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

Department of the Treasury

Internal Revenue Service

Section references are to the Internal 

Revenue Code unless otherwise noted.

Future Developments

For the latest information about 

developments related to Form 1118 

and its instructions, such as legislation 

enacted after they were published, go 

to IRS.gov/Form1118.

What’s New

Final foreign tax credit regulations. 

Final foreign tax credit regulations 

were published January 4, 2022. The 

new regulations made changes to the 

rules relating to the creditability of 

foreign taxes under sections 901 and 

903, the applicable period for claiming 

a credit or deduction for foreign taxes, 

and the new election to claim a 

provisional credit for contested foreign 

taxes. A Notice was subsequently 

released on July 21, 2023, allowing 

taxpayers to apply prior rules in place 

of certain rules provided in the new 

regulations. The rules described in 

this Notice were modified in part by a 

Notice released on December 11, 

2023, to address their application to 

partnerships and their partners and to 

extend the relief period until further 

notice. For more information, see 

Treasury Decision 9959, 2022-03 

I.R.B. 328, available at IRS.gov/irb/ 

2022-03_IRB#TD-9959, Notice 

2023-55, 2023-32 I.R.B. 427, 

available at IRS.gov/irb/

2023-32_IRB#NOT-2023–55, and 

Notice 2023-80, 2023-52 I.R.B. 1583, 

available at IRS.gov/irb/

2023-52_IRB#NOT-2023-80.

Corporate Alternative Minimum 

Tax Foreign Tax Credit. Form 1118 

is not used to determine foreign tax 

credits for purposes of calculating the 

Corporate Alternative Minimum Tax 

(CAMT) under section 55, enacted 

under the Inflation Reduction Act of 

2022, P.L. 117-169. Corporate 

taxpayers are required to use the 

revised Form 4626 for determining 

foreign tax credits for purposes of 

calculating the CAMT tax liability, if 

any, under section 55.

Reminders

On December 22, 2017, Congress 

enacted the Tax Cuts and Jobs Act, 

P.L. 115-97 (the “Act”). The Act 

changes the computation of foreign 

tax credits for post-2017 tax years as 

follows.

• Two new separate categories of 

income under section 904(d): (i) any 

amount includible in gross income 

under section 951A (other than 

passive category income) (“section 

951A category income”), and (ii) 

foreign branch category income.

• Repeal of section 902 indirect 

credits with respect to dividends from 

foreign corporations.

• Modified indirect credits under 

section 960 for inclusions under 

sections 951(a)(1) and 951A.

• Modified section 78 gross-up with 

respect to inclusions under sections 

951(a)(1) and 951A.

• Revised sourcing rule for certain 

income from the sale of inventory 

under section 863(b).

• Repeal of the fair market value 

method for apportioning interest 

expense under section 864(e).

• New adjustments for purposes of 

section 904 with respect to expenses 

allocable to certain stock or dividends 

for which a dividends received 

deduction is allowed under section 

245A.

• Election to increase pre-2018 

section 904(g) overall domestic loss 

(ODL) recapture.

• Limited foreign tax credits with 

respect to inclusions under section 

965.

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, later.

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. In 

addition, even if a corporation has not 

elected to credit foreign taxes, it must 

complete and attach Schedules A and 

J of a Form 1118 to its income tax 

return if it has any additions to, 

reductions to, or recapture of any new 

or existing overall foreign loss, overall 

domestic loss, or separate limitation 

loss accounts. See Regulations 

section 1.904(f)-1(b).

Also, even if a taxpayer has not 

elected to credit foreign taxes, if it has 

a foreign tax redetermination under 

section 905(c), it must complete and 

attach Schedule L of a Form 1118 to 

its income tax return for the taxable 

year in which the foreign tax 

redetermination occurs. Schedule L 

must be submitted irrespective of 

whether the foreign tax 

redetermination changed the 

taxpayer's U.S. tax liability."

Also, individuals must complete 

and attach a Form 1118 to their 

income tax return if they make the 

election under section 962 to be taxed 

at corporate rates on the amount they 

must include in gross income under 

sections 951(a) and 951A from their 

controlled foreign corporations in 

order to be eligible to claim a foreign 

tax credit based on their share of 

foreign income taxes paid or accrued 

by the controlled foreign corporation. 

Jan 16, 2024 Cat. No. 10905I
See sections 960 and 962 and Pub. 

514 for more information on how to 

complete Form 1118 in this case.

When To Make the Election

The election to claim the foreign tax 

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). The election to claim a 

deduction in lieu of a credit for foreign 

income taxes may be made or 

changed at any time before the end of 

the period prescribed by section 

6511(a) or 6511(c). See Regulations 

section 1.901-1(d).

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 ensures the proper 

placement of each item appearing on 

the IRS version. For more information, 

see Pub. 1167, General Rules and 

Specifications for Substitute Forms 

and Schedules.

How To Complete

Form 1118

Important. Complete a separate 

Schedule A; Schedule B, Parts I & II; 

Schedules C through G; Schedule I; 

Schedule K; and Schedule L, Parts I, 

II, III, & V for each applicable separate 

category of income. See Categories 

of Income, later. Complete 

Schedule B, Part III; Schedule H; 

Schedule J and Schedule L, Part IV 

only once.

• Use Schedule A to compute the 

corporation's income or loss before 

adjustments for each applicable 

category of income.

• Use Schedule B to determine the 

total foreign tax credit after certain 

reductions.

• Use Schedule C to compute taxes 

deemed paid by the domestic 

corporation filing the return with 

respect to inclusions under section 

951(a)(1).

• Use Schedule D to compute taxes 

deemed paid by the domestic 

corporation filing the return with 

respect to inclusions under section 

951A.

• Use Schedule E to compute taxes 

deemed paid by the domestic 

corporation filing the return with 

respect to distributions of previously 

taxed income (also referred to as 

previously taxed earnings and profits 

(PTEP)).

• Use Schedule G to report required 

reductions of tax paid, accrued, or 

deemed paid.

• Use Schedule H to apportion 

deductions that cannot be allocated to 

an item or class of income identified 

on Schedule A.

• Use Schedule I (a separate 

schedule) to compute reductions of 

taxes paid, accrued, or deemed paid 

on foreign oil and gas income.

• Use Schedule J (a separate 

schedule) to compute adjustments to 

separate limitation income or losses in 

determining the numerators of 

limitation fractions, year-end 

recharacterization balances, and 

overall foreign and domestic loss 

account balances.

• Use Schedule K (a separate 

schedule) to reconcile the 

corporation's prior-year foreign tax 

carryover with its current-year foreign 

tax carryover.

• Use Schedule L (a separate 

schedule) to report foreign tax 

redeterminations that occurred in the 

current taxable year and that relate to 

prior taxable years.

