the credit for foreign
column 13(j), for each separate regulations. For more information, see income taxes may be allowed a
category with capital gain net income Notice 2023-55, 2023-32 I.R.B. 427, deduction for certain taxes for which a
from sources outside the United available at IRS.gov/irb/ credit was not allowed. These include
States. To figure the pro rata portion of 2023-32_IRB#NOT-2023–55. the following.
the net U.S. source capital loss

Instructions for Form 1118 (Rev. 12-2023) 5

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• Taxes for which the credit was income excluded from gross income • Carryback of foreign income taxes
denied because of the boycott on Form 8873, Extraterritorial Income paid or accrued in post-2017 foreign
provisions of section 908. Exclusion. However, see section corporate tax years and carryforward
• Certain taxes on the purchase or 943(d) for an exception for certain of foreign income taxes paid or
sale of oil or gas (section 901(f)). withholding taxes. accrued in pre-2018 foreign corporate
• Certain taxes used to provide • The applicable percentage of taxes tax years. See Regulations section
subsidies (section 901(i)). paid or deemed paid with respect to 1.904-2(j).
• Taxes paid to certain foreign an amount included in income under
countries for which a credit was section 965 (section 965(g)). Treaty-Based Return
denied under section 901(j). • Taxes paid with respect to the Positions
• Certain taxes paid on dividends if amount treated as included under Corporations that adopt a return
the minimum holding period is not met section 965(b). position that any U.S. treaty overrides
with respect to the underlying stock, or modifies any provision of the
or if the corporation is obligated to Carryback and Carryforward of
make related payments with respect Excess Foreign Taxes Internal Revenue Code, and causes
(or potentially causes) a reduction of
to positions in similar or related If the allowable foreign income taxes
any tax incurred at any time, must
property (section 901(k)). paid, accrued, or deemed paid in a
generally disclose this position. This
• Certain taxes paid on gain and tax year in a separate category
includes when a corporation is relying
income other than dividends if the exceed the foreign tax credit limitation
on a U.S. treaty to claim a credit for a
minimum holding period is not met for the tax year for that separate
foreign tax. Complete Form 8833,
with respect to the underlying category, the excess is:
Treaty-Based Return Position
property, or if the corporation is • First, carried back 1 year to offset
Disclosure Under Section 6114 or
obligated to make related payments taxes imposed in the same category,
Section 7701(b), and attach it to Form
with respect to positions in similar or then
1118. See section 6114 and
related property (see section 901(l)). • Carried forward 10 years to offset
Regulations section 301.6114-1 for
• In the case of a covered asset taxes imposed in the same category.
details.
acquisition (as defined in section
The excess is applied first to the
901(m)(2)), the disqualified portion of Failure to make such a report may
earliest of the years to which it may be
any tax determined with respect to the result in a $10,000 penalty.
carried, then to the next earliest year,
income or gain attributable to the
etc. The corporation may not carry a
relevant foreign assets (section Proof of Credits
credit to a tax year for which it claimed
901(m)). Note. This rule generally Form 1118 must be carefully filled in
a deduction, rather than a credit, for
applies to covered asset acquisitions with all the information called for and
foreign income taxes paid or accrued.
after December 31, 2010. See with the calculations of credits
Furthermore, the corporation must
Regulations sections 1.901(m)-1 indicated.
reduce the amount of any carryback
through 1.901(m)-8 for additional
or carryforward by the amount it would
information. Note that the rules Important. Documentation (that is,
have used if it had chosen to claim a
contained in these regulations have receipts of payments or a foreign tax
credit rather than a deduction in that
later effective dates. return for accrued taxes) is not
tax year. These carryover provisions
• Taxes paid by an accrual basis required to be attached to Form 1118.
do not apply to foreign income taxes
taxpayer that relate to a prior tax year However, proof must be presented
assigned to section 951A category
in which the taxpayer elected to claim upon request by the IRS to
income. See section 904(c) and
a deduction for foreign income taxes substantiate the credit. See
Regulations section 1.904-2 for more
in that prior year. See Regulations Regulations section 1.905-2.
details.
section 1.901-1(c)(3).
If the corporation claims a foreign
How to claim the excess credit. If
tax credit for tax accrued but not paid,
No Credit or Deduction the corporation is carrying back the
the IRS may require a bond to be
No foreign tax credit (or deduction) is excess credit to an earlier year, file an
furnished on Form 1117, Income Tax
allowed for certain taxes including: amended tax return with a revised
Surety Bond, before the credit is
• Taxes on mineral income that were Form 1118 and schedules (including a
allowed. See Regulations section
reduced under section 901(e). revised Schedule K (Form 1118)).
• Certain taxes paid on distributions 1.905-2(c).
from corporations organized in a U.S. Special rules apply to:
territory (section 901(g)). • The carryback and carryforward of Foreign Tax
• Taxes on combined foreign oil and foreign income taxes paid or accrued Redeterminations
gas income that were reduced under on combined foreign oil and gas The corporation's foreign tax credit
section 907(a). income or related taxes (see section and U.S. tax liability must generally be
• Taxes attributable to income 907(f)). redetermined if:
excluded under section 814(a) • An excess foreign tax credit for Accrued foreign income taxes when
•
(relating to contiguous country which an excess limitation account paid or later adjusted differ from the
branches of domestic life insurance exists under section 960(c)(2). See amounts claimed as credits (including
companies). Regulations sections 1.960-4 through corrections to accrued amounts to
• Taxes paid or accrued to a foreign 1.960-6. reflect final foreign tax liability and
country or U.S. territory with respect to additional payments of tax that accrue
6 Instructions for Form 1118 (Rev. 12-2023)

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after the close of the taxable year to return and Form 1118 is for a change the tax year to which such taxes
which the tax relates); in Foreign Tax Credit that increases relate.
• Accrued foreign income taxes are U.S. tax liability." • The amount of such taxes in foreign
not paid within 24 months after the currency.
close of the tax year to which they In addition, the amended return • The exchange rate that was used to
relate; must have attached to it an amended translate such amount when originally
• Any foreign income tax paid is fully Form 1118 and a statement that claimed as a credit or added to
or partially refunded; provides the following. post-1986 foreign income taxes or
• A change in foreign tax liability that • The taxpayer's name, address, PTEP group taxes (as defined in
affects the amount of distributions or identifying number, the tax year or Regulations section 1.960-3(d)(1)).
inclusions under sections 951, 951A, years of the taxpayer that are affected
or 1293, or affects the application of by the foreign tax redetermination, Redetermination of U.S. tax liability
the high-tax exception described in and, in the case of foreign income results in an amount of additional
section 954(b)(4); or taxes deemed paid, the name and tax due, and the carryback or car-
• A change to claim a foreign tax identifying number, if any, of the ryover of an unused foreign in-
credit for foreign income taxes that foreign corporation. come tax under section 904(c) on-
were previously deducted or a change • The date or dates the foreign ly partially eliminates such
to claim a deduction for foreign income taxes were accrued, if amount. The information required in
income taxes that were previously applicable. Regulations section 1.904-2(f).
credited. • The date or dates the foreign Foreign tax redeterminations of
income taxes were paid. foreign corporations that relate to
See Regulations section 1.905-3(a) • The amount of foreign income taxes tax years of the foreign corpora-
and (b). paid or accrued on each date (in tion beginning before January 1,
See Regulations section 1.905-3(b) foreign currency) and the exchange 2018. Provide the additional
(1)(i) for a limited exception to a rate used to translate each such information listed under both
redetermination of a U.S. tax liability amount. categories below, as applicable.
with respect to foreign income tax • Information sufficient to determine
claimed as a credit under section 901 any change to the characterization of Post-1986 pools of earnings and
(other than a tax deemed paid under a distribution or the amount of any taxes of foreign corporations.
section 960). inclusion under section 951(a), 951A, • The closing balances of the pools
1291, or 1293. of post-1986 undistributed earnings
A redetermination of U.S. tax • An amended Form 5471 when and post-1986 foreign income taxes
liability is also generally required to applicable. for each affected year before and after
account for the effect of a • Information sufficient to determine adjusting the pools to account for the
redetermination of foreign income tax any interest due from or owing to the foreign tax redetermination.
paid or accrued by a foreign taxpayer, including the amount of any • The dates and amounts of any
corporation on the amount of foreign interest paid by the foreign dividend distributions or other
income taxes deemed paid under government to the taxpayer, and the inclusions made out of post-1986
section 960. See Regulations section dates received. undistributed earnings for the affected
1.905-3(b)(2). For foreign tax year or years.
redeterminations of a foreign Additional Information Required Pre-1987 accumulated profits of
corporation that relate to a taxable foreign corporations.
year of the foreign corporation If the redetermination was because of • The dates and amounts of any
beginning before January 1, 2018, one of the following, the corporation dividend distributions or other
see Regulations section 1.905-5. must provide the additional inclusions made out of E&P for the
Reporting Requirements information as indicated. affected year or years.
If, as a result of the foreign tax Refund of foreign income taxes • The rate of exchange on the date of
redetermination, the corporation’s paid. any such distribution or inclusion.
U.S. tax liability for any taxable year is • The date of each such refund. • The amount of E&P from which
changed, the corporation must file an • The amount of such refund (in such dividends were paid or
amended return to report the foreign foreign currency). inclusions were made for the affected
tax redetermination and, if applicable, • The exchange rate that was used to year or years.
pay additional U.S. tax. translate such amount when originally See Regulations sections
claimed as a credit. 1.986(a)-1 and 1.905-3 through
Increase in U.S. tax liability as a 1.905-5 for further information
result of foreign tax redeterminations • The spot rate (as defined in
Regulations section 1.988-1(d)) for regarding redeterminations and the
are excepted from the general statute required notification.
the date the refund was received (for
of limitations against assessment and
purposes of computing foreign
collection. See sections 6501(c)(5) For special rules relating to
currency gain or loss under section
and 905(c). If you have a foreign tax corporations under the jurisdiction of
988).
redetermination that results in an the Large Business and International
increase in your U.S. tax liability for Accrued foreign income taxes that Division, see Regulations section
any year, please note on page 2 of are not paid on or before the date 1.905-4(b)(4).
your Form 1120X: "This amended that is 24 months after the close of

Instructions for Form 1118 (Rev. 12-2023) 7

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Schedule L. In addition to filing an      • Amended returns as required under         country, notwithstanding that the 
amended return with Form 1118 and         Regulations sections 1.905-4,               liability is not finally determined and 
attached statement for the tax year(s)    1.905-5(e), 1.905-3T(d), and                so is not considered an amount of tax 
of the taxpayer for which the U.S. tax    1.905-5T.                                   paid.
liability is changed as a result of the   See Regulations section 1.905-5(e)          This election is available only for 
foreign tax redetermination, the          for additional information.                 contested foreign income taxes that 
taxpayer must include with its            Contested foreign income tax lia-           are remitted in a taxable year in which 
current-year return a Schedule L          bility. In general, a taxpayer cannot       the taxpayer has elected under 
summarizing the foreign tax               claim a credit for a contested foreign      section 901(a) to claim a credit, 
redeterminations that occurred that       income tax liability until the contest is   instead of a deduction under section 
year.                                     resolved and the amount of the liability  164(a)(3), for foreign income taxes 
  If a foreign tax redetermination        is finally determined.                      that are paid in such year.
does not change the amount of U.S.                                                    To make the election, a taxpayer 
                                            Cash method taxpayers.        Unless 
tax due for any taxable year, the                                                     claiming credits on the cash basis 
                                          an election to claim a provisional 
taxpayer does not need to file an                                                     must file a Form 1118 for the tax year 
                                          credit for contested foreign income 
amended return and may instead                                                        in which the contested liability is 
                                          taxes (described below) is made, a 
notify the IRS of the redetermination                                                 remitted and a Form 7204, Consent 
                                          taxpayer that claims the foreign tax 
by attaching a completed Schedule L                                                   To Extend the Time To Assess Tax 
                                          credit on a cash basis cannot claim a 
to the original return for the taxpayer's                                             Related to Contested Foreign Income 
                                          credit for a contested foreign income 
taxable year in which the foreign tax                                                 Taxes-Provisional Foreign Tax Credit 
                                          tax liability (or portion thereof) that has 
redetermination occurs. See                                                           Agreement.
                                          been remitted to the foreign country 
Instructions for Schedule L for                                                       In addition, the taxpayer must, for 
                                          until such time as the contest is 
additional information.                                                               each subsequent taxable year up to 
                                          resolved and the tax is considered 
Election to account for foreign tax       paid for purposes of section 901.           and including the taxable year in 
redeterminations with respect to          Once the contest is resolved and the        which the contest is resolved, file 
pre-2018 taxable years in the for-        foreign income tax liability is finally     annually Schedule L (Form 1118), 
eign corporation’s last pooling           determined, the tax liability is treated    Foreign Tax Redeterminations. Any 
year. An irrevocable election may be      as paid in the taxable year in which        portion of a contested foreign income 
made by a foreign corporation’s           the foreign tax was remitted. See           tax liability for which a provisional 
controlling domestic shareholders to      Regulations section 1.905-1(c)(2).          credit is claimed that is subsequently 
account for all foreign tax                                                           refunded by the foreign country 
                                            Accrual method taxpayers. 
redeterminations that occur in taxable                                                results in a foreign tax redetermination 
                                          Unless an election to claim a 
years ending on or after November 2,                                                  under Regulations section 1.905-3(a).
                                          provisional credit for contested foreign 
2020, with respect to pre-2018                                                        Accrual method taxpayers.          A 
                                          income taxes is made, a taxpayer that 
taxable years of foreign corporations                                                 taxpayer may elect to claim a foreign 
                                          claims the foreign tax credit on the 
as if they occurred in the foreign                                                    tax credit for a contested foreign 
                                          accrual basis cannot claim a credit for 
corporation’s last taxable year                                                       income tax liability (or a portion 
                                          a contested foreign income tax liability 
beginning before January 1, 2018                                                      thereof) in the relation-back year when 
                                          until such time as both the contest is 
(last pooling year). Such election is                                                 the contested amount (or a portion 
                                          resolved and the tax is considered 
binding on all persons who are, or                                                    thereof) is remitted to the foreign 
                                          paid, even if the contested liability (or 
were in a prior year to which the                                                     country, notwithstanding that the 
                                          portion thereof) has previously been 
election applies, U.S. shareholders of                                                liability is not finally determined and 
                                          remitted to the foreign country. Once 
the foreign corporation with respect to                                               so has not accrued.
                                          the contest is resolved and the foreign 
which the election is made for all of its 
                                          income tax liability is finally             This election is available only for 
subsequent foreign tax 
                                          determined and paid, the tax liability      contested foreign income taxes that 
redeterminations, as well as foreign 
                                          accrues, and is considered to accrue        relate to a taxable year in which the 
tax redeterminations of other 
                                          in the relation-back year for purposes      taxpayer has elected under section 
members of the same CFC group as 
                                          of the foreign tax credit. See              901(a) to claim a credit, instead of a 
the foreign corporation for which the 
                                          Regulations section 1.905-1(d)(3).          deduction under section 164(a)(3), for 
election is made. The election is made 
                                                                                      foreign income taxes that accrued in 
by filing:                                Election to claim a provisional             such year.
• The statement required under            credit for contested foreign 
                                                                                      A taxpayer claiming credits on the 
Regulations section 1.964-1(c)(3)(ii)     income taxes                                accrual basis must file an original or 
with a timely filed original income tax 
return for the taxable year of each       Cash method taxpayers.          A taxpayer  amended return for the taxable year to 
controlling domestic shareholder of       claiming foreign tax credits on the         which the contested tax relates, 
the foreign corporation in which or       cash basis may elect to claim a             together with a Form 1118, and a 
with which the foreign corporation’s      foreign tax credit for a contested          Form 7204.
first redetermination year ends;          foreign income tax liability (or a          In addition, the taxpayer must, for 
• Any notices required under              portion thereof) in the year the            each subsequent taxable year up to 
Regulations section 1.964-1(c)(3)(iii);   contested amount (or a portion              and including the taxable year in 
                                          thereof) is remitted to the foreign         which the contest is resolved, file 

