Instructions for Form 1118 (Revised January 1999) Foreign Tax Credit—Corporations Section references are to the Internal Revenue Code, unless otherwise noted. Department of the Treasury Internal Revenue Service Paperwork Reduction Act Notice.   We ask for the information on this form to carry out the Internal Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying with these laws and to allow us to figure and collect the right amount of tax. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by Code section 6103. The time needed to complete and file this form and related schedules will vary depending on individual circumstances.   The estimated average times are: If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedules simpler, we would be happy to hear from you. See the instructions for the tax return with which this form is filed. Changes To Note The Taxpayer Relief Act of 1997 (“The Act”) made changes to the tax law regarding the foreign tax credit. The major changes are discussed below. l  For tax years beginning after August 5, 1997, the deemed paid credit has been extended to foreign taxes paid or accrued by certain fourth-, fifth-, and sixth-tier corporations.   See section 902(b). Schedules C, D, and E have been expanded to reflect the additional reporting requirement. l  For taxpayers claiming credits on the accrual basis in tax years beginning after December 31, 1997, the exchange rate for translating foreign taxes into U.S. dollars will generally be an average exchange rate for the tax year, rather than the spot rate on the payment date. A redetermination will be required if the taxes are not paid within 2 years after the close of the tax year to which such taxes relate. See sections 905 and 986(a). l  For transactions occurring after August 5, 1997, gains on dispositions of stock in lower-tier controlled foreign corporations (CFCs) may be treated as dividends received by the selling CFC to the same extent that the gain would be treated as a dividend under section 1248(a) if the CFC were a U.S.   person. See section 964(e)(1). l  The Act disallows foreign tax credits for withholding taxes with respect to dividends paid or accrued on or after September 5, 1997, if a minimum holding period is not satisfied with respect to the l  Income sourced under section 863(b) is aggregated, rather than reported by country, on Schedule A. Information about this income is no longer required to be reported on Schedule F. l  Part II of Schedule C has been divided into Parts II and III. Part II is used for reporting foreign taxes deemed paid under section 902 with respect to dividends paid out of pre-1987 accumulated profits. Part III is used for reporting foreign taxes deemed paid under section 960 with respect to deemed inclusions from pre-1987 earnings and profits. l  Schedule D has been divided into two parts and is used for reporting foreign taxes deemed paid under section 902(b) by first- and second-tier foreign corporations. l  Schedule E has been divided into three parts and is used to report foreign taxes deemed paid by certain third-, fourth-, and fifth-tier foreign corporations. General Instructions Purpose of Form Use Form 1118 to compute a corporation's foreign tax credit for certain taxes paid or accrued to foreign countries or U.S. possessions. See Taxes Eligible for a Credit on page 3. Use a separate Form 1118 to compute the foreign tax credit for each of several statutory categories of income. See Categories of Income on page 2. Who Must File Any corporation that elects the benefits of the foreign tax credit under section 901 must complete and attach Form 1118 to its income tax return. When to Make the Election The election to claim the foreign tax credit (or a deduction in lieu of a credit) for any tax year may be made or changed at any time before the end of a special 10-year period described in section 6511(d)(3) (or section 6511(c) if the period is extended by agreement). Computer-Generated Form 1118 The corporation may submit a computer-generated Form 1118 and schedules if they conform to the IRS version. However, if a software program is used, it must be approved by the IRS for use in filing substitute forms. This Form Recordkeeping Learning about the law or the form Preparing and sending the form to the IRS 1118 71 hr., 45 min. 18 hr., 19 min. 22 hr., 42 min. Sch. I (Form 1118) 8 hr., 51 min. 1 hr. 1 hr., 11 min. Sch. J (Form 1118) 89 hr., 12 min. 1 hr., 5 min. 2 hr., 35 min. stock. The minimum holding period for common stock is 16 days. The minimum holding period for preferred stock is 46 days. See section 901(k). l  For a claim relating to an overpayment of U.S. tax attributable to foreign tax credits, the limitation period is determined by reference to the year with respect to which the foreign taxes were paid or accrued, and not the year to which the foreign tax credits are carried. This is applicable for taxes paid or accrued in tax years beginning after August 5, 1997. See section 6511(d)(3)(A). l  For transactions occurring in annual accounting periods after August 5, 1997, the penalty for failure to report information under section 6038 has increased to $10,000 for each CFC per reporting period. An additional $10,000 penalty (with a maximum of $50,000) may apply if the failure continues after notice from the IRS. See section 6038(b). Other changes. l  Final regulations under section 905(b) were issued effective January 26, 1998. The regulations provide guidance regarding what is required to substantiate claims for foreign tax credit. See Regulations section 1.905-2. l   A separate Form 1118 must be completed for section 901(j) income and taxes from each sanctioned country. See Section 901(j) Income on page 3. l  Separate Forms 1118 must be completed for income that is treated as foreign-source income under an income tax treaty.   See Income Re-sourced by Treaty on page 3. Cat. No. 10905I