Categories of Income

Compute a separate foreign tax credit 

(using a separate Form 1118) for each 

applicable separate category 

described below. Enter the applicable 

code from the table below, in item a at 

the top of page 1 of Form 1118, to 

indicate the separate category with 

respect to which you are completing a 

given Form 1118.

Code Category of Income

951A Section 951A Category 

Income

FB Foreign Branch Category 

Income

PAS Passive Category Income

901j Section 901(j) Income

RBT PAS U.S. Source Passive 

Category Income 

Resourced by Treaty as 

Foreign Source Passive 

Category Income

RBT GEN U.S. Source General 

Category Income 

Resourced by Treaty as 

Foreign Source General 

Category Income

RBT FB U.S. Source Foreign 

Branch Income 

Resourced by Treaty as 

Foreign Source Foreign 

Branch Category Income

RBT 951A U.S. Source Section 

951A Category Income 

Resourced by Treaty as 

Foreign Source Section 

951A Category Income

GEN General Category Income

If you enter code "901j" or one of 

the "RBT" codes in item a, also 

complete item b or item c using the 

country codes provided at IRS.gov/

CountryCodes.

Section 951A Category Income

Section 951A category income is any 

amount of global intangible low-taxed 

income (GILTI) includible in gross 

income under section 951A (other 

than passive category income). 

Section 951A defines GILTI.

• When completing a Form 1118 for 

section 951A category income, enter 

the code "951A" on line a at the top of 

page 1.

• Section 951A category income 

does not include passive category 

income.

Foreign Branch Category 

Income

Foreign branch income is defined 

under section 904(d)(2)(J)(i) as the 

business profits of a U.S. person 

which are attributable to one or more 

qualified business units (QBUs) (as 

2 Instructions for Form 1118 (Rev. 12-2023)
defined in section 989(a)) in one or 

more foreign countries. For more 

information on the computation of 

foreign branch category income, see 

Regulations section 1.904-4(f).

• When completing a Form 1118 for 

foreign branch category income, enter 

the code "FB" on line a at the top of 

page 1.

• Foreign branch category income 

does not include passive category 

income.

• Foreign branch category income is 

effective for tax years of U.S. persons 

beginning after December 31, 2017.

Passive Category Income

Passive category income includes 

passive income and specified passive 

category income. When completing a 

Form 1118 for passive category 

income, enter the code "PAS" on line 

a at the top of page 1.

Passive income. Generally, passive 

income is the following:

• Any income received or accrued 

that would be foreign personal holding 

company income (defined in section 

954(c)) if the corporation were a 

controlled foreign corporation (CFC) 

(defined in section 957). This includes 

any gain on the sale or exchange of 

stock that is more than the amount 

treated as a dividend under section 

1248. However, in determining if any 

income would be foreign personal 

holding company income, the rules of 

section 864(d)(6) will apply only for 

income of a CFC.

• Any amount includible in gross 

income under section 1293 (which 

relates to certain passive foreign 

investment companies (PFICs)).

Passive income does not include:

• Any financial services income,

• Any export financing interest unless 

it is also related person factoring 

income (see section 904(d)(2)(G) and 

Regulations section 1.904-4(h)(3)),

• Any high-taxed income (see 

Regulations section 1.904-4(c)), or

• Any active rents or royalties. See 

Regulations section 1.904-4(b)(2)(iii) 

for definitions and exceptions.

Note. Certain income received from a 

CFC and certain dividends from 

noncontrolled 10%-owned foreign 

corporations that would otherwise be 

passive income are treated as passive 

category income only to the extent 

provided under the look-through rules. 

See Look-Through Rules, later.

Specified passive category income. This term includes:

• Dividends from a domestic 

international sales corporation (DISC) 

or former DISC (as defined in section 

992(a)) to the extent such dividends 

are treated as foreign source income, 

and

• Distributions from a former foreign 

sales corporation (FSC) out of 

earnings and profits attributable to 

foreign trade income or interest or 

carrying charges (as defined in 

section 927(d)(1), before its repeal) 

derived from a transaction which 

results in foreign trade income (as 

defined in section 932(b), before its 

repeal).

Section 901(j) Income

No credit is allowed for foreign income 

taxes imposed by and paid or accrued 

to certain sanctioned countries. 

However, a foreign tax credit may be 

claimed for foreign income taxes paid 

or accrued with respect to section 

901(j) income if such tax is paid or 

accrued to a country other than a 

sanctioned country.

Income derived from each 

sanctioned country is subject to a 

separate foreign tax credit limitation. 

Therefore, the corporation must use a 

separate Form 1118 for income 

derived from each such country.

On each Form 1118, enter the code 

“901j” on line a at the top of page 1 

and identify the applicable country 

using the two-letter codes (from the 

list at IRS.gov/CountryCodes).

Sanctioned countries are those 

designated by the Secretary of State 

as countries that repeatedly provide 

support for acts of international 

terrorism, countries with which the 

United States does not have 

diplomatic relations, or countries 

whose governments are not 

recognized by the United States. As of 

the date these instructions were 

revised, section 901(j) applied to 

income derived from Iran, North 

Korea, Sudan, and Syria. For more 

information, see section 901(j).

Note. The President of the United 

States has the authority to waive the 

application of section 901(j) with 

respect to a foreign country if it is (a) 

in the national interest of the United 

States and will expand trade and 

investment opportunities for domestic 

companies in such foreign country, 

and (b) the President reports to the 

Congress, not less than 30 days 

before the waiver is granted, the 

intention to grant such a waiver and 

the reason for such waiver.

Note. Effective December 10, 2004, 

the President waived the application 

of section 901(j) with respect to Libya.

Income Re-Sourced by Treaty

If a sourcing rule in an applicable 

income tax treaty treats any U.S. 

source income as foreign source, and 

the corporation elects to apply the 

treaty, the income will be treated as 

foreign source.

Important. The corporation must 

compute a separate foreign tax credit 

limitation for any such income for 

which it claims benefits under a treaty. 

See Regulations sections 1.904-4(k) 

and 1.904-5(m)(7) for grouping rules 

and exceptions. On each Form 1118, 

enter one of the RBT codes listed 

below on line a at the top of page 1 

and identify the applicable treaty 

country on line c at the top of page 1 

using the two-letter codes (from the 

list at IRS.gov/CountryCodes).

Code “RBT PAS.” If an applicable 

income tax treaty treats any U.S. 

source passive category income as 

foreign source passive category 

income, and the corporation elects to 

apply the treaty, on Form 1118, enter 

code “RBT PAS” on line a at the top of 

page 1.

Code “RBT GEN.” If an applicable 

income tax treaty treats any U.S. 

source general category income as 

foreign source general category 

income, and the corporation elects to 

apply the treaty, on Form 1118, enter 

code “RBT GEN” on line a at the top 

of page 1.