8                                                                                     Instructions for Form 1118 (Rev. 12-2023)

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annually Schedule L (Form 1118). Any income and/or paid or accrued established by or on behalf of the
portion of a contested foreign income creditable foreign taxes from or domestic corporation filing Form
tax liability for which a provisional through unrelated persons or their 1118. With respect to Schedule A,
credit is claimed that is subsequently QBUs. Also, column 1 can be left these numbers are used to uniquely
refunded by the foreign country blank, but only if one of the following identify the payor with respect to
results in a foreign tax redetermination seven entries is made in column 2. payments from related persons, in
under Regulations section 1.905-3(a). • 863(b) order to determine the proper source
• RIC of such payment. With respect to
Interest and Penalties NOL Schedules C through E, these
•
In most cases, interest is computed • HTKO numbers are used to uniquely identify
on the deficiency or overpayment that • 951A foreign corporations in order to keep
resulted from the foreign tax • G2B track of those corporations from tax
adjustment (sections 6601 and 6611 • B2G year to tax year. The reference ID
and the related regulations). See number must meet the requirements
See the instructions for column 2,
Regulations section 1.905-4(e) for set forth below.
later, for more information regarding
additional information.
when the above entries can be made
Note. Because reference ID numbers
If the corporation does not comply in column 2.
with the requirements discussed are established by or on behalf of the
above within the time for filing Note. Taxpayers no longer have the U.S. corporation filing certain forms
specified, the penalty provisions of option of entering “FOREIGNUS” or such as the Form 1118, there is no
section 6689 (and the related “APPLIED FOR” in this column. need to apply to the IRS to request a
regulations) will apply. Instead, if the related person or their reference ID number or for permission
QBU does not have an EIN, the to use these numbers.
taxpayer must use a reference ID Requirements. The reference ID
Specific Instructions number that uniquely identifies such number must be alphanumeric
Report all amounts in U.S. dollars related person or QBU, using the rules (defined below) and no special
unless otherwise specified. If it is set forth in Reference ID numbers, in characters or spaces are permitted.
necessary to convert from a foreign the Requirements section, later. The length of a given reference ID
currency, attach a statement Where gross income is derived number is limited to 50 characters.
explaining how the conversion rate from a related person (within the For these purposes, the term
was determined. meaning of section 267(b) or 707(b)), "alphanumeric" means the entry can
Lines a, b, and c at the top of enter the EIN or reference ID number be alphabetical, numeric, or any
page 1 of the form. The corporation of such related person. In the case of combination of the two.
must complete a separate Form 1118 income derived from a QBU of the
The same reference ID number
for each applicable category of related person, enter the EIN or
must be used consistently from tax
income. See Categories of Income, reference ID number of the QBU.
year to tax year with respect to a given
earlier, for the code to enter on line a Enter the EIN or reference ID number
entity. If for any reason a reference ID
(at the top of page 1 of the form). Also of related entities and their QBUs
number falls out of use (for example,
see those instructions for the country through which the corporation paid or
the entity no longer exists due to
code to enter on line b or line c, if accrued creditable foreign taxes, even
disposition or liquidation), the
applicable. if no income from these entities is
reference ID number used for that
reported on Schedule A. If gross
entity cannot be used again for
income is received or derived from an
another entity for purposes of filing
Schedule A entity other than a related person, an
Form 1118.
Report gross income from sources EIN or reference ID number is not
outside the United States for the required. There are some situations that
applicable separate category in require correlation of a new reference
columns 3(a) through 11. Report the Example 1. Domestic Corporation ID number with a previous reference
applicable deductions to this gross earns sales income from sales to ID number when assigning a new
income in columns 13 and 14. Report unrelated persons. Domestic reference ID number to an entity. For
any net operating loss carryover in Corporation leaves column 1 blank example:
column 15. and enters the sales income in
column 7. • In the case of a merger or
Column 1. Column 1 generally acquisition, a Form 1118 filer must
Example 2. USC, a domestic
requests an employer identification use a reference ID number which
corporation, takes into account its
number (EIN) or a reference ID correlates the previous reference ID
distributive share of partnership
number for related persons or their number with the new reference ID
income with respect to USPS, a
QBUs from or through which the number assigned to the entity.
domestic partnership in which USC
corporation derived foreign source • In the case of an entity
has a 60% interest. In column 1, USC
income and/or paid or accrued classification election that is made on
enters the identifying number for
creditable foreign taxes. behalf of a foreign corporation on
USPS.
However, enter in column 1 the Form 8832, Regulations section
"Unrelated" code in cases where the Reference ID numbers. A 301.6109-1(b)(2)(v) requires the
corporation derived foreign source “reference ID number” is a number foreign corporation to have an EIN for

Instructions for Form 1118 (Rev. 12-2023) 9

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this election. For the first year that Special Cases for Columns 1 on a single line. It may be necessary
Form 1118 is filed after an entity and 2 to enter amounts in multiple columns
classification election is made on on that single line, depending upon
Except as otherwise instructed below,
behalf of the foreign corporation on the nature of the section 863(b) gross
income of a U.S. shareholder with
Form 8832, both the new EIN and the income and deductions. For example,
respect to the same related person
old reference ID number must be leave column 1 blank, enter “863(b)”
but from multiple sources should be
entered in column 1, as explained in in column 2, and enter (as a positive
reported on a country-by-country
the next paragraph. number) all section 863(b) gross
basis.
You must correlate the identifying income (in columns 3 through 12) and
numbers as follows: New EIN or Example. USC, a domestic all section 863(b) deductions (in
reference ID number [space] Old corporation, has employees who columns 13 through 16). Also enter
reference ID number. If there is more perform services in Country X and the net amount in column 17. Note
than one old reference ID number, you Country Y for the same related that the totals are being reported on a
must enter a space between each person. The related person has a single line because it is not necessary
such number. As indicated above, the reference ID number of 1000016. to report section 863(b) gross income
length of a given reference ID number USC earns gross income of $10 with and deductions on a per-country
is limited to 50 characters and each respect to services performed for the basis.
number must be alphanumeric and no related person in Country X and USC
special characters are permitted. earns gross income of $15 with Regulated investment company
respect to services performed for the (RIC) pass-through amounts.
Note. This correlation requirement related person in Country Y. The Aggregate all income passed through
applies only to the first year the new two-letter country code for Country X from RICs and report the total on a
reference ID number is used. is XX and the two-letter country code single line. Leave column 1 blank,
for Country Y is YY. On Schedule A, enter “RIC” in column 2, and report
Branches. For each branch that is USC reports as follows. the total in column 17. Note that the
not a foreign branch, as defined under totals are being reported on a single
Regulations section 1.904-4(f)(3)(vii), USC makes the following entries on line because it is not necessary to
use a single line to report such the first of two lines on Schedule A. report the RIC pass-through amounts
branch's gross income and on a per-country basis.
deductions. In column 1, enter Net operating losses (NOLs).
“Branch.” If there is more than one Column Entry
Report any NOL carryover on a single
branch, enter the identifying number 1 1000016 line. Leave column 1 blank, enter
of the branch (as reported in Form “NOL” in column 2, and report the total
8858) after the word “Branch” on each 2 XX
in column 15. Note that the totals are
line. These amounts should be 8 10
being reported on a single line
reported on a Form 1118 other than because it is not necessary to report
the Form 1118 for the foreign branch USC makes the following entries on the NOL on a per-country basis.
income category. the second of two lines on
Example. USC, a domestic Schedule A. Reclassifications of high-taxed in-
come. Aggregate all reclassifications
corporation, has a branch in Country
of high-taxed income and report the
X. The activities of the branch do not
Column Entry total on a single line. With respect to
constitute a trade or business. In
column 1, USC enters the word 1 1000016 passive category income, for items of
income that have been included on
“Branch.” USC will report the income 2 YY Schedule A and that must be
and expenses of the branch in the
8 15 reclassified under sections 904(d)(2)
appropriate columns.
(B)(iii)(II) and 904(d)(2)(F), leave
See below with respect to QBUs column 1 blank and enter “HTKO” in
that are foreign branches as defined Qualified business units (QBUs). column 2 and enter (as a negative
under Regulations section 1.904-4(f) For branches that are QBUs, use a number) in column 17 the net amount
(3)(vii). separate line for each such branch to of income that is being reclassified
report each branch's gross income from passive category income. With
Column 2. Enter the two-letter codes
and deductions. Report these respect to the category of income to
(from the list at IRS.gov/
amounts on a per-country basis. In which such passive income is
CountryCodes) of each foreign
column 1, enter the EIN or reference reclassified, leave column 1 blank,
country and U.S. territory within which
ID number of the QBU. Enter the enter “HTKO” in column 2, and enter
income is sourced and/or to which
country code in column 2. These (as a positive number) in column 17
taxes were paid or accrued.
amounts should be reported on Form the net amount of income that is being
Note. Complete this column with 1118 for foreign branch category reclassified to such category of
respect to all income regardless of income or passive category income. income. Note that the reclassifications
are being reported on a single line
whether such income is from a related Section 863(b) gross income and
because it is not necessary to report
person. deductions. Aggregate all section
them on a per-country basis. Also
863(b) foreign source gross income
note that tax reclassifications are
and deductions and report the totals
10 Instructions for Form 1118 (Rev. 12-2023)

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needed on Schedule B. See those into account in Schedule A, column enter the corresponding code in
instructions for more information. 13(c). column 10.
• Foreign source exchange gain
Inclusions under section 951A. If the corporation is a U.S. recognized under section 986(c) on a
Because computations for inclusions shareholder in a PFIC that is a distribution of PTEP. Enter code
under section 951A are reported on qualified electing fund, report all “986c” in column 10.
separate Form 8992, GILTI, report the income deemed received (before Foreign source exchange gain
•
inclusion under section 951A on a gross-up) under section 1293. recognized under section 987(3) on a
single line. Specifically, there is no
need to report the identifying numbers Column 3(b). In column 3(b), include remittance from a QBU. Enter code
and various countries associated with taxes deemed paid by a domestic “987” in column 10.
an inclusion under section 951A on corporation with respect to inclusions • Foreign source exchange gain
Form 1118. under section 951(a)(1) and section recognized under section 988. Enter
951A as gross-ups. For inclusions code “988” in column 10.
For inclusions under section 951A, under section 951(a)(1), the gross-up
enter “951A” in column 2 instead of a is the taxes deemed paid as reported Note. Section 988 exchange gain or
two-letter code. Leave column 1 in the total of Schedule C, column 7. loss is sourced by reference to the
blank. The gross-up for inclusions under residence of the taxpayer or the QBU
Reattribution of income by reason section 951A is the amount computed of the taxpayer on whose books the
of disregarded payments between in Schedule D, Part II, column 3. nonfunctional currency asset or
liability is properly reflected.
a foreign branch and its foreign Column 4. Report dividends from
branch owner. For reattribution of sources outside the United States for Column 11. Include other gross
income from the general category to the applicable separate category. This income from sources outside the
the foreign branch category, enter includes dividends eligible for the United States for the applicable
"G2B" in column 2 instead of a dividends received deduction under separate category. Attach a schedule
two-letter code. Leave column 1 section 245A. Note that hybrid identifying the gross income by type.
blank. dividends are not eligible for the Column 13(a). Enter the dividends
For reattribution of income from the dividends received deduction. received deduction allowed on foreign
foreign branch category to the general source dividends under section 245A.
category, enter "B2G" in column 2 Note. In general, dividends from a This should be equal to the amount
instead of a two-letter code. Leave domestic corporation are U.S. source reported in Schedule A, column 4, if
column 1 blank. income, including dividends from a all such dividend income is eligible for
See Regulations section 1.904-4(f) domestic corporation which has 80% the dividends received deduction.
(2)(vi)(B) for more information or more of its gross income from
regarding the rules pertaining to sources outside the United States. Note. Certain hybrid dividends are
reattribution of income by reason of Column 5. Enter interest received not eligible for the dividends received
disregarded payments between a from foreign sources. See section deduction under section 245A. See
foreign branch and its foreign branch 861(c) for the treatment of interest section 245A(e)(1).
owner. from a domestic corporation that
Column 3(a). Report all inclusions meets the foreign business Note. An amount treated as a
under sections 951(a)(1) (including requirement. dividend under section 1291(d)(2)(B)
(related to PFICs) is ineligible for the
amounts under section 951(a)(1)(B) Column 7. Include foreign source dividends received deduction. See
and section 964(e)(4)) and 951A gross income from sales (net of section 245A(f).
(before gross-up). See section 904(d) returns and allowances and less costs
(3) and Look-Through Rules, earlier, of goods sold). Include the foreign Note. The foreign branch income and
for more information with respect to source portion of section 863(b) sales section 951A income categories do
the separate category of such in this column. not include any dividend income
inclusions. For each inclusion under eligible to be offset by the deduction
section 951(a)(1) with respect to a Note. Under section 863(b), income under section 245A.
CFC, make sure to enter the from the sale of inventory property is
appropriate identifying number in sourced to the place of production. Column 13(b). Enter the deduction
column 1 and the country of residence Accordingly, do not include inventory allowed under section 250(a)(1)(A)
of the CFC in column 2. produced in the United States and with respect to foreign derived
sold overseas in this column. intangible income, taking into account
Note. Under the Act, inclusions under the other provisions of section 250,
Column 8. Include gross income,
section 951(a)(1) now include hybrid that is allocated and apportioned to
including compensation,
dividends received by a CFC from foreign source income in the
commissions, fees, etc., for technical,
another CFC of the same U.S. applicable separate category of
managerial, engineering,
shareholder. See section 964(e)(4). income. See Regulations section
construction, scientific, or similar 1.861-8(e)(13).
Do not report the inclusion under services outside the United States.
Column 13(c). Enter the deduction
section 951A net of the deduction Columns 9 and 10. Include the allowed under section 250(a)(1)(B)
allowed under section 250. The following amounts in column 9. Use a with respect to GILTI (section 951A
deduction under section 250 is taken separate line for each type of gain and

