Form 1118 (Rev. December 2018) — Foreign Tax Credit (Corporations)
Purpose
Form 1118 computes foreign tax credit for corporations under §904 and §960 regimes. The 2018 revision implements Tax Cuts and Jobs Act provisions, including §250 deduction allocation, §951A Global Intangible Low-Taxed Income deemed tax computations under §960(d), and separate income category limitations reflecting post-2017 foreign corporation earnings structures.
Filing Checklist for Tax Year 2018
1. Verify Applicable Income Category Codes and TCJA Separation Requirements
You must determine if your corporation reports §951A category income for post-2017 years, §951(a)(1) inclusions, foreign branch category, passive category, general category, §901(j) sanctioned-country income, or treaty-resourced income. Under TCJA, the §951A category requires a separate Form 1118 and Schedule D for deemed-paid taxes under §960(d). You obtain country codes for all foreign jurisdictions and enter them on Part I, line 1, column 2.
2. Compile Gross Foreign-Source Income by Category and Country
You report all amounts in U.S. dollars on Part I. For §951A inclusions under §951A(c), you obtain controlled foreign corporation tested income and foreign income tax components. For §951(a)(1) inclusions, you gather CFC earnings and profits and foreign taxes from both pre-2018 and post-2017 tax years of foreign corporations.
Schedule C computes deemed-paid taxes under §960(a) for post-2017 §951(a)(1) inclusions. Schedule F-1 applies only to dividends and inclusions from taxable years of foreign corporations beginning on or before December 31, 2017.
3. Complete Schedule D for §951A GILTI Deemed-Paid Tax
- If your corporation has §951A inclusions, you complete Schedule D, Part I, listing each CFC's tested income and tested foreign income taxes.
- Schedule D, Part II, computes the inclusion percentage and 80 percent limitation on deemed tax under §960(d).
- Schedule D reports tax deemed paid for GILTI inclusions and did not exist in pre-2018 forms.
- You enter the resulting tax deemed paid on Schedule B, Part I, column 3, totals line.
4. Allocate §250(a) Deductions to Foreign Derived Intangible Income and GILTI Categories
- You enter §250(a)(1)(A) deduction for FDII in column 14(b) on Schedule A, Part I.
- You enter §250(a)(1)(B) deduction for GILTI in column 14(c) on Schedule A, Part I.
- These deductions reduce net foreign-source income and are reported separately by income category.
- You must allocate the §250 deductions by category to compute the correct credit limitation under §904(a).
5. Report Foreign Taxes Paid, Accrued, or Deemed Paid Under §960 Tiers
On Part I, you enter foreign taxes withheld at source for dividends, interest, rents, royalties, sales, and services. You check whether the credit is claimed under the cash or accrual method. For deemed taxes, you use Schedule C for §960(a) post-2017 §951(a)(1) inclusions, Schedule E for §960(b) previously taxed income distributions, and Schedule D for §960(d) GILTI deemed-paid with 80 percent inclusion.
Section 960(c) provides rules for increasing the foreign tax credit limitation when receiving previously taxed earnings and profits. Pre-2018 foreign corporation taxable years use Schedules F-1, F-2, and F-3 only under the old §902 and former §960 rules.
6. Apply Schedule H Apportionment and §904(b)(4) Expense Allocation
- You complete Schedule H, Part I, for research and experimentation apportionment if your corporation has multiple income categories or apportionable deductions.
- You complete Schedule H, Part II, for interest and all other deductions.
- Schedule H incorporates TCJA allocation and apportionment rules, including modifications to interest expense apportionment for 2018.
- You apply these allocations to reduce foreign-source taxable income in each separate limitation category.
Post-2017 Section 960 Structure
The TCJA restructured deemed-paid credit rules under §960, effective for post-2017 foreign corporate tax years. Section 960(a) addresses deemed-paid taxes for §951(a)(1) Subpart F inclusions reported on Schedule C. Section 960(b) addresses deemed-paid taxes for distributions of previously taxed earnings and profits reported on Schedule E.
Section 960(c) provides special rules for increasing the foreign tax credit limitation when receiving previously taxed earnings and profits distributions. Section 960(d) addresses deemed-paid taxes for §951A GILTI inclusions with an 80 percent limitation reported on Schedule D.
Schedule Requirements and Completion Order
Separate Category Schedules
- You complete separate Schedule A, Schedule B Parts I and II, Schedules C through G, Schedule I, and Schedule K for each applicable separate category of income.
- You complete Schedule B Part III, Schedule H, and Schedule J only once per return.
- Schedule A computes income or loss before adjustments for each applicable category of income.
- Schedule B determines the total foreign tax credit after certain limitations.
Deemed-Paid Tax Schedules
- Schedule C: Tax deemed paid under §960(a) for post-2017 §951(a)(1) inclusions
- Schedule D: Tax deemed paid under §960(d) for post-2017 §951A GILTI inclusions
- Schedule E: Tax deemed paid under §960(b) for previously taxed income distributions
- Schedule F-1: Tax deemed paid for dividends and inclusions in pre-2018 foreign corporate tax years only
- Schedules F-2 and F-3: Tax deemed paid by first-tier and lower-tier foreign corporations for pre-2018 foreign corporate tax years
Additional Required Schedules
- Schedule G: Reductions of taxes paid, accrued, or deemed paid
- Schedule H: Apportionment of deductions that cannot be allocated to a specific item or class of income
- Schedule I: Reductions of taxes on foreign oil and gas income
- Schedule J: Adjustments to separate limitation income or losses and overall foreign and domestic loss account balances
- Schedule K: Reconciliation of prior year foreign tax carryover with current year foreign tax carryover
Critical Filing Considerations
You file Form 1118 with your corporation's income tax return when electing the benefits of foreign tax credit under §901. You must use the December 2018 revision to comply with TCJA changes for tax year 2018 reporting.
The form requires reporting under both pre-enactment provisions for foreign corporations with tax years beginning before 2018 and post-enactment provisions for foreign corporations with tax years beginning after December 31, 2017. You apply appropriate schedules based on whether the foreign corporation's taxable year is pre-2018 or post-2017 to ensure correct deemed-paid credit calculations and limitation computations.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