Code “RBT FB.” If an applicable 

income tax treaty treats any U.S. 

source foreign branch category 

income as foreign source foreign 

branch category income, and the 

corporation elects to apply the treaty, 

on Form 1118, enter code “RBT FB” 

on line a at the top of page 1.

Code “RBT 951A.” If an applicable 

income tax treaty treats any U.S. 

source section 951A category income 

as foreign source section 951A 

category income, and the corporation 

Instructions for Form 1118 (Rev. 12-2023) 3
elects to apply the treaty, on Form 

1118, enter code “RBT 951A” on line a 

at the top of page 1.

General Category Income

This category includes all income not 

described above. When completing a 

Form 1118 for the general category of 

income, enter code "GEN" on line a at 

the top of page 1. This category 

includes high-taxed income that is not 

otherwise treated as another category 

of income. Usually, income is high 

taxed if the total foreign income taxes 

paid, accrued, or deemed paid by the 

corporation for that income exceed 

the highest rate of tax specified in 

section 11 (and with reference to 

section 15, if applicable), multiplied by 

the amount of such income (including 

the amount treated as a dividend 

under section 78). For more 

information, see Regulations section 

1.904-4(c). Also see the instructions 

for Schedule A, later, for additional 

reporting requirements.

This category also includes 

financial services income (defined 

below) not described above if the 

corporation is a member of a financial 

services group (as defined in section 

904(d)(2)(C)(ii)) or is predominantly 

engaged in the active conduct of a 

banking, insurance, financing, or 

similar business.

Financial services income. 

Financial services income is income 

received or accrued by a member of a 

financial services group or any 

corporation predominantly engaged in 

the active conduct of a banking, 

insurance, financing, or similar 

business if the income is:

• Described in section 904(d)(2)(D)

(ii),

• Passive income (determined 

without regard to section 904(d)(2)(B)

(iii)(II)), or

• Incidental income described in 

Regulations section 1.904-4(e)(4).

Note. If the corporation qualified as a 

financial services entity because it 

treated certain amounts as active 

financing income that are not listed in 

Regulations sections 1.904-4(e)(2)(i)

(A) through (X), but that are described 

as similar items in Regulations section 

1.904-4(e)(2)(i)(Y), attach a statement 

to Form 1118 showing the types and 

amounts of the similar items.

Special Rules

Source Rules for Income

Determine income or (loss) for each 

separate category on Schedule A 

using the general source rules of 

sections 861 through 865 and related 

regulations, the special source rules 

of section 904(h) described below, 

and any applicable source rules 

contained in any applicable tax 

treaties.

Special source rules of section 

904(h). Usually, the following income 

from a U.S.-owned foreign 

corporation, otherwise treated as 

foreign source income, must be 

treated as U.S. source income under 

section 904(h).

• Any subpart F income, foreign 

personal holding company income, 

GILTI, or income from a qualified 

electing fund that a U.S. shareholder 

is required to include in its gross 

income if such amount is attributable 

to the U.S.-owned foreign 

corporation's U.S. source income.

• Interest that is properly allocable to 

the U.S.-owned foreign corporation's 

U.S. source income.

• Dividends equal to the U.S. source 

ratio (defined in section 904(h)(4)(B)).

The rules regarding interest and 

dividends described above do not 

apply to a U.S.-owned foreign 

corporation if less than 10% of its 

earnings and profits (E&P) for the tax 

year is from U.S. sources.

Amounts That Do Not

Constitute Income Under

U.S. Tax Principles

Creditable foreign taxes that are 

imposed on amounts that do not 

constitute income under U.S. tax 

principles are treated as imposed on 

income described in section 904(d)(1)

(B). See section 904(d)(2)(H).

Look-Through Rules

CFCs. Generally, dividends, interest, 

rents, and royalties received or 

accrued by the taxpayer are passive 

category income. However, if these 

items are received or accrued by a 

10% U.S. shareholder from a CFC, 

they may be assigned to other 

separate categories, or may be 

treated as passive category income 

under the look-through rules of 

section 904(d)(3). Dividends include 

any amount included in gross income 

under section 951(a)(1)(B).

Look-through rules also apply to 

subpart F inclusions under section 

951(a)(1)(A) and GILTI inclusions 

under section 951A(a) to the extent 

attributable to income of the CFC in 

the passive category.

For more information and 

examples, see section 904(d)(3) and 

Regulations section 1.904-5.

Noncontrolled 10%-owned foreign 

corporations. Generally, dividends 

received or accrued by the taxpayer 

are passive category income. 

However, dividends received or 

accrued from a noncontrolled 

10%-owned foreign corporation may 

be assigned to other separate 

categories under the look-through 

rules of section 904(d)(4).

Certain amounts paid by a domestic corporation to a related corporation. Look-through rules also apply 

to foreign source interest, rents, and 

royalties paid by a domestic 

corporation to a related corporation. 

See Regulations section 1.904-5(g).

Other Rules

Certain transfers of intangible 

property. See section 367(d)(2)(C) 

for a rule that clarifies the treatment of 

certain transfers of intangible property.

Reporting Foreign Tax 

Information From Partnerships

If you received a Schedule K-3 (Form 

1065) or a Schedule K-3 (Form 8865) 

from a partnership that includes 

foreign tax information, use the rules 

below to report that information on 

Form 1118.

Schedule K-3, Part II, Section 1

Gross income sourced at partner 

level. This includes income from the 

sale of most personal property other 

than inventory, depreciable property, 

and certain intangible property 

sourced under section 865. This gross 

income will generally be U.S. source 

and therefore will not be reported on 

Form 1118.

Foreign gross income sourced at 

partnership level. Report on 

Schedule A.

4 Instructions for Form 1118 (Rev. 12-2023)
Schedule K-3, Part II, Section 2

Deductions allocated and apportioned at partner level and partnership level. Report on Schedule A or 

Schedule H.

Schedule K-3, Part III, Sections 1 

through 3

R&E expenses apportionment factors. Report on Schedule H, Part I.

Interest expense apportionment 

factors. Report on Schedule H, Part 

II.

Foreign-derived intangible income 

(FDII) deduction apportionment 

factors. Report on Schedule H, Part 

II.

Schedule K-3, Part III, Section 4

Total foreign taxes paid or accrued. Report on Schedule B.

Foreign tax redeterminations. 

Report on Schedule L.

Reduction in taxes available for 

credit. Report on Schedule G.

Schedule K-3 (Form 1065), Part VIII

Partner’s interest in foreign corporation income (Section 960). 

Report on Schedule C or D, as 

applicable.

Note. Schedule K-3 (Form 8865) 

does not contain a part equivalent to 

Schedule K-3 (Form 1065), Part VIII.