Instructions for Form 1118 (Rev. 12-2023) 11

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inclusion), taking into account the      reported on the corporation's tax         the category of income for which the 
other provisions of section 250, that is return, enter a pro rata portion of the   corporation is completing Form 1118. 
allocated and apportioned to foreign     excess as a negative number in each       For example, if the code entered on 
source income in the applicable          separate category. See Capital Gains,     Schedule H, Part III, line 2a is “PAS,” 
separate category of income. See         earlier.                                  then enter the amount from line 2a(2), 
Regulations section 1.861-8(e)(14).      In column 13(j), do not include           column (g) on the Form 1118 that the 
Column 13(d).  Enter the                 other expenses directly allocable to      corporation is completing for the 
depreciation, depletion, and             dividends eligible for the dividends      passive category of income (as 
amortization deductions related to       received deduction under section          indicated on line a at the top of page 1 
rental, royalty, and licensing expenses  245A. Such directly allocable             of Form 1118).
that are allocated and apportioned to    expenses may include wire transfer,       It is not necessary to report the 
foreign source income in the             currency exchange, and similar fees       apportioned expenses on a 
applicable separate category of          incurred in connection with the           related-person or per-country basis. 
income.                                  payment of dividends eligible for the     Therefore, only enter an amount in the 
                                         dividends received deduction under        totals line of column 14.
Column 13(e).  Enter the other           section 245A. These expenses 
allocable expenses related to rental,    reduce taxable income, but are not        Note.   With respect to the 
royalty, and licensing expenses that     taken into account in computing the       apportionment of deductions reported 
are allocated and apportioned to         foreign tax credit limitation. See        on Schedule H, Part II, the reduction 
foreign source income in the             section 904(b)(4).                        required by section 904(b)(4) in 
applicable separate category of 
income.                                  Attach a schedule that lists all other    deductions relating to dividends 
                                         deductions included in column 13(j).      eligible for the dividends received 
Column 13(f). Enter expenses             The schedule should include totals for    deduction under section 245A is taken 
allocable to gross income from sales     each line in column 13(j) that has an     into account (for purposes of 
that are allocated and apportioned to    entry.                                    determining foreign source income or 
foreign source income in the                                                       loss in each separate category) by 
applicable separate category of          Column 14. Enter only the                 carrying to Schedule A, column 14, 
income (the amount entered in            apportioned share from the applicable     only the amounts on Schedule H, Part 
column 7).                               line of Schedule H, Part I, column (b);   II, column (f), lines 3a(2), 3b(2), 3c(2), 
                                         Part II, column (f); and Part III, column 3d(2), and 3e(2). Likewise, with 
Column 13(g).  Enter expenses            (g) that relates to gross income          respect to the apportionment of 
allocable to gross income from           reported in columns 3 through 11 of       deductions reported on Schedule H, 
performance of services that are         Schedule A. The applicable line of        Part III, the reduction required by 
allocated and apportioned to foreign     Schedule H, Part I, column (b) is the     section 904(b)(4) in deductions 
source income in the applicable          amount on line 6a(7), 6b(7), 6c(7),       relating to dividends eligible for the 
separate category of income (the         6d(7), or 6e(7) of column (b) that        dividends received deduction under 
amount entered in column 8).             corresponds with the category of          section 245A is taken into account (for 
Columns 13(h) and 13(i). Include         income for which the corporation is       purposes of determining foreign 
any foreign source exchange loss         completing Form 1118. For example, if     source income or loss in each 
recognized under section 986(c) on a     the code entered on Schedule H, Part      separate category) by carrying to 
distribution of PTEP, any foreign        I, line 6a is “PAS,” then enter the       Schedule A, column 14, only the 
source exchange loss recognized          amount from line 6a(7), column (b) on     amounts on Schedule H, Part III, 
under section 987(3) on a remittance     the Form 1118 that the corporation is     column (g), lines 2a(2), 2b(2), 2c(2), 
from a QBU, and any foreign source       completing for the passive category of    2d(2), or 2e(2).
exchange loss recognized under           income (as indicated on line a at the 
section 988. Use a separate line for     top of page 1 of Form 1118). The          Column 15. Enter the corporation's 
each type of loss and enter the          applicable line of Schedule H, Part II,   NOL deduction allowed under section 
corresponding code in column 13(i).      column (f) is the amount on line 3a(2),   172 that is attributable to foreign 
See the instructions for Schedule A,     3b(2), 3c(2), 3d(2),or 3e(2), of column   source income in the applicable 
column 9, earlier, for the applicable    (f) that corresponds with the category    separate category. If the NOL is part 
codes.                                   of income for which the corporation is    of an overall foreign loss, see 
                                         completing Form 1118. For example, if     Regulations section 1.904(g)-3 for 
Column 13(j). Include other              the code entered on Schedule H, Part      allocation rules that apply in 
deductions allocable to income from      II, line 3a is “PAS,” then enter the      determining the amount to enter in 
sources outside the United States        amount from line 3a(2), column (f) on     column 15.
(dividends, interest, etc.) for the      the Form 1118 that the corporation is     It is not necessary to report the 
applicable separate category that are    completing for the passive category of    NOL deduction on a related-person or 
not otherwise included in Schedule H.    income (as indicated on line a at the     per-country basis. Therefore, only 
Include any reduction of foreign         top of page 1 of Form 1118). The          enter an amount on the totals line of 
source capital gain net income. If       applicable line of Schedule H, Part III,  column 15. See Net operating losses, 
foreign source capital gain net income   column (g) is the amount on               earlier.
from all separate categories is more     line 2a(2), 2b(2), 2c(2), 2d(2), or 2e(2) 
than the capital gain net income         of column (g) that corresponds with 

12                                                                                 Instructions for Form 1118 (Rev. 12-2023)

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Column 1. Claim the foreign tax or transfers as determined under
Schedule B credit for the tax year in which the section 987. See sections 901 and
Part I—Foreign Taxes Paid, taxes were paid or accrued, 903.
Accrued, and Deemed Paid depending on the method of Column 2(f). Include foreign income
accounting used.
Report only foreign income taxes taxes withheld at source on income
paid, accrued, or deemed paid for the Note. For any given tax year, the not specifically reportable in columns
separate category for which this Form corporation can use the cash method 2(a) through 2(e). For example, some
1118 is being completed. Report all or the accrual method, but not both. If countries withhold at source on sales
amounts in U.S. dollars. If the a credit for taxes accrued is claimed, of stock of their resident companies
corporation must convert from foreign show both the date accrued and the and such foreign income tax paid or
currency, attach a schedule showing date paid. accrued by the domestic corporate
the amounts in foreign currency and If the cash method of accounting is seller would be reported in column
the exchange rate used. used, an election under section 2(f).
905(a) may be made to claim the Column 2(g). Include foreign income
For corporations claiming the credit
credit based on accrued taxes. taxes paid or accrued on the portion
on the accrual basis, the exchange
rate for translating foreign income To make this election, check the of sales income sourced to a foreign
taxes into U.S. dollars will generally be accrual box in column 1. Once made, country. This does not include taxes
an average exchange rate for the tax the election is binding on all withheld at source reported in column
year to which the taxes relate. subsequent tax years in which a (f).
However, the exchange rate on the foreign tax credit is claimed. Also, the Column 3. Enter in column 3 the total
date of payment must be used if the credits for foreign taxes, regardless of of the taxes deemed paid that
foreign income taxes (a) are paid whether they are claimed on the corresponds with the identifying
more than 24 months after the close accrual or cash basis, are subject to number specified on the
of the tax year to which they relate, or the redetermination provisions of corresponding line of Schedule A,
(b) are paid in a tax year prior to the section 905(c). See Foreign Tax column 1, with respect to the following
tax year to which they relate. In Credit Redeterminations, earlier, for amounts.
addition, corporations may elect to details. • The taxes deemed paid under
use the exchange rate on the date of Column 2(a). Include foreign income section 960(a) as reported in
payment. Corporations may elect to taxes withheld at source on dividends Schedule C, column 10.
use the payment date exchange rates from a first-tier foreign corporation. • The taxes deemed paid under
for all creditable foreign income taxes After December 31, 2017, such taxes section 960(b) as reported in
or only those taxes that are are not creditable to the extent the Schedule E, Part I, column 11.
attributable to QBUs with U.S. dollar distribution is a dividend eligible for a Enter on the Schedule B, Part I line
functional currencies. The election is dividends received deduction under that corresponds with the Schedule A
made by attaching a statement to a section 245A. However, continue to line with “951A” in column 2 the tax
timely filed (including extensions) report the taxes in this column 2(a) deemed paid under section 960(d)
Form 1118 that indicates the and reverse the taxes on Schedule G. equal to the total amount reported in
corporation is making the election Schedule D, Part II, column 4.
under section 986(a)(1)(D). Once Column 2(b). Include foreign income
made, the election applies for all taxes withheld at source on PTEP Part II—Separate
subsequent tax years and is revocable distributions from a first-tier foreign Foreign Tax Credit
only with the consent of the IRS. See corporation. See sections 901 and
section 986(a)(1)(D). 903. Do not include foreign income Line 1b. If the corporation had a
taxes withheld at source on PTEP foreign tax credit splitting event in a
The information entered on distributions from a lower-tier foreign prior tax year that resulted in a
! each line of Schedule B, Part corporation to an upper-tier foreign suspension of foreign taxes under
CAUTION I, must pertain to an corporation and then deemed paid by section 909, enter the amount of
identifying number and/or country the domestic corporation under those taxes attributable to related
code specified on the corresponding section 960(b) on a distribution from income taken into account in the
line of Schedule A, column 1 and/or the upper-tier foreign corporation to current tax year. The amount of taxes
column 2. If foreign tax was paid to the domestic corporation. These suspended in a prior tax year should
more than one country on the same amounts are reported on Schedule E. have appeared on Schedule G, line E,
income, enter the letter corresponding on your Form 1118 for that prior tax
to that income on multiple lines. For Note. With respect to taxes year. See the regulations under
example, if the taxpayer entered on attributable to section 965(a) PTEP or section 909 for rules for determining
Schedule A, line A, foreign source section 965(b) PTEP, do not reduce when related income is taken into
sales income and paid tax to both the taxes by the applicable account and the amount of previously
Country A and Country B on such percentage. The applicable suspended taxes that are attributable
income, the filer would complete two percentage reduction is taken into to that related income.
lines A on Schedule B with the tax account on Schedule G.
Line 4. If the corporation is
paid to Country A on one line and the Column 2(c). Include foreign income reclassifying high-taxed income from
tax paid to Country B on the other line. taxes withheld on branch distributions passive category income, enter the

