Form 1118 Foreign Tax Credit—Corporations (2022 Tax Year)
Purpose
Form 1118 computes a domestic or foreign corporation's foreign tax credit under section 901 for creditable foreign income taxes paid or accrued. Final foreign tax credit regulations under T.D. 9959 were issued on December 28, 2021, published in the Federal Register on January 4, 2022, and became effective March 7, 2022, revising creditability rules for foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021.
Core Filing Requirements
Separate Forms by Income Category
You must complete a separate Form 1118 for each applicable income category under post-2017 Tax Cuts and Jobs Act rules. The required categories include section 951A category income (GILTI), foreign branch category income, passive category income, section 901(j) income, treaty-resourced income using RBT codes, and general category income.
Eligibility Under Final Regulations
All credits claimed for foreign taxes paid or accrued in 2022 must satisfy final creditability requirements under Regulations sections 1.901-2 and 1.903-1. You must verify the foreign tax qualifies as an income, war profits, excess profits, or in-lieu-of tax under the revised standards applicable to tax years beginning on or after December 28, 2021.
Transitional Relief Election
Notice 2023-55, issued on July 21, 2023, provides retroactive relief allowing eligible taxpayers to apply modified rules in place of certain provisions of the final regulations for tax years 2022 and 2023. Taxpayers who filed 2022 returns before this notice may file amended returns to apply the relief by attaching a statement documenting the election.
Schedule A Reporting Requirements
Section 951A (GILTI) Inclusions
- Report the GILTI inclusion amount in Schedule A, column 3(a), before reduction by the section 250 deduction.
- Enter the section 250 GILTI deduction separately in Schedule A, column 13(c).
- Use income category code “951A” in column 2 of Schedule A to identify this category properly.
Section 78 Gross-Up Reconciliation
- Include the section 78 gross-up for section 951(a)(1) inclusions on Schedule B, Part I, column 3(b), using the total from Schedule C, column 7.
- Include the section 951A gross-up amount from Schedule D, Part II, column 3.
- These amounts increase foreign source income but are offset by deemed paid taxes under the foreign tax credit calculation.
Contested Foreign Tax Liabilities
Provisional Credit Election Requirements
File Form 7204 with Form 1118 to claim a provisional credit for a contested foreign tax liability under Regulations sections 1.905-1(c)(3) and 1.905-1(d)(4). The provisional credit election allows taxpayers using the accrual method to claim credits for contested amounts remitted to foreign countries before final determination.
Annual Reporting Obligations
You must file annual reports in subsequent tax years until the contest resolves. Complete Part V of Schedule L (Form 1118) each year following the year in which you made the provisional foreign tax credit election to satisfy the annual notice requirement under Regulations section 1.905-1(d)(4)(iv).
Section 965 PTEP Distributions
Distribution and Tax Reporting
- Report distributions of section 965(a) PTEP and section 965(b) PTEP in 2022 on Schedule E of Form 1118.
- Reduce the foreign taxes associated with these distributions by the applicable percentage under section 965(g) on Schedule G, line F.
- Reference Regulations section 1.965-5 to determine the correct reduction percentage applicable to your situation.
Tax Credit Limitations
The applicable percentage reduction under section 965(g) disallows a portion of the foreign tax credit for taxes paid or deemed paid with respect to section 965 inclusion amounts. This reduction prevents double benefit from both the reduced section 965 tax rates and full foreign tax credits.
Foreign Tax Redeterminations
Triggering Events Requiring Schedule L
A foreign tax redetermination occurs in the following situations:
- Accrued foreign taxes, upon payment or later adjustment, differ from the amounts claimed as credits.
- Accrued foreign income taxes are not paid on or before the date that is 24 months after the close of the tax year to which they relate.
- Any foreign income tax paid is fully or partially refunded.
- Changes in foreign tax liability affect distributions or inclusions under sections 951, 951A, or 1293.
Filing Requirements and Deadlines
Complete and attach Schedule L (Form 1118) to report foreign tax redeterminations occurring in the current tax year that relate to prior taxable years. If the redetermination changes your U.S. tax liability for any taxable year, file an amended return using Form 1120X with revised Form 1118 and all applicable schedules.
Amended Return Documentation
Attach a statement to the amended return providing the following information:
- Taxpayer identification information
- Dates foreign income taxes were accrued and paid
- Amounts in foreign currency with exchange rates used
- Information sufficient to determine changes to the characterization of distributions or inclusion amounts
- Any interest amounts paid by the foreign government
Key Code Assignments
Separate Category Codes for Line A
- 951A: Section 951A category income (GILTI excluding passive income)
- FB: Foreign branch category income from qualified business units
- PAS: Passive category income, including passive and specified passive income
- 901j: Income from sanctioned countries subject to separate limitation
- RBT PAS, RBT GEN, RBT FB, RBT 951A: U.S. source income resourced by treaty as foreign source
- GEN: General category income, including all other foreign source income not otherwise categorized
Schedule C Column 5(a) Codes
Use the specific codes provided in the 2022 Form 1118 instructions to identify the type of inclusion or distribution reported on Schedule C. These codes have been modified from prior years to reflect changes in the final regulations.
Critical Compliance Notes
Foreign tax credits claimed for 2022 remain subject to the statute of limitations exception under sections 6501(c)(5) and 905(c) when foreign tax redeterminations result in increased U.S. tax liability. The IRS may assess additional tax beyond normal limitation periods when you notify them of redeterminations that increase your tax obligation.
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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.