Capital Gains

Foreign source taxable income or 

(loss) before adjustments in all 

separate categories in the aggregate 

should include gain from the sale or 

exchange of capital assets only up to 

the amount of foreign source capital 

gain net income (which is the smaller 

of capital gain net income from 

sources outside the United States or 

capital gain net income). Therefore, if 

the corporation has capital gain net 

income from sources outside the 

United States in excess of the capital 

gain net income reported on its tax 

return, enter a pro rata portion of the 

net U.S. source capital loss as a 

negative number on Schedule A, 

column 13(j), for each separate 

category with capital gain net income 

from sources outside the United 

States. To figure the pro rata portion of 

the net U.S. source capital loss 

attributable to a separate category, 

multiply the net U.S. source capital 

loss by the amount of capital gain net 

income from sources outside the 

United States in the separate 

category divided by the aggregate 

amount of capital gain net income 

from sources outside the United 

States in all separate categories with 

capital gain net income from sources 

outside the United States.

See section 904(b)(2)(B) for 

special rules regarding adjustments to 

account for capital gain rate 

differentials (as defined in section 

904(b)(3)(D)) for any tax year. At the 

time these instructions went to print, 

there was no capital gain rate 

differential for corporations.

Credit Limitations

Taxes Eligible for a Credit

Domestic corporations. Generally, 

a domestic corporation may claim a 

foreign tax credit (subject to the 

limitation of section 904) for the 

following taxes.

• Income, war profits, and excess 

profits taxes paid or accrued during 

the tax year to any foreign country or 

U.S. territory.

• Taxes paid in lieu of income taxes 

as described in section 903.

• Taxes deemed paid under section 

960.

Income, war profits, and excess 

profits taxes and in lieu of taxes are 

collectively referred to as foreign 

income taxes. See Regulations 

sections 1.901-2(a) and (b) and 

1.903-1 for rules for determining 

whether a foreign tax qualifies as a 

foreign income tax.

Final foreign tax credit 

regulations issued on January 

4, 2022 (T.D. 9959, 87 FR 

374) revised the creditability 

requirements under Regulations 

sections 1.901-2 and 1.903-1, 

applicable for foreign taxes paid or 

accrued in taxable years beginning on 

or after December 28, 2021. A Notice 

was subsequently released on July 

21, 2023, providing taxpayers the 

option to apply modified rules in place 

of certain provisions of the new 

regulations. For more information, see 

Notice 2023-55, 2023-32 I.R.B. 427, 

available at IRS.gov/irb/ 

2023-32_IRB#NOT-2023–55.

CAUTION

!

Some foreign taxes that are 

otherwise eligible for the foreign tax 

credit must be reduced. These 

reductions are reported on 

Schedule G.

Note. A corporation may not claim a 

foreign tax credit for foreign income 

taxes paid to a foreign country that the 

corporation does not legally owe, 

including amounts eligible for refund 

by the foreign country. If the 

corporation does not exercise its 

available remedies to reduce the 

amount of foreign income tax to what 

it legally owes, a credit is not allowed 

for the excess amount.

Foreign corporations. Foreign 

corporations are allowed (under 

section 906) a foreign tax credit for 

foreign income taxes paid or accrued 

to any foreign country or U.S. territory 

for income effectively connected with 

the conduct of a trade or business 

within the United States. The credit is 

not applicable, however, if a foreign 

country or U.S. territory imposes the 

tax on income from U.S. sources 

solely because the foreign corporation 

was created or organized under the 

law of the foreign country or U.S. 

territory or is domiciled there for tax 

purposes.

The credit may not be taken 

against any tax imposed on income 

not effectively connected with a U.S. 

business.

In computing the foreign tax credit 

limitation, the foreign corporation's 

taxable income includes only the 

taxable income that is effectively 

connected with the conduct of a trade 

or business within the United States.

Credit or Deduction

A corporation may choose to take 

either a credit or a deduction for 

eligible foreign income taxes paid or 

accrued. The choice is made annually. 

Generally, if a corporation elects the 

benefits of the foreign tax credit for 

any tax year, no portion of the foreign 

income taxes paid or accrued in such 

year will be allowed as a deduction in 

that year or any subsequent tax year.

Exceptions. However, a corporation 

that elects the credit for foreign 

income taxes may be allowed a 

deduction for certain taxes for which a 

credit was not allowed. These include 

the following.

Instructions for Form 1118 (Rev. 12-2023) 5
• Taxes for which the credit was 

denied because of the boycott 

provisions of section 908.

• Certain taxes on the purchase or 

sale of oil or gas (section 901(f)).

• Certain taxes used to provide 

subsidies (section 901(i)).

• Taxes paid to certain foreign 

countries for which a credit was 

denied under section 901(j).

• Certain taxes paid on dividends if 

the minimum holding period is not met 

with respect to the underlying stock, 

or if the corporation is obligated to 

make related payments with respect 

to positions in similar or related 

property (section 901(k)).

• Certain taxes paid on gain and 

income other than dividends if the 

minimum holding period is not met 

with respect to the underlying 

property, or if the corporation is 

obligated to make related payments 

with respect to positions in similar or 

related property (see section 901(l)).

• In the case of a covered asset 

acquisition (as defined in section 

901(m)(2)), the disqualified portion of 

any tax determined with respect to the 

income or gain attributable to the 

relevant foreign assets (section 

901(m)). Note. This rule generally 

applies to covered asset acquisitions 

after December 31, 2010. See 

Regulations sections 1.901(m)-1 

through 1.901(m)-8 for additional 

information. Note that the rules 

contained in these regulations have 

later effective dates.

• Taxes paid by an accrual basis 

taxpayer that relate to a prior tax year 

in which the taxpayer elected to claim 

a deduction for foreign income taxes 

in that prior year. See Regulations 

section 1.901-1(c)(3).

No Credit or Deduction

No foreign tax credit (or deduction) is 

allowed for certain taxes including:

• Taxes on mineral income that were 

reduced under section 901(e).

• Certain taxes paid on distributions 

from corporations organized in a U.S. 

territory (section 901(g)).

• Taxes on combined foreign oil and 

gas income that were reduced under 

section 907(a).

• Taxes attributable to income 

excluded under section 814(a) 

(relating to contiguous country 

branches of domestic life insurance 

companies).

• Taxes paid or accrued to a foreign 

country or U.S. territory with respect to 

income excluded from gross income 

on Form 8873, Extraterritorial Income 

Exclusion. However, see section 

943(d) for an exception for certain 

withholding taxes.

• The applicable percentage of taxes 

paid or deemed paid with respect to 

an amount included in income under 

section 965 (section 965(g)).

• Taxes paid with respect to the 

amount treated as included under 

section 965(b).