Instructions for Form 1118 (Rev. 12-2023) 13

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related tax adjustment on line 4. Part II, lines 5 and 6) exceed any
Indicate whether the adjustment is positive adjustments that are also Schedule C
positive or (negative). included on line 8b, the net line 8b Report taxes deemed paid by the
adjustment will be negative. When this domestic corporation under section
Line 5. Enter the total amount of
net negative amount on line 8b is 960(a) with respect to inclusions
foreign income taxes carried forward
subtracted from a positive taxable under section 951(a)(1). This
or back to the current year. The
income amount on line 8a, the result schedule should be completed by
amount of foreign income taxes
will be a positive line 8c amount that is separate category of income and
carried forward to the current tax year
larger than the positive amount on subpart F income group. If there is a
is the amount from Schedule K (Form
line 8a. subpart F inclusion related to more
1118), line 3, column (xiv), plus the
than one subpart F income group,
amount from Schedule I (Form 1118), Line 9. Divide line 7 by line 8c to
complete a separate line for each
Part III, line 3. Attach Schedule I (Form determine the limitation fraction. Enter
subpart F income group.
1118) and Schedule K (Form 1118) to the fraction on line 9 as a decimal with
Form 1118. the same number of places as the An individual (or an estate or trust)
number of digits to the left of the
Line 7. If the corporation has a that has made an election under
decimal in adjusted taxable income on section 962 ("section 962 elector")
current-year overall domestic loss or
line 8c. For example, if adjusted
recapture of an overall domestic loss should also complete Schedule C and
taxable income on line 8c is $100,000, report taxes deemed paid.
account, or, in any of its separate
compute the limitation fraction to 6
categories, a current-year separate Column 1a. Enter the name of the
decimal places.
limitation loss, an overall foreign loss, foreign corporation whose earnings
recapture of an overall foreign loss, or Line 12. The limitation may be were included in income by the
current-year separate limitation increased under section 960(c) for domestic corporation filing the return.
income in a category in which it has a any tax year that the domestic
Column 1b. Enter the foreign
beginning balance of income that corporation receives a PTEP
corporation's EIN or reference ID
must be recharacterized, adjustments distribution. Enter on line 12 the
number. See Reference ID numbers,
must be made. See the separate increase described in section 960(c)
earlier.
Instructions for Schedule J to (1).
determine if that schedule must be If the line 12 amount exceeds the Note. Taxpayers no longer have the
filed. domestic corporation's U.S. income option of entering “FOREIGNUS” or
Line 8b. Enter as a positive amount tax liability, the excess is deemed an “APPLIED FOR” in this column.
taxable income that should not be overpayment and can be claimed on Instead, if the foreign corporation
taken into account in computing the the domestic corporation's income tax does not have an EIN, the taxpayer
foreign tax credit limitation. These return as a refundable credit (Form must use a reference ID number that
adjustments will decrease the net 1120, Schedule J, Part III, line 20d, or uniquely identifies such foreign
worldwide taxable income reported on the corresponding line of other corporation, using the rules set forth in
line 8c (see the line 8c instructions, corporate income tax returns). See Reference ID numbers, in the
later). section 960(c)(5). Requirements section, earlier.
Enter as a negative amount Part III—Summary of Column 1c. Enter the tested unit’s
adjustments that increase the net Separate Credits reference ID number (if applicable).
worldwide taxable income reported on See Reference ID numbers, earlier.
Complete Part III only once. Enter on
line 8c (see the line 8c instructions, Complete column 1c only if a CFC has
lines 1 through 6 the separate foreign
later). For example, the net worldwide one or more tested units with passive
tax credits from Part II, line 14, for
taxable income you report on line 8c category income. See Regulations
each applicable separate category.
should not include expenses allocated section 1.904-4(c)(4).
and apportioned to dividends for Note. Complete Part III only on the
Note. Taxpayers no longer have the
which a dividends received deduction Form 1118 with the largest amount
option of entering “FOREIGNUS” or
is allowed under section 245A (see entered on Part II, line 14.
section 904(b)(4)). Because the “APPLIED FOR” in this column.
line 8a amount (taxable income from Line 8. If the corporation participates Instead, if the tested unit (or the CFC,
your tax return) includes these in or cooperates with an international if applicable) does not have an EIN,
expenses, a positive adjustment is boycott, the foreign tax credit may be the taxpayer must use a reference ID
needed to back out these expenses reduced. Complete Form 5713, number that uniquely identifies such
(thus increasing the net worldwide International Boycott Report. If the tested unit (or the CFC, if applicable),
taxable income reported on line 8c). corporation chooses to apply the using the rules set forth in Reference
As such, include as a negative international boycott factor to ID numbers, in the Requirements
adjustment on line 8b these expense calculate the reduction in the credit, section, earlier.
amounts from Schedule H, Part II, enter the amount from line 2a(3) of
Column 2. Enter the year and month
lines 5 and 6. Schedule C (Form 5713) on line 8.
in which the foreign corporation's U.S.
Line 8c. If the negative adjustments tax year ended using format
included on line 8b (such as those YYYYMM.
amounts coming in from Schedule H,

14 Instructions for Form 1118 (Rev. 12-2023)

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Example. When figuring foreign Code Subpart F Income Group column 5(a) and 5(b)) in the functional
taxes deemed paid in 2023 by a (Reg. sec. 1.904-4(c)(3)(i) currency of the foreign corporation.
calendar year domestic corporation through (iv)) Column 8(b). Enter the amount from
with respect to inclusions out of E&P All passive income received column 8(a) translated into U.S.
not previously taxed for the foreign during the tax year that is dollars at the appropriate exchange
corporation's tax year that ended i
subject to a withholding tax of rate specified in section 989(b).
November 30, 2023, enter “202311.” 15% or greater.
Column 10. For each line, multiply
Column 3. Enter the applicable All passive income received
two-letter codes from the list at during the tax year that is the amount in column 7 by the amount
IRS.gov/CountryCodes. ii subject to a withholding tax of in column 9 and enter the result in
less than 15% (but greater than column 10. This is the tax deemed
Column 4. Enter the applicable zero). paid computed under section 960(a).
three-character alphabet code for the All passive income received Example 1. USC is a domestic
foreign corporation's functional during the tax year that is corporation. CFC is a controlled
currency using the ISO 4217 iii
subject to no withholding tax or foreign corporation incorporated in
standard. other foreign tax. Country X. CFC has two tested units,
Column 5(a). Enter the code which All passive income received each of which is a qualified business
describes the subpart F income group during the tax year that is unit (QBU): QBU1 and QBU2. QBU1
classification (as set forth in iv subject to no withholding tax but and QBU2 are organized in Country
Regulations section 1.960-1(d)(2)(ii) is subject to a foreign tax other X. The U.S. tax year for USC, CFC,
than a withholding tax.
(B)(2)). Please enter the applicable QBU1, and QBU2 ends on December
code from the following list. 31. The functional currency of CFC,
QBU1, and QBU2 is the “u.” At all
Column 5(c). Enter the name of the
Code Subpart F Income Group (Reg. relevant times, 1u = $1. For its U.S. tax
sec. 1.960-1(d)(2)(ii)(B)(2)) tested unit. Complete column 5(c) year ending December 31, 2023, after
only if a CFC has one or more tested foreign taxes, QBU1 has 1,000,000u
DIRRA Dividends, interest, rents, royalties, units with passive category income. passive category dividend income
and annuities See Regulations section 1.904-4(c) subject to a less than 15% withholding
NGCPT Net gain from certain property (4). tax (“QBU1 income group 1”). QBU1
transactions Column 6. Enter the total net income has 1,000,000u passive category
NGCT Net gain from commodities in the subpart F income group dividend income subject to a greater
transactions (identified in column 5(a) and 5(b)) in than 15% withholding tax (“QBU1
NFCG Net foreign currency gain the functional currency of the foreign income group 2”). QBU2 has
corporation. If there is net income 2,400,000u passive category dividend
IEQI Income equivalent to interest income subject to a less than 15%
related to more than one subpart F
NPC Income from notional principal income group, use a separate line for withholding tax (“QBU2 income
contracts each subpart F income group. In group”). QBU1 has eligible
PILOD Payments in lieu of dividends general, the amount entered on a current-year taxes of $50,000 and
PSC Personal service contracts given line will be equal to the total of $200,000 in QBU1 income group 1
all amounts in column (xvi) of and QBU1 income group 2,
FBCSA Foreign base company sales Schedule Q (Form 5471) for the respectively. QBU2 has eligible
income current-year taxes of $240,000 in
subpart F income group identified in
FBCSE Foreign base company services Schedule C, column 5 for the foreign QBU2 income group. USC has a
income corporation identified in column 1 and subpart F inclusion with respect to
FIFBC Full inclusion foreign base for the category of income with CFC of which an amount of 800,000u
company income respect to which a Form 1118 and the is attributable to each of QBU1
INSUR Insurance income described in corresponding Schedule Q (Form income group 1 and QBU1 income
section 952(a)(1) 5471) is being completed. group 2 and 1,920,000u is attributable
to QBU2 income group. The country
BOYC Boycott income Column 7. Enter the total eligible code for Country X is “OC.” CFC,
BKOP Bribes, kickbacks, and other current-year taxes in the subpart F QBU1, and QBU2 have reference ID
payments described in section income group (identified in column numbers of 100000, 100011, and
952(a)(4) 5(a) and 5(b)) in U.S. dollars. 100012, respectively. The applicable
three-character alphabet code for the
901J Income subject to section 901(j) Note. See the instructions for
“u” using the ISO 4217 standard is
described in section 952(a)(5) Schedule G, later, for information on
“UUU.” USC completes Schedule C of
reduction of foreign taxes for failure to
its Form 1118 with respect to the
furnish information required under
passive category as follows.
Column 5(b). Enter the code which section 6038.
describes the subpart F income group USC makes the following entries on
classification (as set forth in Column 8(a). Enter the section the first of three lines on Schedule C.
Regulations section 1.904-4(c)(3)(i) 951(a)(1) inclusion attributable to the
through (iv)). Please enter the subpart F income group (identified in
applicable code from the following list.

Instructions for Form 1118 (Rev. 12-2023) 15

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                                                                                alphabet code for the “u” using the 
   Column     Entry                     Column     Entry                        ISO 4217 standard is “UUU.” USC 
   1a         CFC                       1a         CFC                          completes Schedule C of its Form 
   1b         100000                    1b         100000                       1118 with respect to the passive 
                                                                                category as follows.
   1c         100011                    1c         100012
                                                                                USC makes the following entries on 
   2          202312                    2          202312                       the first of three lines on Schedule C.
   3          OC                        3          OC
   4          UUU                       4          UUU                          Column              Entry
   5(a)        DIRRA                    5(a)       DIRRA                        1a                  CFC1
   5(b)       ii                        5(b)                      ii            1b                  100011
   5(c)       QBU1                      5(c)       QBU2                         1c 
   6          1,000,000u                6          2,400,000u                   2                   202312
   7          50,000                    7          240,000                      3                   OC
   8(a)       800,000u                  8(a)       1,920,000u                   4                   UUU
   8(b)       800,000                   8(b)       1,920,000                    5(a)                DIRRA
   9          0.800                     9          0.800                        5(b)                                     ii
   10         40,000                    10         192,000                      5(c)
                                                                                6                   1,000,000u
USC makes the following entries on      Example 2. USC is a domestic 
the second of three lines on            corporation. CFC1 and CFC2 are          7                   50,000
Schedule C.                             controlled foreign corporations         8(a)                800,000u
                                        incorporated in Country X. The U.S.     8(b)                800,000
                                        tax year for USC, CFC1, and CFC2 
   Column     Entry                     ends on December 31. At all relevant    9                   0.800
   1a         CFC                       times, 1u = $1. For its U.S. tax year   10                  40,000  
                                        ending December 31, 2023, after 
   1b         100000
                                        foreign taxes, CFC1 has 1,000,000u 
   1c         100011                    passive category dividend income        USC makes the following entries on 
   2          202312                    subject to a withholding tax of less    the second of three lines on 
                                        than 15% (“CFC1 income group 1”) 
   3          OC                                                                Schedule C.
                                        and 2,400,000u passive category 
   4          UUU                       interest income subject to foreign tax  Column              Entry
   5(a)       DIRRA                     other than withholding tax (“CFC1 
   5(b)                      i          income group 2”). CFC1 has eligible     1a                  CFC1
                                        current-year taxes (including the       1b                  100011
   5(c)       QBU1                      withholding tax) of $50,000 in CFC1     1c 
   6          1,000,000u                income group 1 and $240,000 in 
   7          200,000                   CFC1 income group 2. USC has a          2                   202312
                                        subpart F inclusion with respect to     3                   OC
   8(a)       800,000u                  CFC1 of which 800,000u is               4                   UUU
   8(b)       800,000                   attributable to CFC1 income group 1 
   9          0.800                     and 1,920,000u is attributable to       5(a)                DIRRA
                                        CFC1 income group 2. For its U.S. tax   5(b)                                     iv
   10         160,000                   year ending December 31, 2023, after    5(c)
                                        foreign taxes, CFC2 has 1,800,000u 
USC makes the following entries on                                              6                   2,400,000u
                                        of passive category gain from 
the third of three lines on Schedule C.                                         7                   240,000
                                        commodities transactions subject to 
                                        foreign tax other than withholding tax  8(a)                1,920,000u
                                        (“CFC2 income group”). CFC2 has 
                                        eligible current-year taxes of $450,000 8(b)                1,920,000
                                        in the CFC2 income group. USC has a     9                   0.800
                                        subpart F inclusion of 1,440,000u       10                  192,000
                                        attributable to the CFC2 income 
                                        group. The country code for Country X 
                                        is “OC.” CFC1 and CFC2 have             USC makes the following entries on 
                                        reference ID numbers of 100011 and      the third of three lines on Schedule C.
                                        100012, respectively. The functional 
                                        currency of both CFC1 and CFC2 is 
                                        the “u.” The applicable three-character 

16                                                                              Instructions for Form 1118 (Rev. 12-2023)