Carryback and Carryforward of 

Excess Foreign Taxes

If the allowable foreign income taxes 

paid, accrued, or deemed paid in a 

tax year in a separate category 

exceed the foreign tax credit limitation 

for the tax year for that separate 

category, the excess is:

• First, carried back 1 year to offset 

taxes imposed in the same category, 

then

• Carried forward 10 years to offset 

taxes imposed in the same category.

The excess is applied first to the 

earliest of the years to which it may be 

carried, then to the next earliest year, 

etc. The corporation may not carry a 

credit to a tax year for which it claimed 

a deduction, rather than a credit, for 

foreign income taxes paid or accrued. 

Furthermore, the corporation must 

reduce the amount of any carryback 

or carryforward by the amount it would 

have used if it had chosen to claim a 

credit rather than a deduction in that 

tax year. These carryover provisions 

do not apply to foreign income taxes 

assigned to section 951A category 

income. See section 904(c) and 

Regulations section 1.904-2 for more 

details.

How to claim the excess credit. If 

the corporation is carrying back the 

excess credit to an earlier year, file an 

amended tax return with a revised 

Form 1118 and schedules (including a 

revised Schedule K (Form 1118)).

Special rules apply to:

• The carryback and carryforward of 

foreign income taxes paid or accrued 

on combined foreign oil and gas 

income or related taxes (see section 

907(f)).

• An excess foreign tax credit for 

which an excess limitation account 

exists under section 960(c)(2). See 

Regulations sections 1.960-4 through 

1.960-6.

• Carryback of foreign income taxes 

paid or accrued in post-2017 foreign 

corporate tax years and carryforward 

of foreign income taxes paid or 

accrued in pre-2018 foreign corporate 

tax years. See Regulations section 

1.904-2(j).

Treaty-Based Return 

Positions

Corporations that adopt a return 

position that any U.S. treaty overrides 

or modifies any provision of the 

Internal Revenue Code, and causes 

(or potentially causes) a reduction of 

any tax incurred at any time, must 

generally disclose this position. This 

includes when a corporation is relying 

on a U.S. treaty to claim a credit for a 

foreign tax. Complete Form 8833, 

Treaty-Based Return Position 

Disclosure Under Section 6114 or 

Section 7701(b), and attach it to Form 

1118. See section 6114 and 

Regulations section 301.6114-1 for 

details.

Failure to make such a report may 

result in a $10,000 penalty.

Proof of Credits

Form 1118 must be carefully filled in 

with all the information called for and 

with the calculations of credits 

indicated.

Important. Documentation (that is, 

receipts of payments or a foreign tax 

return for accrued taxes) is not 

required to be attached to Form 1118. 

However, proof must be presented 

upon request by the IRS to 

substantiate the credit. See 

Regulations section 1.905-2.

If the corporation claims a foreign 

tax credit for tax accrued but not paid, 

the IRS may require a bond to be 

furnished on Form 1117, Income Tax 

Surety Bond, before the credit is 

allowed. See Regulations section 

1.905-2(c).

Foreign Tax 

Redeterminations

The corporation's foreign tax credit 

and U.S. tax liability must generally be 

redetermined if:

• Accrued foreign income taxes when 

paid or later adjusted differ from the 

amounts claimed as credits (including 

corrections to accrued amounts to 

reflect final foreign tax liability and 

additional payments of tax that accrue 

6 Instructions for Form 1118 (Rev. 12-2023)
after the close of the taxable year to 

which the tax relates);

• Accrued foreign income taxes are 

not paid within 24 months after the 

close of the tax year to which they 

relate;

• Any foreign income tax paid is fully 

or partially refunded;

• A change in foreign tax liability that 

affects the amount of distributions or 

inclusions under sections 951, 951A, 

or 1293, or affects the application of 

the high-tax exception described in 

section 954(b)(4); or

• A change to claim a foreign tax 

credit for foreign income taxes that 

were previously deducted or a change 

to claim a deduction for foreign 

income taxes that were previously 

credited.

See Regulations section 1.905-3(a) 

and (b).

See Regulations section 1.905-3(b)

(1)(i) for a limited exception to a 

redetermination of a U.S. tax liability 

with respect to foreign income tax 

claimed as a credit under section 901 

(other than a tax deemed paid under 

section 960).

A redetermination of U.S. tax 

liability is also generally required to 

account for the effect of a 

redetermination of foreign income tax 

paid or accrued by a foreign 

corporation on the amount of foreign 

income taxes deemed paid under 

section 960. See Regulations section 

1.905-3(b)(2). For foreign tax 

redeterminations of a foreign 

corporation that relate to a taxable 

year of the foreign corporation 

beginning before January 1, 2018, 

see Regulations section 1.905-5.

Reporting Requirements

If, as a result of the foreign tax 

redetermination, the corporation’s 

U.S. tax liability for any taxable year is 

changed, the corporation must file an 

amended return to report the foreign 

tax redetermination and, if applicable, 

pay additional U.S. tax.

Increase in U.S. tax liability as a 

result of foreign tax redeterminations 

are excepted from the general statute 

of limitations against assessment and 

collection. See sections 6501(c)(5) 

and 905(c). If you have a foreign tax 

redetermination that results in an 

increase in your U.S. tax liability for 

any year, please note on page 2 of 

your Form 1120X: "This amended 

return and Form 1118 is for a change 

in Foreign Tax Credit that increases 

U.S. tax liability."

In addition, the amended return 

must have attached to it an amended 

Form 1118 and a statement that 

provides the following.

• The taxpayer's name, address, 

identifying number, the tax year or 

years of the taxpayer that are affected 

by the foreign tax redetermination, 

and, in the case of foreign income 

taxes deemed paid, the name and 

identifying number, if any, of the 

foreign corporation.

• The date or dates the foreign 

income taxes were accrued, if 

applicable.

• The date or dates the foreign 

income taxes were paid.

• The amount of foreign income taxes 

paid or accrued on each date (in 

foreign currency) and the exchange 

rate used to translate each such 

amount.

• Information sufficient to determine 

any change to the characterization of 

a distribution or the amount of any 

inclusion under section 951(a), 951A, 

1291, or 1293.

• An amended Form 5471 when 

applicable.

• Information sufficient to determine 

any interest due from or owing to the 

taxpayer, including the amount of any 

interest paid by the foreign 

government to the taxpayer, and the 

dates received.

Additional Information Required

If the redetermination was because of 

one of the following, the corporation 

must provide the additional 

information as indicated.

Refund of foreign income taxes 

paid. 

• The date of each such refund.

• The amount of such refund (in 

foreign currency).

• The exchange rate that was used to 

translate such amount when originally 

claimed as a credit.

• The spot rate (as defined in 

Regulations section 1.988-1(d)) for 

the date the refund was received (for 

purposes of computing foreign 

currency gain or loss under section 

988).

Accrued foreign income taxes that 

are not paid on or before the date 

that is 24 months after the close of 

the tax year to which such taxes 

relate. 

• The amount of such taxes in foreign 

currency.

• The exchange rate that was used to 

translate such amount when originally 

claimed as a credit or added to 

post-1986 foreign income taxes or 

PTEP group taxes (as defined in 

Regulations section 1.960-3(d)(1)).

Redetermination of U.S. tax liability 

results in an amount of additional 

tax due, and the carryback or carryover of an unused foreign income tax under section 904(c) only partially eliminates such 

amount. The information required in 

Regulations section 1.904-2(f).

Foreign tax redeterminations of 

foreign corporations that relate to 

tax years of the foreign corporation beginning before January 1, 

2018. Provide the additional 

information listed under both 

categories below, as applicable.

Post-1986 pools of earnings and 

taxes of foreign corporations. 

• The closing balances of the pools 

of post-1986 undistributed earnings 

and post-1986 foreign income taxes 

for each affected year before and after 

adjusting the pools to account for the 

foreign tax redetermination.

• The dates and amounts of any 

dividend distributions or other 

inclusions made out of post-1986 

undistributed earnings for the affected 

year or years.

Pre-1987 accumulated profits of 

foreign corporations. 

• The dates and amounts of any 

dividend distributions or other 

inclusions made out of E&P for the 

affected year or years.

• The rate of exchange on the date of 

any such distribution or inclusion.

• The amount of E&P from which 

such dividends were paid or 

inclusions were made for the affected 

year or years.

See Regulations sections 

1.986(a)-1 and 1.905-3 through 

1.905-5 for further information 

regarding redeterminations and the 

required notification.

For special rules relating to 

corporations under the jurisdiction of 

the Large Business and International 

Division, see Regulations section 

1.905-4(b)(4).

Instructions for Form 1118 (Rev. 12-2023) 7
Schedule L. In addition to filing an 

amended return with Form 1118 and 

attached statement for the tax year(s) 

of the taxpayer for which the U.S. tax 

liability is changed as a result of the 

foreign tax redetermination, the 

taxpayer must include with its 

current-year return a Schedule L 

summarizing the foreign tax 

redeterminations that occurred that 

year.

If a foreign tax redetermination 

does not change the amount of U.S. 

tax due for any taxable year, the 

taxpayer does not need to file an 

amended return and may instead 

notify the IRS of the redetermination 

by attaching a completed Schedule L 

to the original return for the taxpayer's 

taxable year in which the foreign tax 

redetermination occurs. See 

Instructions for Schedule L for 

additional information.

Election to account for foreign tax 

redeterminations with respect to 

pre-2018 taxable years in the foreign corporation’s last pooling 

year. An irrevocable election may be 

made by a foreign corporation’s 

controlling domestic shareholders to 

account for all foreign tax 

redeterminations that occur in taxable 

years ending on or after November 2, 

2020, with respect to pre-2018 

taxable years of foreign corporations 

as if they occurred in the foreign 

corporation’s last taxable year 

beginning before January 1, 2018 

(last pooling year). Such election is 

binding on all persons who are, or 

were in a prior year to which the 

election applies, U.S. shareholders of 

the foreign corporation with respect to 

which the election is made for all of its 

subsequent foreign tax 

redeterminations, as well as foreign 

tax redeterminations of other 

members of the same CFC group as 

the foreign corporation for which the 

election is made. The election is made 

by filing:

• The statement required under 

Regulations section 1.964-1(c)(3)(ii) 

with a timely filed original income tax 

return for the taxable year of each 

controlling domestic shareholder of 

the foreign corporation in which or 

with which the foreign corporation’s 

first redetermination year ends;

• Any notices required under 

Regulations section 1.964-1(c)(3)(iii);

• Amended returns as required under 

Regulations sections 1.905-4, 

1.905-5(e), 1.905-3T(d), and 

1.905-5T.

See Regulations section 1.905-5(e) 

for additional information.

Contested foreign income tax liability. In general, a taxpayer cannot 

claim a credit for a contested foreign 

income tax liability until the contest is 

resolved and the amount of the liability 

is finally determined.

Cash method taxpayers. Unless 

an election to claim a provisional 

credit for contested foreign income 

taxes (described below) is made, a 

taxpayer that claims the foreign tax 

credit on a cash basis cannot claim a 

credit for a contested foreign income 

tax liability (or portion thereof) that has 

been remitted to the foreign country 

until such time as the contest is 

resolved and the tax is considered 

paid for purposes of section 901. 

Once the contest is resolved and the 

foreign income tax liability is finally 

determined, the tax liability is treated 

as paid in the taxable year in which 

the foreign tax was remitted. See 

Regulations section 1.905-1(c)(2).

Accrual method taxpayers. 

Unless an election to claim a 

provisional credit for contested foreign 

income taxes is made, a taxpayer that 

claims the foreign tax credit on the 

accrual basis cannot claim a credit for 

a contested foreign income tax liability 

until such time as both the contest is 

resolved and the tax is considered 

paid, even if the contested liability (or 

portion thereof) has previously been 

remitted to the foreign country. Once 

the contest is resolved and the foreign 

income tax liability is finally 

determined and paid, the tax liability 

accrues, and is considered to accrue 

in the relation-back year for purposes 

of the foreign tax credit. See 

Regulations section 1.905-1(d)(3).

Election to claim a provisional 

credit for contested foreign 

income taxes

Cash method taxpayers. A taxpayer 

claiming foreign tax credits on the 

cash basis may elect to claim a 

foreign tax credit for a contested 

foreign income tax liability (or a 

portion thereof) in the year the 

contested amount (or a portion 

thereof) is remitted to the foreign 

country, notwithstanding that the 

liability is not finally determined and 

so is not considered an amount of tax 

paid.

This election is available only for 

contested foreign income taxes that 

are remitted in a taxable year in which 

the taxpayer has elected under 

section 901(a) to claim a credit, 

instead of a deduction under section 

164(a)(3), for foreign income taxes 

that are paid in such year.

To make the election, a taxpayer 

claiming credits on the cash basis 

must file a Form 1118 for the tax year 

in which the contested liability is 

remitted and a Form 7204, Consent 

To Extend the Time To Assess Tax 

Related to Contested Foreign Income 

Taxes-Provisional Foreign Tax Credit 

Agreement.

In addition, the taxpayer must, for 

each subsequent taxable year up to 

and including the taxable year in 

which the contest is resolved, file 

annually Schedule L (Form 1118), 

Foreign Tax Redeterminations. Any 

portion of a contested foreign income 

tax liability for which a provisional 

credit is claimed that is subsequently 

refunded by the foreign country 

results in a foreign tax redetermination 

under Regulations section 1.905-3(a).