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Column Entry Schedule A with “951A” in column 2 of is not a member of a U.S.
Schedule A). consolidated group, enter the amount
1a CFC2 reported on Form 8992, Schedule A,
Part I—Foreign Corporation's
1b 100012 column (c), for the CFC. If the U.S.
Tested Income and Foreign shareholder is a member of a U.S.
1c Taxes consolidated group, enter the amount
2 202312 reported with respect to that U.S.
Column 1a. Enter the name of each
3 OC CFC that has tested income, as shareholder on Schedule B (Form
4 UUU defined in section 951A(c)(2)(A). Do 8992), Part I, column (e), for the CFC.
5(a) NGCT not report information of CFCs with Column 8. Enter the CFC's tested
tested losses, as defined in section foreign income taxes from Schedule Q
5(b) iv 951A(c)(2)(B). (Form 5471), line 3, column (xii).
5(c) Column 1b. Enter the EIN or Column 9. Enter the pro rata share of
6 1,800,000u reference ID number of the foreign tested foreign income taxes paid or
7 450,000 corporation. See Reference ID accrued by the CFC. To determine this
numbers, earlier. amount, multiply the amount in
8(a) 1,440,000u
column 7 by the amount in column 8.
8(b) 1,440,000 Note. Taxpayers no longer have the
9 0.800 option of entering “FOREIGNUS” or Note. See the instructions for
“APPLIED FOR” in this column. Schedule G, later, for information on
10 360,000 Instead, if the foreign corporation reduction of foreign taxes for failure to
does not have an EIN, the taxpayer furnish information required under
must use a reference ID number that section 6038.
uniquely identifies such foreign
Schedule D corporation, using the rules set forth in Part II—Foreign Income Tax
Report taxes deemed paid under Reference ID numbers, in the Deemed Paid
section 960(d) with respect to Requirements section, earlier. Note. While multiple line entries may
be necessary for Schedule D, Part I,
inclusions under section 951A. This Column 2. Enter the year and month because such lines are completed for
schedule should only be completed in which the CFC's U.S. tax year each CFC, in general, only one line
with respect to the Form 1118 filed for ended using the format YYYYMM. will be completed in Schedule D, Part
the section 951A category, and, in
rare cases, the passive category. Column 3. Enter the applicable II, because the domestic corporation
two-letter codes from the list at filing Form 1118 only has one section
Schedule D is generally completed IRS.gov/CountryCodes. 951A inclusion. However, there is an
exception if Form 1118 is completed
by a domestic corporation that owns, Column 4. Enter the applicable
by an individual (or by an estate or
within the meaning of section 958(a), three-character alphabet code for the
trust) that has made an election under
stock in one or more CFCs that claims foreign corporation's functional
section 962 ("section 962 elector")
taxes deemed paid with respect to currency using the ISO 4217
and the section 962 elector is a
inclusions under section 951A. standard.
shareholder of an S corporation that
Schedule D is also generally Column 5. Enter the U.S. has made an election to treat the S
completed by an individual (or an shareholder's pro rata share of the corporation as an entity (rather than
estate or trust) that has made an CFC's tested income from the as an aggregate of its owners), as
election under section 962 ("section applicable Form 8992 schedule. If the provided in Notice 2020-69, 2020-39
962 elector"). U.S. shareholder is not a member of a I.R.B. 604, on a timely (including
U.S. consolidated group, enter the extensions) filed original Form 1120-S
If more than one line is needed in amount reported on Form 8992, with respect to the first tax year
Part II: Schedule A, column (e), for the CFC. ending on or after September 1, 2020.
• In Part II, column 2, the same If the U.S. shareholder is a member of In this case, the section 962 elector
denominator will be used (the Part I, a U.S. consolidated group, enter the may have more than one section 951A
column 5 total) in the inclusion amount reported with respect to that inclusion that will be reported on
percentage calculation for each line; U.S. shareholder on Schedule B separate lines on Schedule D, Part II.
and (Form 8992), Part I, column (g), for the There might be multiple lines as a
• In Part II, column 3, the same CFC. result of (1) the section 962 elector's
multiplication factor will be used (the section 951A inclusion, and (2) the
Part I, column 9 total) for each line. If the domestic corporation is a
partner in a partnership, enter the section 962 elector's share of the
If more than one line is completed domestic corporate partner's pro rata section 951A inclusion of the S
in Part II, the column 4 amounts share of CFC tested income from corporation. There could also be
should be summed and included on a Schedule K-3, Part VIII, line 3. multiple lines if the section 962 elector
has an interest in more than one S
single line on Form 1118, Schedule B, Column 6. Enter the CFC's tested corporation.
Part I, column 3 (that is, the line on income from the applicable Form
Schedule B, Part I, column 3, that 8992 schedule. If the U.S. shareholder
corresponds with the line in

Instructions for Form 1118 (Rev. 12-2023) 17

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Column 1. Enter the GILTI (that is, Instead, if the foreign corporation Column 7. Enter the total amount of
the section 951A inclusion) from Form does not have an EIN, the taxpayer the foreign corporation’s PTEP in the
8992, Part II, line 5. must use a reference ID number that PTEP group within an annual PTEP
uniquely identifies such foreign account identified in columns 5 and 6.
Column 3. This amount as corporation, using the rules set forth in Enter the amount in the functional
determined on this line is the section Reference ID numbers, in the currency of the first-tier foreign
78 gross-up with respect to an Requirements section, earlier. corporation.
inclusion under section 951A which is
reported on Form 1118, Schedule A, Column 2. Enter the year and month Column 8. Enter the total amount of
column 3(b). for the U.S. tax year of the first-tier the foreign corporations’ PTEP group
foreign corporation in which the taxes with respect to the PTEP group
first-tier foreign corporation made the within the annual PTEP account
Schedule E PTEP distribution to the domestic identified in columns 5 and 6. Enter
Report taxes deemed paid by the corporation. Use the format YYYYMM. the amount in U.S. dollars.
domestic corporation under section If there is a PTEP distribution related
960(b) with respect to PTEP to more than one PTEP group within Column 9. Enter the PTEP
distributions. Taxes reported on this an annual PTEP account, complete a distribution from the PTEP group
schedule are with respect to foreign separate line for each PTEP group within the annual PTEP account
income taxes levied on distributions of within an annual PTEP account. See identified in columns 5 and 6 in the
PTEP from a lower-tier foreign Regulations section 1.960-3(c)(2). functional currency of the first-tier
foreign corporation. If there is a PTEP
corporation to an upper-tier foreign Column 3. Enter the applicable distribution related to more than one
corporation when those taxes are two-letter codes from the list at PTEP group within an annual PTEP
subsequently deemed paid by the IRS.gov/CountryCodes. account, complete a separate line for
domestic corporation upon
distribution of such PTEP by the Column 4. Enter the applicable each PTEP group within an annual
upper-tier foreign corporation to the three-character alphabet code for the PTEP account.
domestic corporation. distributing foreign corporation's Column 11. For each line, multiply
functional currency using the ISO the amount in column 8 by the amount
Note. Foreign withholding taxes 4217 standard. in column 10. This is the U.S. dollar
levied on a domestic corporation as a amount of the foreign income taxes
Column 5. Enter the code which
result of distributions of PTEP from a properly attributable to the PTEP
describes the PTEP group
first-tier foreign corporation to such distribution reported in column 9 and
classification (as set forth in
domestic corporation are not reported not deemed to have been paid by the
Regulations section 1.960-3(c)(2)).
on Schedule E. Such taxes are domestic corporation for the tax year
Please enter the applicable PTEP
reported on Schedule B, Part I, or any prior tax year.
group code from the following list.
column 2(b), as tax withheld on
distributions of PTEP. Note. With respect to distributions of
PTEP
Taxes related to previously PTEP resulting from inclusions under
Group
Part I—Tax Deemed Paid by taxed E&P section 965, report the taxes properly
Domestic Corporation Code
attributable to such PTEP without
Reclassified section 965(a) PTEP R965a
Column 1a. Enter the name of each reduction for the foreign tax credit
first-tier foreign corporation that had Reclassified section 965(b) PTEP R965b disallowance. The disallowance is
foreign income taxes properly General section 959(c)(1) PTEP 959c1 taken into account in Schedule G. See
attributable to PTEP distributions to a the specific instructions for
Reclassified section 951A PTEP R951A
domestic corporation that were not Schedule G, later.
previously deemed paid by a Reclassified section 245A(d) R245Ad
domestic corporation. For PTEP Part II—Tax Paid or Deemed
distributions of PTEP that originated in Section 965(a) PTEP 965a Paid by First- and Lower-Tier
Foreign Corporations
lower-tier foreign corporations, enter a Section 965(b) PTEP 965b
unique alphabetic character before The purpose of Part II is to track the
the name of the distributing foreign Section 951A PTEP 951A current-year and historical PTEP
corporation to identify the source of Section 245A(d) PTEP 245Ad distributions between foreign
the PTEP distribution. See the Section 951(a)(1)(A) PTEP 951a1A corporations and taxes paid, accrued,
instructions for Part II, Column 1a. for or deemed paid by upper-tier foreign
more information, including an corporations on such PTEP
example. distributions. These amounts are to be
Column 6. Enter the inclusion year
reported on this Part II only to the
Column 1b. Enter the EIN or for the PTEP of the foreign corporation
extent that there is a PTEP distribution
reference ID number of the foreign to which inclusion under section
to the domestic corporation entered in
corporation. See Reference ID 951(a) and GILTI inclusion amounts of
Part I. The amounts entered in Part II
numbers, earlier. U.S. shareholders are attributable.
could relate to current-year or
This is the annual PTEP account. See
prior-year PTEP distributions between
Note. Taxpayers no longer have the Regulations section 1.960-3(c)(1).
option of entering “FOREIGNUS” or foreign corporations, so the applicable
“APPLIED FOR” in this column.

18 Instructions for Form 1118 (Rev. 12-2023)

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year should be noted in column 2 Part II, column 1a. Enter “A distributing foreign corporation's
using the format YYYYMM. CFC2” (to report distribution from functional currency using the ISO
CFC2 to CFC1), and enter “A CFC3” 4217 standard.
If foreign income taxes paid,
(to report distribution from CFC3 to
accrued, or deemed paid by a first-tier Column 8. Enter the applicable
CFC2).
foreign corporation are properly PTEP group code from the list
attributable to a PTEP distribution Column 1b. Enter the EIN or provided in the specific instructions for
from one or more lower-tier foreign reference ID number of the distributing Schedule E, Part I, Column 5, earlier.
corporations, report all such PTEP foreign corporation. See Reference ID
Column 9. Enter the annual PTEP
distributions by the lower-tier foreign numbers, earlier.
account. See the instructions for
corporations in Part II, even if the Schedule E, Part I, Column 6, earlier.
distributing lower-tier foreign Note. Taxpayers no longer have the
corporations did not pay or accrue option of entering “FOREIGNUS” or Column 10. Enter the total amount of
(and were not deemed to pay) any “APPLIED FOR” in this column. the foreign corporation’s PTEP in the
foreign income taxes with respect to Instead, if the distributing foreign PTEP group within the annual PTEP
the PTEP distributions. For each tier, corporation does not have an EIN, the account identified in column 8 and
report the amount of the PTEP taxpayer must use a reference ID column 9. Enter such amount in the
distribution from the first-tier foreign number that uniquely identifies such functional currency of the distributing
corporation that is attributable to a foreign corporation, using the rules set foreign corporation.
PTEP distribution from the lower-tier forth in Reference ID numbers, in the
Column 11. Enter the total amount of
foreign corporation and the amount of Requirements section, earlier.
the foreign corporation’s PTEP group
foreign income taxes paid, accrued, or Column 2. Enter the U.S. tax year of taxes with respect to the PTEP group
deemed paid by that lower-tier foreign the distributing foreign corporation within the annual PTEP account
corporation with respect to that which includes the date when the identified in column 8 and column 9.
portion of the PTEP distribution. foreign corporation distributed the Enter this amount in U.S. dollars. To
Because only eligible current-year tax PTEP to the upper-tier foreign determine the appropriate translation
paid or accrued by a CFC with respect corporation. rate, see section 986(a).
to its receipt of a PTEP distribution
from a lower-tier foreign corporation Note. If the PTEP distributed in Part I Column 12. Enter the PTEP
are eligible to be treated as deemed relates to PTEP distributions from distribution with respect to the PTEP
paid under section 960(b), no foreign lower-tier foreign corporations made group within the annual PTEP account
income taxes of the lowest-tier foreign in more than 1 tax year, figure and identified in columns 8 and 9 in the
corporation to which the PTEP show the tax deemed paid on a functional currency of the distributing
distribution is attributable are properly separate line for each distribution. foreign corporation. If there is a PTEP
distribution related to more than one
attributable to a PTEP distribution Column 3. Enter the applicable PTEP group within an annual PTEP
made to an upper-tier foreign two-letter codes from the list at account, complete a separate line for
corporation. See Regulations section IRS.gov/CountryCodes. each PTEP group within an annual
1.960-1(d)(3)(ii)(C).
Column 4b. Enter the EIN or PTEP account. Only report the
Column 1a. Enter the name of each reference ID number of the recipient amount of PTEP that was ultimately
lower-tier foreign corporation that foreign corporation. See Reference ID distributed to the domestic
distributed PTEP to an upper-tier numbers, earlier. corporation in the current year, even if
foreign corporation, in the current year the amount of PTEP distributed to the
or a prior year, that in turn was Note. Taxpayers no longer have the upper-tier foreign corporation was
distributed in the current year to a option of entering “FOREIGNUS” or greater than that amount.
domestic corporation. In column 1a, “APPLIED FOR” in this column.
Column 14. Enter the U.S. dollar
preceding the name of the distributing Instead, if the recipient foreign
amount of the recipient foreign
lower-tier foreign corporation, enter a corporation does not have an EIN, the
corporation's income taxes paid,
unique alphabetic character that taxpayer must use a reference ID
accrued, and deemed paid that are
corresponds to a PTEP distribution number that uniquely identifies such
properly attributable to the PTEP
reported in Part I. For example, in the foreign corporation, using the rules set
distribution reported in column 12 and
case of a PTEP distribution from forth in Reference ID numbers, in the
not deemed to have been paid by the
CFC3, third-tier foreign corporation, to Requirements section, earlier.
CFC2, second-tier foreign domestic corporation for any prior tax
corporation, to CFC1, first-tier foreign Column 5. Enter the U.S. tax year of year.
corporation, to USP, a domestic the recipient foreign corporation which
corporation, the domestic corporation includes the date the foreign Note. See the Note in the instructions
correlates the distributions as follows. corporation received the PTEP for Part I, column 11, for purposes of
distribution. reporting foreign income taxes
Part I, column 1a. Enter “A CFC1” properly attributable to PTEP
(to report distribution from CFC1 to Column 6. Enter the applicable distributions resulting from inclusions
domestic corporation sourced from two-letter codes from the list at under section 965.
PTEP distributions from CFC2 and IRS.gov/CountryCodes.
CFC3). Column 7. Enter the applicable Note. See the instructions for
three-character alphabet code for the Schedule G, later, for information on

Instructions for Form 1118 (Rev. 12-2023) 19

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reduction of foreign taxes for failure to Column               Entry            account for the 2017 tax year (“2017 
furnish information required under                                              section 965(a) PTEP”) within the 
section 6038.                             1a                   A CFC2           general category, to CFC2, a CFC that 
Example 1.    USC is a domestic           1b                   10042            wholly owns CFC3. CFC2 pays 
                                                                                eligible current-year tax of 20u to 
corporation. CFC1, a Country Y            2                    202312
                                                                                Country X equal to $20 on the 100u 
corporation, wholly owns Country X        3                          OC         PTEP distribution, reducing the 2017 
corporations CFC2 and CFC3. The 
U.S. tax year for USC, CFC1, CFC2,        4a                   CFC1             section 965(a) PTEP to 80u. In 
and CFC3 ends on December 31.             4b                   10041            CFC2’s U.S. tax year ending 
                                                                                December 31, 2019, CFC2 distributes 
During the U.S. tax year ending           5                    202312           40u of the 2017 section 965(a) PTEP 
December 31, 2023, CFC2 and 
CFC3, both second-tier CFCs, each         6                          BC         to CFC1, a CFC that wholly owns 
distribute 100u, comprising all of their  7                    UUU              CFC2. CFC1 pays no tax on such 
                                                                                distribution, but is deemed to pay $10 
respective section 965(a) PTEP within     8                    965a             of the eligible current-year tax that 
the annual PTEP account for the 2017 
tax year (“2017 section 965(a) PTEP”)     9                    2017             was paid by CFC2 in 2017. In CFC1’s 
within the general category, to CFC1,     10                         80u        U.S. tax year ending December 31, 
                                                                                2023, CFC1 distributes 40u to USC, 
a first-tier CFC. CFC1 pays 40u equal     11                         0          who wholly owns CFC1. USC pays no 
to $40 of eligible current-year taxes to 
Country X on the 200u PTEP                12                         80u        foreign tax on such distribution, but is 
distributions, reducing the 2017          13                   1.000            deemed to pay the $10 of eligible 
                                                                                current-year tax that was paid by 
section 965(a) PTEP to 160u. In that      14                         0          CFC2 in 2017 and deemed paid by 
same year, CFC1 distributes all 160u 
of the 2017 section 965(a) PTEP to                                              CFC1 in 2019. The reference ID 
USC. CFC1 does not have any other                                               numbers for CFC1, CFC2, and CFC3 
PTEP balances. The reference ID           USC makes the following entries on    are 20041, 20042, and 20043, 
numbers for CFC1, CFC2, and CFC3          the second of two lines on            respectively. The country codes for 
are 10041, 10042, and 10043,              Schedule E, Part II.                  Country X and Country Y are OC and 
respectively. The country codes for                                             BC, respectively. The functional 
Country X and Country Y are OC and        Column               Entry            currency of CFC1, CFC2, and CFC3 
BC, respectively. The functional                                                is the “u.” The applicable 
                                          1a                   A CFC3
currency of CFC1, CFC2, and CFC3                                                three-character alphabet code for the 
is the “u.” The applicable                1b                   10043            “u” using the ISO 4217 standard is 
                                                                                “UUU.”
three-character alphabet code for the     2                    202312
“u” using the ISO 4217 standard is                                              Schedule E reporting is not 
                                          3                          OC
“UUU.”                                                                          necessary for USC’s tax years ending 
                                          4a                   CFC1             December 31, 2018, 2019, 2020, 
USC makes the following entries on                                              2021, and 2022. For USC's tax year 
a single line on Schedule E, Part I.      4b                   10041
                                                                                ending December 31, 2023, USC 
                                          5                    202312           makes the following entries on a 
   Column                  Entry          6                          BC         single line on its general category 
         1a                A CFC1         7                    UUU              Form 1118, Schedule E, Part I.
         1b                10041          8                    965a
                                                                                Column                     Entry
         2                 202312         9                    2017
                                                                                      1a                   A CFC1
         3                 BC             10                         80u
                                                                                      1b                   20041
         4                 UUU            11                         0
                                                                                      2                    202312
         5                 965a           12                         80u
                                                                                      3                    OC
         6                 2017           13                   1.000
                                                                                      4                    UUU
         7                 160u           14                         0
                                                                                      5                    965a
         8                 40
                                                                                      6                    2017
         9                 160u           Example 2. USC is a domestic                7                    40u
         10                1.000          corporation. CFC1 and CFC2 are 
         11                40             Country X corporations, and CFC3 is         8                    10
                                          a Country Y corporation. The U.S. tax       9                    40u
                                          year for USC, CFC1, CFC2, and               10                   1.000
                                          CFC3 ends on December 31. During 
USC makes the following entries on        CFC3’s U.S. tax year ending                 11                   10
the first of two lines on Schedule E,     December 31, 2018, CFC3 distributes 
Part II.                                  100u, comprising its entire section 
                                          965(a) PTEP within the annual PTEP 
20                                                                              Instructions for Form 1118 (Rev. 12-2023)

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USC makes the following entries on  December 31. During CFC3’s U.S. tax         ending December 31, 2023, USC 
the first of two lines on Schedule E,  year ending December 31, 2018,           completes Form 1118, Schedule E, as 
Part II.                               CFC3 distributes 1,000u, comprising      follows:
                                       all of its subpart F PTEP within the 
                                                                                USC makes the following entries on 
Column               Entry             annual PTEP account for the 2016 tax 
                                                                                Schedule E, Part I, with respect to 
                                       year (“2016 section 951(a)(1)(A) 
                                                                                general category income.
         1a          A CFC2            PTEP”) within the general category, to 
         1b          20042             CFC2, a CFC that wholly owns CFC3. 
         2           201912            CFC2 pays eligible current-year tax of   Column                  Entry
                                       100u to Country Y equal to $100 on 
         3                 OC          the 1,000u PTEP distribution,                    1a A CFC1
         4a          CFC1              reducing the 2016 section 951(a)(1)              1b              10041
         4b          20041             (A) PTEP to 900u. In CFC2’s tax year             2               202312
                                       ending December 31, 2019, CFC2 
         5           201912            distributes 250u, comprising all of its          3                  OC
         6                 OC          section 951A PTEP within the annual              4               UUU
         7           UUU               PTEP account for the 2018 tax year               5  951a1A
                                       (“2018 section 951A PTEP”) within the 
         8           965a              section 951A category, to CFC1, a                6               2016
         9           2017              CFC that wholly owns CFC2. CFC1                  7               405u
         10                80u         pays eligible current-year tax of 25u to         8                  95
                                       Country X equal to $25 on the 250u 
         11                20          PTEP distribution, reducing the 2018             9               405u
         12                40u         section 951A PTEP to 225u. During                10              1.000
         13          0.500             CFC2’s tax year ending December 31,              11                 95
                                       2023, CFC2 distributes 450u out of its 
         14                10
                                       2016 section 951(a)(1)(A) PTEP           USC makes the following entries on 
                                       balance of 900u to CFC1. CFC1 pays       the first of two lines on Schedule E, 
                                       eligible current-year tax of 45u to      Part II, of its Form 1118 with respect to 
USC makes the following entries on     Country X equal to $45 on the 450u       general category income.
the second of two lines on             PTEP distribution, reducing the 2016 
Schedule E, Part II.                   section 951(a)(1)(A) PTEP to 405u. 
                                       CFC1 is also deemed to pay $50 of        Column                  Entry
Column               Entry             the eligible current-year tax paid by            1a A CFC2
                                       CFC2 on its receipt of the 2018 
         1a          A CFC3            distribution of the PTEP from CFC3. In           1b              10042
         1b          20043             the same year, CFC1 distributes 630u             2               202312
                                       to USC, which wholly owns CFC1. 
         2           201812                                                             3                  CC
                                       Such distribution includes all of 
         3                 BC          CFC1’s 2016 section 951(a)(1)(A)                 4a              CFC1
         4a          CFC2              PTEP of 405u and 2018 section 951A               4b              10041
         4b          20042             PTEP of 225u. USC pays no foreign                5               202312
                                       tax on such distribution, but is 
         5           201812            deemed to pay $50 of the eligible                6                  OC
         6                 OC          current-year tax deemed paid by                  7               UUU
         7           UUU               CFC1 and $70 on the eligible                     8  951a1A
                                       current-year tax paid by CFC1 on the 
         8           965a              2019 and 2023 distributions of the               9               2016
         9           2017              PTEP from CFC2.                                  10              810u
         10                80u            The reference ID numbers for                  11              100
         11                0           CFC1, CFC2, and CFC3 are 10041,                  12              405u   
                                       10042, and 10043, respectively. The 
                                                                                        13              0.500
         12                40u         country codes for Country X, Country 
         13          0.500             Y, and Country Z are OC, CC, and BC,             14                 50
         14                0           respectively. The functional currency 
                                       of CFC1, CFC2, and CFC3 is the “u.”      USC makes the following entries on 
                                       The applicable three-character           the second of two lines on 
Example 3.  USC is a domestic          alphabet code for the “u” using the      Schedule E, Part II, of its Form 1118 
corporation. CFC1 is a Country X       ISO 4217 standard is “UUU.”              with respect to general category 
                                                                                income.
corporation, CFC2 is a Country Y          Schedule E reporting is not 
corporation, and CFC3 is a Country Z   necessary for USC's tax years ending 
corporation. The U.S. tax year of USC, December 31, 2018, 2019, 2020, 
CFC1, CFC2, and CFC3 ends on           2021, and 2022. For USC's tax year 

Instructions for Form 1118 (Rev. 12-2023)                                                                                21

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fails to furnish any return or any
Column Entry Column Entry information in any return required
1a A CFC3 1a B CFC2 under section 6038(a) by the due
1b 10043 1b 10042 date, reduce the foreign income taxes
available for credit under sections 901
2 201812 2 201912 and 960 by 10%. If the failure
3 BC 3 CC continues for 90 days or more after
4a CFC2 4a CFC1 the date of written notice by the IRS,
reduce the tax by an additional 5% for
4b 10042 4b 10041 each 3-month period or fraction
5 201812 5 201912 thereof during which the failure
6 CC 6 OC continues after the 90-day period has
expired. See section 6038(c) for
7 UUU 7 UUU limitations and special rules.
8 951a1A 8 951A In addition, a $10,000 penalty is
9 2016 9 2018 imposed under section 6038(b) for
10 810u 10 225u failure to supply the information
required under section 6038(a) for
11 0 11 0 each entity within the time prescribed.
12 405u 12 225u If the required information is not
13 0.500 13 1.000 submitted within 90 days after the IRS
has mailed notice to the U.S. person,
14 0 14 0 additional penalties may apply.

USC makes the following entries on Note. The reduction in foreign
a line on Schedule E, Part I, of its Schedule F income taxes available for credit is
Form 1118 with respect to section Reserved for future use. reduced by any dollar penalty
951A category income. imposed under section 6038(b).
Schedule G Line E. Enter foreign income taxes
Column Entry paid or accrued during the current tax
Part I year that have been suspended due to
1a B CFC1 the rules of section 909.
Line A. If the corporation claims a
1b 10041 deduction for percentage depletion Line F. Enter disallowed taxes under
2 202312 under section 613 with respect to any section 965(g).
3 OC part of its foreign mineral income (as
Taxes paid or accrued with respect
defined in section 901(e)(2)) for the
to distributions of section 965(a)
4 UUU tax year, any foreign taxes on that
PTEP and section 965(b) PTEP must
5 951A income must be reduced by the
be reduced by the relevant applicable
6 2018 smaller of:
percentage. See Regulations section
7 225u 1. The foreign taxes minus the tax 1.965-5(b). Taxes deemed paid with
on that income, or
8 25 respect to distributions of section
2. The tax on that income 965(a) PTEP and section 965(b)
9 225u determined without regard to the PTEP must be reduced by the
10 1.000 deduction for percentage depletion relevant applicable percentage. See
11 25 minus the tax on that income. Regulations section 1.965-5(c)(1)(i)
and (iii).
The reduction must be made on a
USC makes the following entries on country-by-country basis (Regulations Line G. Enter disallowed taxes under
a line on Schedule E, Part II, of its section 1.901-3(a)(1)). Attach a section 245A. Such disallowed taxes
Form 1118 with respect to section separate schedule showing the may also include, for example, gain on
951A category income. reduction. certain sales of CFC stock treated as
dividends. See section 964(e)(4).
Line C. If the corporation chooses to
calculate the reduction in the foreign Line H. For any other reductions in
tax by identifying taxes specifically taxes, enter the code “OTH” and
attributable to participation in or attach a statement with the amount
cooperation with an international and the nature of such other
boycott, enter the amount from reduction.
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