Accrual method taxpayers. A 

taxpayer may elect to claim a foreign 

tax credit for a contested foreign 

income tax liability (or a portion 

thereof) in the relation-back year when 

the contested amount (or a portion 

thereof) is remitted to the foreign 

country, notwithstanding that the 

liability is not finally determined and 

so has not accrued.

This election is available only for 

contested foreign income taxes that 

relate to a taxable year in which the 

taxpayer has elected under section 

901(a) to claim a credit, instead of a 

deduction under section 164(a)(3), for 

foreign income taxes that accrued in 

such year.

A taxpayer claiming credits on the 

accrual basis must file an original or 

amended return for the taxable year to 

which the contested tax relates, 

together with a Form 1118, and a 

Form 7204.

In addition, the taxpayer must, for 

each subsequent taxable year up to 

and including the taxable year in 

which the contest is resolved, file 

8 Instructions for Form 1118 (Rev. 12-2023)
annually Schedule L (Form 1118). Any 

portion of a contested foreign income 

tax liability for which a provisional 

credit is claimed that is subsequently 

refunded by the foreign country 

results in a foreign tax redetermination 

under Regulations section 1.905-3(a).

Interest and Penalties

In most cases, interest is computed 

on the deficiency or overpayment that 

resulted from the foreign tax 

adjustment (sections 6601 and 6611 

and the related regulations). See 

Regulations section 1.905-4(e) for 

additional information.

If the corporation does not comply 

with the requirements discussed 

above within the time for filing 

specified, the penalty provisions of 

section 6689 (and the related 

regulations) will apply.

Specific Instructions

Report all amounts in U.S. dollars 

unless otherwise specified. If it is 

necessary to convert from a foreign 

currency, attach a statement 

explaining how the conversion rate 

was determined.

Lines a, b, and c at the top of 

page 1 of the form. The corporation 

must complete a separate Form 1118 

for each applicable category of 

income. See Categories of Income, 

earlier, for the code to enter on line a 

(at the top of page 1 of the form). Also 

see those instructions for the country 

code to enter on line b or line c, if 

applicable.

Schedule A

Report gross income from sources 

outside the United States for the 

applicable separate category in 

columns 3(a) through 11. Report the 

applicable deductions to this gross 

income in columns 13 and 14. Report 

any net operating loss carryover in 

column 15.

Column 1. Column 1 generally 

requests an employer identification 

number (EIN) or a reference ID 

number for related persons or their 

QBUs from or through which the 

corporation derived foreign source 

income and/or paid or accrued 

creditable foreign taxes.

However, enter in column 1 the 

"Unrelated" code in cases where the 

corporation derived foreign source 

income and/or paid or accrued 

creditable foreign taxes from or 

through unrelated persons or their 

QBUs. Also, column 1 can be left 

blank, but only if one of the following 

seven entries is made in column 2.

• 863(b)

• RIC

• NOL

• HTKO

• 951A

• G2B

• B2G

See the instructions for column 2, 

later, for more information regarding 

when the above entries can be made 

in column 2.

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the related person or their 

QBU does not have an EIN, the 

taxpayer must use a reference ID 

number that uniquely identifies such 

related person or QBU, using the rules 

set forth in Reference ID numbers, in 

the Requirements section, later.

Where gross income is derived 

from a related person (within the 

meaning of section 267(b) or 707(b)), 

enter the EIN or reference ID number 

of such related person. In the case of 

income derived from a QBU of the 

related person, enter the EIN or 

reference ID number of the QBU. 

Enter the EIN or reference ID number 

of related entities and their QBUs 

through which the corporation paid or 

accrued creditable foreign taxes, even 

if no income from these entities is 

reported on Schedule A. If gross 

income is received or derived from an 

entity other than a related person, an 

EIN or reference ID number is not 

required.

Example 1. Domestic Corporation 

earns sales income from sales to 

unrelated persons. Domestic 

Corporation leaves column 1 blank 

and enters the sales income in 

column 7.

Example 2. USC, a domestic 

corporation, takes into account its 

distributive share of partnership 

income with respect to USPS, a 

domestic partnership in which USC 

has a 60% interest. In column 1, USC 

enters the identifying number for 

USPS.

Reference ID numbers. A 

“reference ID number” is a number 

established by or on behalf of the 

domestic corporation filing Form 

1118. With respect to Schedule A, 

these numbers are used to uniquely 

identify the payor with respect to 

payments from related persons, in 

order to determine the proper source 

of such payment. With respect to 

Schedules C through E, these 

numbers are used to uniquely identify 

foreign corporations in order to keep 

track of those corporations from tax 

year to tax year. The reference ID 

number must meet the requirements 

set forth below.

Note. Because reference ID numbers 

are established by or on behalf of the 

U.S. corporation filing certain forms 

such as the Form 1118, there is no 

need to apply to the IRS to request a 

reference ID number or for permission 

to use these numbers.

Requirements. The reference ID 

number must be alphanumeric 

(defined below) and no special 

characters or spaces are permitted. 

The length of a given reference ID 

number is limited to 50 characters.

For these purposes, the term 

"alphanumeric" means the entry can 

be alphabetical, numeric, or any 

combination of the two.

The same reference ID number 

must be used consistently from tax 

year to tax year with respect to a given 

entity. If for any reason a reference ID 

number falls out of use (for example, 

the entity no longer exists due to 

disposition or liquidation), the 

reference ID number used for that 

entity cannot be used again for 

another entity for purposes of filing 

Form 1118.

There are some situations that 

require correlation of a new reference 

ID number with a previous reference 

ID number when assigning a new 

reference ID number to an entity. For 

example:

• In the case of a merger or 

acquisition, a Form 1118 filer must 

use a reference ID number which 

correlates the previous reference ID 

number with the new reference ID 

number assigned to the entity.

• In the case of an entity 

classification election that is made on 

behalf of a foreign corporation on 

Form 8832, Regulations section 

301.6109-1(b)(2)(v) requires the 

foreign corporation to have an EIN for 

Instructions for Form 1118 (Rev. 12-2023) 9
this election. For the first year that 

Form 1118 is filed after an entity 

classification election is made on 

behalf of the foreign corporation on 

Form 8832, both the new EIN and the 

old reference ID number must be 

entered in column 1, as explained in 

the next paragraph.

You must correlate the identifying 

numbers as follows: New EIN or 

reference ID number [space] Old 

reference ID number. If there is more 

than one old reference ID number, you 

must enter a space between each 

such number. As indicated above, the 

length of a given reference ID number 

is limited to 50 characters and each 

number must be alphanumeric and no 

special characters are permitted.

Note. This correlation requirement 

applies only to the first year the new 

reference ID number is used.