22 Instructions for Form 1118 (Rev. 12-2023)

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                                              intangible income” (as defined in       of uncontrolled parties (as defined in 
Schedule H                                    Regulations section 1.861-17(b)(2)).    Regulations section 1.861-17(d)(3)).
Computer-Generated                            Line 4a. For each product line, enter   Line 5d. For each product line, add 
Schedule H                                    the U.S. source “gross intangible       lines 5a through 5c and enter the sum 
A computer-generated Schedule H               income” (as defined in Regulations      on line 5d.
may be filed if it conforms to the IRS        section 1.861-17(b)(2)) of the 
                                                                                      Lines 6a through 6e.  For lines 6a 
version. In some cases, Schedule H            taxpayer that is neither income 
                                                                                      through 6e, enter the code for the 
must be expanded to properly report           pertaining to sales, licenses, leases, 
                                                                                      applicable separate category of 
apportioned deductions. This applies          or services of controlled parties (as 
                                                                                      income (foreign source statutory 
in cases such as when the                     defined in Regulations section 
                                                                                      grouping). See Categories of Income 
corporation:                                  1.861-17(d)(4)) nor income pertaining 
                                                                                      earlier. If code “901j” or one of the 
• Has more than two product lines             to sales, licenses, leases, or services 
                                                                                      “RBT” codes applies, also enter the 
(under the gross receipts method of           of uncontrolled parties (as defined in 
                                                                                      applicable country.
apportioning research and                     Regulations section 1.861-17(d)(3)).
experimental (R&E) deductions in Part         Line 4b. For each product line, enter   Note.   If the corporation has more 
I), or                                        the U.S. source “gross intangible       than five separate categories of 
• Has more than five categories of            income” (as defined in Regulations      income, Schedule H, Part I, line 6 
income (statutory groupings within            section 1.861-17(b)(2)) of the          must be expanded to properly report 
Part I, line 6; Part II, line 3; or Part III, taxpayer that is income pertaining to   apportioned R&E deductions. See 
line 2) with respect to which expenses        sales, licenses, leases, or services of Computer-Generated Schedule H, 
are required to be apportioned.               controlled parties (as defined in       earlier.
                                              Regulations section 1.861-17(d)(4)).    Lines 6a(1), 6b(1), 6c(1), 6d(1), 
Note.   If there are more than five 
foreign source statutory groupings            Line 4c. For each product line, enter   and 6e(1). For each product line and 
within Part II, line 3, or Part III, line 2,  the U.S. source “gross intangible       for each separate category, enter the 
add them after the U.S. source                income” (as defined in Regulations      foreign source “gross intangible 
residual grouping.                            section 1.861-17(b)(2)) of the          income” (as defined in Regulations 
                                              taxpayer that is income pertaining to   section 1.861-17(b)(2)) of the 
Part I—Research and                           sales, licenses, leases, or services of taxpayer that is neither income 
Experimental Deductions                       uncontrolled parties (as defined in     pertaining to sales, licenses, leases, 
Note.   These instructions refer to the       Regulations section 1.861-17(d)(3)).    or services of controlled parties (as 
                                                                                      defined in Regulations section 
regulations issued on November 12,            Line 4d. For each product line, add     1.861-17(d)(4)) nor income pertaining 
2020. See Regulations section                 lines 4a through 4c and enter the sum   to sales, licenses, leases, or services 
1.861-17 (T.D. 9922, 85 FR 72042, as          on line 4d.                             of uncontrolled parties (as defined in 
corrected by 86 FR 54367).
  Use Part I to apportion R&E                 Line 5a. For each product line, enter   Regulations section 1.861-17(d)(3)).
deductions. Use the gross receipts            the aggregate foreign source “gross     Lines 6a(2), 6b(2), 6c(2), 6d(2), 
method described in Regulations               intangible income” (as defined in       and 6e(2). For each product line and 
section 1.861-17 and report                   Regulations section 1.861-17(b)(2)) of  for each separate category, enter the 
applicable amounts in column (a).             the taxpayer that is neither income     foreign source “gross intangible 
                                              pertaining to sales, licenses, leases,  income” (as defined in Regulations 
                                              or services of controlled parties (as   section 1.861-17(b)(2)) of the 
Column (a), Gross Receipts                    defined in Regulations section          taxpayer that is income pertaining to 
Method                                        1.861-17(d)(4)) nor income pertaining   sales, licenses, leases, or services of 
                                              to sales, licenses, leases, or services controlled parties (as defined in 
Enter in the spaces provided the SIC          of uncontrolled parties (as defined in  Regulations section 1.861-17(d)(4)).
Code numbers (based upon the                  Regulations section 1.861-17(d)(3)).
Standard Industrial Classification                                                    Lines 6a(3), 6b(3), 6c(3), 6d(3), 
System) of the product lines to which         Line 5b. For each product line, enter   and 6e(3). For each product line and 
the R&E deductions relate. See                the aggregate foreign source “gross     for each separate category, enter the 
Regulations section 1.861-17(b)(3) for        intangible income” (as defined in       foreign source “gross intangible 
details on choosing SIC codes and             Regulations section 1.861-17(b)(2)) of  income” (as defined in Regulations 
changing a product category.                  the taxpayer that is income pertaining  section 1.861-17(b)(2)) of the 
                                              to sales, licenses, leases, or services taxpayer that is income pertaining to 
Note.   If the corporation has more           of controlled parties (as defined in    sales, licenses, leases, or services of 
than two product lines, see                   Regulations section 1.861-17(d)(4)).    uncontrolled parties (as defined in 
Computer-Generated Schedule H,                                                        Regulations section 1.861-17(d)(3)).
                                              Line 5c. For each product line, enter 
earlier.
                                              the aggregate foreign source “gross     Lines 6a(4), 6b(4), 6c(4), 6d(4), 
                                              intangible income” (as defined in       and 6e(4). For each product line and 
Columns (a)(i) and (a)(iv)                    Regulations section 1.861-17(b)(2)) of  for each separate category, add lines 
Line 1. For each product line, enter          the taxpayer that is income pertaining  (1), (2), and (3) and enter the sum on 
the taxpayer’s worldwide “gross               to sales, licenses, leases, or services line (4).

Instructions for Form 1118 (Rev. 12-2023)                                                                                   23

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Columns (a)(ii) and (a)(v)               Lines 6a(2), 6b(2), 6c(2), 6d(2),       worldwide gross receipts for the 
Line 1. For each product line, enter     and 6e(2). For each product line,       product line. Multiply the result by the 
the taxpayer’s worldwide gross           enter the controlled parties’ (as       line 3 R&E deductions to be 
receipts from sales and leases of        defined in Regulations section          apportioned.
products or services.                    1.861-17(d)(4)) gross receipts from     Example 1.  With respect to the 
                                         sales, licenses, leases, or services    first product line reported on 
Line 4a. For each product line, enter    that are related to foreign source      Schedule H, Part I, to determine the 
the taxpayer’s gross receipts from       gross intangible income within the      amount to enter on line 4d, column (a)
sales and leases of products or          relevant statutory grouping.            (iii), divide the amount on line 4d, 
services related to U.S. source gross                                            column (a)(ii) by the amount on line 1, 
intangible income.                       Lines 6a(3), 6b(3), 6c(3), 6d(3), 
                                         and 6e(3). For each product line,       column (a)(ii). Multiply the result by 
Line 4b. For each product line, enter    enter the uncontrolled parties’ (as     the amount on line 3, column (a)(iii).
the controlled parties’ (as defined in   defined in Regulations section          Line 5d. According to Regulations 
Regulations section 1.861-17(d)(4))      1.861-17(d)(3)) gross receipts from     section 1.861-17(d)(1), to determine 
gross receipts from sales, leases,       sales, licenses, leases, or services    the line 3 amount of R&E 
licenses, or services that are related   that are related to foreign source      expenditures to be apportioned to the 
to the taxpayer’s U.S. source gross      gross intangible income within the      aggregate statutory grouping of 
intangible income.                       relevant statutory grouping.            foreign source gross income, divide 
Line 4c. For each product line, enter    Lines 6a(4), 6b(4), 6c(4), 6d(4),       the gross receipts related to the gross 
the uncontrolled parties’ (as defined in and 6e(4). For each product line and    intangible income within the statutory 
Regulations section 1.861-17(d)(3))      for each separate category, add lines   grouping(s) by the worldwide gross 
gross receipts from sales, leases,       (1), (2), and (3) and enter the sum on  receipts for the product line. Multiply 
licenses, or services of uncontrolled    line (4).                               the result by the line 3 R&E 
parties that are related to the                                                  deductions to be apportioned.
taxpayer’s U.S. source gross             Columns (a)(iii) and (a)(vi)            Example 2.  With respect to the 
intangible income.                                                               first product line reported on 
                                         Line 1.   Enter the total R&E           Schedule H, Part I, to determine the 
Line 4d. For each product line, add      deductions connected with the           amount to enter on line 5d, column (a)
lines 4a through 4c and enter the sum 
                                         product lines.
on line 4d.                                                                      (iii), divide the amount on line 5d, 
                                         Line 2a or 2b. Reduce the line 1        column (a)(ii) by the amount on line 1, 
Line 5a. For each product line, enter                                            column (a)(ii). Multiply the result by 
                                         totals by a 50% exclusive 
the taxpayer’s gross receipts from                                               the amount on line 3, column (a)(iii).
                                         apportionment amount (Regulations 
sales and leases of products or 
                                         section 1.861-17(c)).
services related to foreign source                                               Lines 6a(5), 6b(5), 6c(5), 6d(5), 
                                                                                 and 6e(5). Enter the amount of line 3 
gross intangible income.                 Note. For tax years beginning on or     R&E deductions apportioned to each 
Line 5b. For each product line, enter    after January 1, 2020, there is no      separate category. According to 
the controlled parties’ (as defined in   longer a rule with respect to legally   Regulations section 1.861-17(d)(1), to 
Regulations section 1.861-17(d)(4))      mandated R&E. See Regulations           determine the line 3 amount of R&E 
gross receipts from sales, leases,       section 1.861-17 (T.D. 9922)            expenditures to be apportioned 
licenses, or services that are related   published in the Federal Register on    among the statutory groupings of 
to the taxpayer’s foreign source gross   November 12, 2020.                      foreign source gross income, divide 
intangible income.                       Under the exclusive apportionment       the gross receipts related to the gross 
Line 5c. For each product line, enter    rules, 50% of the R&E deductions are    intangible income within the statutory 
the uncontrolled parties' (as defined in apportioned exclusively to the residual grouping by the worldwide gross 
Regulations section 1.861-17(d)(3))      grouping of U.S. source gross income,   receipts for the product line. Multiply 
gross receipts from sales, licenses,     if the R&E that accounts for more than  the result by the line 3 R&E 
leases, or services that are related to  50% of the amount of such R&E           deductions to be apportioned.
the taxpayer's foreign source gross      deductions were performed in the 
                                                                                 Example 3.  With respect to the 
intangible income.                       United States. A similar rule applies 
                                                                                 first product line reported on 
                                         when a majority of R&E is performed 
                                                                                 Schedule H, Part I, there are two 
Line 5d. For each product line, add      outside the United States.
lines 4a through 4c and enter the sum                                            foreign tax credit separate limitation 
                                         Enter 50% of line 1 on either line 2a 
on line 4d.                                                                      categories with gross receipts that are 
                                         or line 2b (as explained above).        related to foreign source gross 
Lines 6a(1), 6b(1), 6c(1), 6d(1),                                                intangible income within each of the 
                                         Line 4d.  According to Regulations 
and 6e(1).  For each product line,       section 1.861-17(d)(1), to determine    two categories. With respect to the 
enter the taxpayer's gross receipts                                              first separate category, to determine 
                                         the line 3 amount of R&E 
from sales and leases of products or                                             the amount to enter on line 6a(5), 
                                         expenditures to be apportioned to the 
services that are related to foreign                                             column (a)(iii), divide the amount on 
                                         residual grouping of U.S. source gross 
source gross intangible income within                                            line 6a(4), column (a)(ii) by the 
                                         income, divide the gross receipts 
the relevant separate category.                                                  amount on line 1, column (a)(ii) and 
                                         related to the gross intangible income 
                                         within the residual grouping by the     multiply the result by the amount on 

24                                                                               Instructions for Form 1118 (Rev. 12-2023)

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line 3, column (a)(iii). Similarly, with apportioned to foreign source gross        excess related party indebtedness. 
respect to the second separate           intangible income for all product lines.   See Regulations section 1.861-10(e) 
category, to determine the amount to                                                for an exception to the general rule of 
enter on line 6b(5), column (a)(iii),    Note. Include the amount from              fungibility for excess related party 
divide the amount on line 6b(4),         column (b) of line 6a(7) in column 14      indebtedness.
column (a)(ii) by the amount on line 1,  of the Schedule A that corresponds 
column (a)(ii) and multiply the result   with the code entered on line 6a. If       Line 1c. Enter all other assets that 
by the amount on line 3, column (a)      applicable, you should likewise            attract specifically allocable interest 
(iii).                                   include the amount from column (b) of      deductions. See Regulations section 
                                         line 6b(7) in column 14 of the             1.861-10 for other exceptions to the 
Lines 6a(6), 6b(6), 6c(6), 6d(6),        Schedule A that corresponds with the       general rule of fungibility (such as 
and 6e(6). Enter the amount of           code entered on line 6b. If applicable,    qualified nonrecourse indebtedness 
line 2b R&E deductions, if any, to be    on page 10 of Form 1118, you should        and integrated financial transactions).
apportioned to each separate             likewise include the amount(s) from        Line 1d. Enter the total of the exempt 
category. As indicated in Regulations    column (b) of lines 6c(7), 6d(7), and      assets and assets without directly 
section 1.861-17(c), if there are        6e(7) in column 14 of the Schedule A       identifiable yield that are to be 
multiple separate categories with        that corresponds with the code             excluded from the interest 
foreign source gross intangible          entered on lines 6c, 6d, and 6e,           apportionment formula (Regulations 
income with respect to a given           respectively.                              section 1.861-8(d)(2) and Temporary 
product line, the line 2b amount is 
                                                                                    Regulations sections 1.861-8T(d)(2) 
apportioned ratably based on the         Part II—Deductions Allocated 
                                                                                    and 1.861-9T(g)(3)). This could 
relative amounts of gross receipts       and Apportioned Based on                   include an exempt portion of assets 
from gross intangible income in each     Assets                                     that produce foreign-derived 
separate category, as determined 
under Regulations section                Columns (a)(i) Through (b)(iv)             intangible income and/or an exempt 
                                                                                    portion of CFC stock that gives rise to 
1.861-17(d).
                                         Use these columns to apportion             inclusions under section 951A.
                                         interest deductions. See final and         Lines 3a through 3f. For lines 3a 
Column (b)                               temporary Regulations sections             through 3e, enter the code for the 
Line 1. Enter total R&E deductions       1.861-8 through 1.861-14 for rules on      applicable separate category of 
for all product lines (for example, from the apportionment of interest              income (statutory grouping). See 
column (a)(iii) and, if applicable,      deductions based on the tax book           Categories of Income, earlier. If code 
columns (a)(vi), (a)(ix), etc.).         value or adjusted tax book value of        “901j” or one of the “RBT” codes 
                                         assets.                                    applies, also enter the applicable 
Note.  Line 1, column (b) is the total                                              country.
worldwide R&E deductions for all          A corporation may elect to use the 
product lines.                           alternative tax book value method.         Note. If the corporation had more 
                                         See Regulations section 1.861-9(i).
Lines 2a and 4d. Enter on line 2a                                                   than five separate categories of 
                                                                                    income, Schedule H, Part II, line 3 
the total amount exclusively              Columns (a) and (b) are subdivided        must be expanded to properly report 
apportioned to U.S. source gross         into “Nonfinancial Corporations” and       deductions apportioned based on 
intangible income for all product lines. “Financial Corporations.” In allocating    assets. See Computer-Generated 
Enter on line 4d the total amount of     interest deductions, members of an         Schedule H, earlier.
line 3 R&E expenditures apportioned      affiliated group that are financial 
to the residual grouping of U.S. source  corporations must be treated as a          The assets in each statutory 
gross intangible income for all product  separate affiliated group. Complete        grouping (lines 3a through 3e) and the 
lines.                                   columns (a)(ii) and (b)(iv) for            residual grouping (line 3f) are divided 
                                         members of the corporation's affiliated    between those assets generating 
Note.  Line 2a, column (b) plus                                                     dividend income eligible to be offset 
                                         group that are financial corporations 
line 4d, column (b) equals the total                                                by the deduction under section 245A 
                                         and columns (a)(i) and (b)(iii) for 
amount of R&E deductions for all                                                    versus those generating all other 
                                         members that are nonfinancial 
product lines apportioned to U.S.                                                   types of gross income. The foreign 
                                         corporations.
source gross intangible income for all                                              branch income and section 951A 
product lines.                            See Regulations section 1.861-11          income categories do not include 
Lines 6a(7), 6b(7), 6c(7), 6d(7),        for the definition of an affiliated group. assets generating dividend income 
and 6e(7). Enter on each of these                                                   eligible to be offset by the deduction 
lines the total amount of line 3 R&E     Columns (a)(i) and (a)(ii)                 under section 245A. The assets on 
expenditures apportioned to the                                                     line 2 are characterized as assets in 
statutory grouping of foreign source     Line 1a. Enter the average of the          one of the statutory groupings or as 
gross income for all product lines.      total assets of the affiliated group. See  belonging to the residual grouping.
                                         Regulations section 1.861-9(g)(2) for      Enter the value of the assets in 
Note.  The sum of lines 6a(7), 6b(7),    the definition of “average” for these      each of the statutory groupings on 
6c(7), 6d(7), and 6e(7) in column (b)    purposes.                                  lines 3a through 3e, and enter the 
equals the total amount of R&E           Line 1b. Enter the assets included on      value of the assets in the residual 
deductions for all product lines         line 1a that are characterized as          grouping on line 3f. See Regulations 

Instructions for Form 1118 (Rev. 12-2023)                                                                                25

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sections 1.861-12 and 1.861-13 and        Example 2.      To determine the       Computer-Generated Schedule H, 
Temporary Regulations sections            amount to enter on line 3b(2), column  earlier.
1.861-9T(g)(3), 1.861-12T(g)(2), and      (b)(iv), do the following.             Enter on lines 3a through 3e the 
1.861-12T for the rules for               1. Divide the amount on line 3b(2),    amount of expenses apportioned to 
characterizing the assets.                column (a)(ii), by the amount on line 2,  each separate category of income as 
                                          column (a)(ii).                        further apportioned between dividend 
Columns (b)(iii) and (b)(iv)              2. Multiply the result by the          income eligible to be offset by the 
Line 1a. Enter the total interest         amount on line 2, column (b)(iv).      deduction under section 245A and all 
                                                                                 other gross income.
deductions for the members of the 
corporation's affiliated group. These     Column (c)                             Enter on line 3f the amount of 
include any expense that is currently                                            expenses apportioned to income in 
deductible under section 163              Complete this column to apportion      the residual grouping (U.S. source 
(including original issue discount),      stewardship deductions. See            income) as further apportioned 
and interest equivalents. See             Regulations section 1.861-8(e)(4)(ii). between dividend income eligible to 
Regulations section 1.861-9 and                                                  be offset by the deduction under 
Temporary Regulations section             Column (d)                             section 245A and all other gross 
1.861-9T for the definition of interest                                          income.
equivalents and a list of the sections    Complete this column to apportion      Attach a schedule that explains in 
that disallow or suspend interest         certain industrial/investor damages.   detail how the above apportionments 
deductions or require the                 See Regulations section 1.861-8(e)(5)  were made.
capitalization of interest deductions.    (ii) and (iii).
Line 1b. Enter the interest                                                      Column (f)
deductions associated with the assets     Column (e)
on line 1b of columns (a)(i) and (a)(ii),                                        To determine the totals to enter in 
                                          Complete this column to apportion all 
respectively, that attract specifically                                          column (f), use the following steps.
                                          other deductions allocated and 
allocable interest deductions under                                              Step 1: For each applicable line 
                                          apportioned based on assets (other 
Regulations section 1.861-10(e).                                                 beginning with line 3a(1), enter the 
                                          than interest deductions, stewardship 
Note.  These interest deductions will     deductions, and certain industrial/    sum of the amounts in columns (b)(iii), 
be divided among the statutory            investor damages). See final and       (b)(iv), (c), (d), and (e) in this column 
groupings and the residual grouping.      temporary Regulations sections         (f).
The interest deductions allocated and     1.861-8 and 1.861-14.                  Step 2: With respect to section 245A 
apportioned to the statutory groupings                                           dividends, enter the sum of any 
will appear as a definitely allocable     Line Instructions for Columns (c),     amounts entered in column (f) of lines 
deduction in Schedule A, column           (d), and (e)                           3a(1), 3b(1), 3c(1), 3d(1), 3e(1), and 
13(j).                                                                           3f(1) on line 4, column (f). Include this 
                                          Line 1a. For each column, enter the    line 4 result as a negative amount on 
Line 1c. Enter the interest               total expenses to be allocated and     Schedule B, Part II, line 8b.
deductions associated with the assets     apportioned. See final and temporary 
on line 1c of columns (a)(i) and (a)(ii), Regulations sections 1.861-8 and       Note.   This is the adjustment required 
respectively, that attract specifically   1.861-14. Also report this amount on   by section 904(b)(4) to worldwide 
allocable interest deductions.            line 2.                                taxable income to eliminate the 
                                                                                 expenses properly allocated or 
Lines 3a through 3f. To figure the        Lines 3a through 3f.  For lines 3a 
                                                                                 apportioned to stock or dividend 
amount of interest deductions to          through 3e, enter the code for the 
                                                                                 income for which a dividends received 
apportion to each separate category       applicable separate category of 
                                                                                 deduction is allowed in section 245A. 
of income (statutory grouping) and to     income (statutory grouping). See 
                                                                                 As such, it includes both foreign 
the residual grouping, divide the         Categories of Income, earlier. If code 
                                                                                 source amounts (that is, the amounts 
assets apportioned to the grouping by     “901j” or one of the “RBT” codes 
                                                                                 from the applicable statutory 
the total assets apportioned and          applies, also enter the applicable 
                                                                                 groupings on lines 3a(1), 3b(1), 3c(1), 
multiply the result by the interest       country.
deductions to be apportioned.                                                    3d(1), and 3e(1)) and U.S. source 
                                          Note.   If the corporation had more    amounts (that is, the amount from the 
Example 1. To determine the               than five separate categories of       residual grouping on line 3f(1)).
amount to enter on line 3a(1), column     income, Schedule H, Part II, line 3    Step 3: With respect to amounts 
(b)(iii), do the following.               must be expanded to properly report    other than section 245A dividends, for 
1. Divide the amount entered on           stewardship deductions in column (c),  each applicable statutory grouping, 
line 3a(1), column (a)(i), by the         certain industrial/investor damages in include the amount in column (f) of 
amount on line 2, column (a)(i).          column (d), and “other deductions” in  line 3a(2), 3b(2), 3c(2), 3d(2), or 3e(2) 
2. Multiply the result by the             column (e). To clarify, in column (e), in column 14 of the corresponding 
amount on line 2, column (b)(iii).        report all other deductions allocated  Schedule A. For example, if the 
                                          and apportioned based on assets        taxpayer enters "PAS" on Schedule H, 
                                          (other than those listed in columns (b),  Part II, line 3a, the taxpayer takes the 
                                          (c), and (d)). See 
26                                                                               Instructions for Form 1118 (Rev. 12-2023)

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total on line 3a(2), column (f) and      final and temporary Regulations           Lines 2a through 2f. For lines 2a 
includes it in column 14 of the          sections 1.861-8 and 1.861-14.            through 2e, enter the code for the 
Schedule A being completed for the                                                 applicable separate category of 
                                         Column (f). Column (f) is a totals 
Passive Category.                                                                  income (statutory grouping). See 
                                         column. It requests total deductions 
Note. Do not include the amount on       allocated and apportioned to section      Categories of Income, earlier. If code 
line 3f(2), column (f) in column 14 on   245A dividends. This is the sum of        “901j” or one of the “RBT” codes 
any Schedule A. The amount on            any amounts entered in columns (a)        applies, also enter the applicable 
line 3f(2), column (f) is a residual     through (e) on lines 2a(1), 2b(1),        country.
grouping amount and not an               2c(1), 2d(1), 2e(1), and 2f(1). The 
applicable statutory grouping amount.    total is entered on line 3 and is also    Note.   If the corporation had more 
                                         included on Schedule B, Part II,          than five separate categories of 
Note. Due to the reporting               line 8b as a negative number.             income, Schedule H, Part III, line 2 
                                                                                   must be expanded to properly report 
requirement described in step 3 
above, you do not need to report a       Note. This is the adjustment required     deductions other than research and 
grand total for amounts other than       by section 904(b)(4) to worldwide         experimental deductions (reported in 
section 245A dividends (that is, the     taxable income to eliminate the           Schedule H, Part I), and other than 
amount reported on line 4).              expenses properly allocated or            deductions allocated and apportioned 
                                         apportioned to stock or dividend          based on assets (reported in 
Part III—Other Deductions                income for which a dividends received     Schedule H, Part II). See 
                                         deduction is allowed in section 245A.     Computer-Generated Schedule H, 
Report in Schedule H, Part III                                                     earlier.
                                         As such, it includes both foreign 
information pertaining to the allocation 
                                         source amounts (that is, the amounts 
and apportionment of deductions                                                    Enter on lines 2a through 2e the 
                                         from the applicable statutory 
other than research and experimental                                               amount of expenses apportioned to 
                                         groupings on lines 3a(1), 3b(1), 3c(1), 
deductions (reported in Schedule H,                                                each separate category of income as 
                                         3d(1), and 3e(1)) and U.S. source 
Part I) and other than deductions                                                  further apportioned between dividend 
                                         amounts (that is, the amount from the 
allocated and apportioned based on                                                 income eligible to be offset by the 
                                         residual grouping on line 3f(1)).
assets (reported in Schedule H, Part                                               deduction under section 245A and all 
II).                                     Column (g). With respect to each          other gross income.
                                         applicable statutory grouping, column     Enter on line 2f the amount of 
Column (a).  Complete this column to                                               expenses apportioned to income in 
                                         (g) requests the sum of any amounts 
apportion officers' compensation                                                   the residual grouping (U.S. source 
                                         entered in columns (a) through (e) for 
expense in accordance with the rules                                               income) as further apportioned 
                                         lines 2a(2), 2b(2), 2c(2), 2d(2), and 
of Regulations section 1.861-8(b)(3).                                              between dividend income eligible to 
                                         2e(2). These are amounts other than 
Columns (b) and (c). Complete this       section 245A dividends.                   be offset by the deduction under 
column to apportion amortization                                                   section 245A and all other gross 
deductions and depletion deductions,     Note. Unlike column (f), this column      income.
respectively, in accordance with the     (g) does not request a total. Instead,    Attach a schedule that explains in 
rules of Regulations section             for each applicable statutory grouping,   detail how the above apportionments 
1.861-8(b)(2) and Temporary              the column (g) total for each             were made.
Regulations section 1.861-8T(c)(1),      applicable line is carried over to 
for example.                             column 14 of the corresponding            Line 3. See the instructions for 
                                         Schedule A. For example, if the           column (f) above.
Column (d).  Complete this column to     taxpayer enters "PAS" on Schedule H, 
apportion product liability damages in   Part III, line 2a, the taxpayer takes the 
                                                                                   Schedules I, J, K, and L
accordance with the rules of             total on line 2a(2), column (g) and 
Regulations section 1.861-8(e)(5)(ii).   includes it in column 14 of the           See the separate instructions for 
Column (e).  Complete this column to     Schedule A being completed for the        Schedule I, Schedule J, Schedule K, 
apportion deductions other than those    Passive Category.                         and Schedule L to see if the 
                                                                                   corporation must file these schedules.
reported on Schedule H, Part I; 
Schedule H, Part II; or Schedule H,      Line instructions
Part III, columns (a) through (d). See 
                                         Line 1. For each column, enter the 
                                         total expenses to be allocated and 
                                         apportioned.

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Instructions for Form 1118 (Rev. 12-2023)                                                                                27

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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 filed.

28                                                             Instructions for Form 1118 (Rev. 12-2023)

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