Branches. For each branch that is 

not a foreign branch, as defined under 

Regulations section 1.904-4(f)(3)(vii), 

use a single line to report such 

branch's gross income and 

deductions. In column 1, enter 

“Branch.” If there is more than one 

branch, enter the identifying number 

of the branch (as reported in Form 

8858) after the word “Branch” on each 

line. These amounts should be 

reported on a Form 1118 other than 

the Form 1118 for the foreign branch 

income category.

Example. USC, a domestic 

corporation, has a branch in Country 

X. The activities of the branch do not 

constitute a trade or business. In 

column 1, USC enters the word 

“Branch.” USC will report the income 

and expenses of the branch in the 

appropriate columns.

See below with respect to QBUs 

that are foreign branches as defined 

under Regulations section 1.904-4(f)

(3)(vii).

Column 2. Enter the two-letter codes 

(from the list at IRS.gov/

CountryCodes) of each foreign 

country and U.S. territory within which 

income is sourced and/or to which 

taxes were paid or accrued.

Note. Complete this column with 

respect to all income regardless of 

whether such income is from a related 

person.

Special Cases for Columns 1 

and 2

Except as otherwise instructed below, 

income of a U.S. shareholder with 

respect to the same related person 

but from multiple sources should be 

reported on a country-by-country 

basis.

Example. USC, a domestic 

corporation, has employees who 

perform services in Country X and 

Country Y for the same related 

person. The related person has a 

reference ID number of 1000016. 

USC earns gross income of $10 with 

respect to services performed for the 

related person in Country X and USC 

earns gross income of $15 with 

respect to services performed for the 

related person in Country Y. The 

two-letter country code for Country X 

is XX and the two-letter country code 

for Country Y is YY. On Schedule A, 

USC reports as follows.

USC makes the following entries on 

the first of two lines on Schedule A.

Column Entry

1 1000016

2 XX

8 10

USC makes the following entries on 

the second of two lines on 

Schedule A.

Column Entry

1 1000016

2 YY

8 15

Qualified business units (QBUs). 

For branches that are QBUs, use a 

separate line for each such branch to 

report each branch's gross income 

and deductions. Report these 

amounts on a per-country basis. In 

column 1, enter the EIN or reference 

ID number of the QBU. Enter the 

country code in column 2. These 

amounts should be reported on Form 

1118 for foreign branch category 

income or passive category income.

Section 863(b) gross income and 

deductions. Aggregate all section 

863(b) foreign source gross income 

and deductions and report the totals 

on a single line. It may be necessary 

to enter amounts in multiple columns 

on that single line, depending upon 

the nature of the section 863(b) gross 

income and deductions. For example, 

leave column 1 blank, enter “863(b)” 

in column 2, and enter (as a positive 

number) all section 863(b) gross 

income (in columns 3 through 12) and 

all section 863(b) deductions (in 

columns 13 through 16). Also enter 

the net amount in column 17. Note 

that the totals are being reported on a 

single line because it is not necessary 

to report section 863(b) gross income 

and deductions on a per-country 

basis.

Regulated investment company 

(RIC) pass-through amounts. 

Aggregate all income passed through 

from RICs and report the total on a 

single line. Leave column 1 blank, 

enter “RIC” in column 2, and report 

the total in column 17. Note that the 

totals are being reported on a single 

line because it is not necessary to 

report the RIC pass-through amounts 

on a per-country basis.

Net operating losses (NOLs). 

Report any NOL carryover on a single 

line. Leave column 1 blank, enter 

“NOL” in column 2, and report the total 

in column 15. Note that the totals are 

being reported on a single line 

because it is not necessary to report 

the NOL on a per-country basis.

Reclassifications of high-taxed income. Aggregate all reclassifications 

of high-taxed income and report the 

total on a single line. With respect to 

passive category income, for items of 

income that have been included on 

Schedule A and that must be 

reclassified under sections 904(d)(2)

(B)(iii)(II) and 904(d)(2)(F), leave 

column 1 blank and enter “HTKO” in 

column 2 and enter (as a negative 

number) in column 17 the net amount 

of income that is being reclassified 

from passive category income. With 

respect to the category of income to 

which such passive income is 

reclassified, leave column 1 blank, 

enter “HTKO” in column 2, and enter 

(as a positive number) in column 17 

the net amount of income that is being 

reclassified to such category of 

income. Note that the reclassifications 

are being reported on a single line 

because it is not necessary to report 

them on a per-country basis. Also 

note that tax reclassifications are 

10 Instructions for Form 1118 (Rev. 12-2023)
needed on Schedule B. See those 

instructions for more information.

Inclusions under section 951A. 

Because computations for inclusions 

under section 951A are reported on 

separate Form 8992, GILTI, report the 

inclusion under section 951A on a 

single line. Specifically, there is no 

need to report the identifying numbers 

and various countries associated with 

an inclusion under section 951A on 

Form 1118.

For inclusions under section 951A, 

enter “951A” in column 2 instead of a 

two-letter code. Leave column 1 

blank.

Reattribution of income by reason 

of disregarded payments between 

a foreign branch and its foreign 

branch owner. For reattribution of 

income from the general category to 

the foreign branch category, enter 

"G2B" in column 2 instead of a 

two-letter code. Leave column 1 

blank.

For reattribution of income from the 

foreign branch category to the general 

category, enter "B2G" in column 2 

instead of a two-letter code. Leave 

column 1 blank.

See Regulations section 1.904-4(f)

(2)(vi)(B) for more information 

regarding the rules pertaining to 

reattribution of income by reason of 

disregarded payments between a 

foreign branch and its foreign branch 

owner.

Column 3(a). Report all inclusions 

under sections 951(a)(1) (including 

amounts under section 951(a)(1)(B) 

and section 964(e)(4)) and 951A 

(before gross-up). See section 904(d)

(3) and Look-Through Rules, earlier, 

for more information with respect to 

the separate category of such 

inclusions. For each inclusion under 

section 951(a)(1) with respect to a 

CFC, make sure to enter the 

appropriate identifying number in 

column 1 and the country of residence 

of the CFC in column 2.

Note. Under the Act, inclusions under 

section 951(a)(1) now include hybrid 

dividends received by a CFC from 

another CFC of the same U.S. 

shareholder. See section 964(e)(4).

Do not report the inclusion under 

section 951A net of the deduction 

allowed under section 250. The 

deduction under section 250 is taken 

into account in Schedule A, column 

13(c).

If the corporation is a U.S. 

shareholder in a PFIC that is a 

qualified electing fund, report all 

income deemed received (before 

gross-up) under section 1293.

Column 3(b). In column 3(b), include 

taxes deemed paid by a domestic 

corporation with respect to inclusions 

under section 951(a)(1) and section 

951A as gross-ups. For inclusions 

under section 951(a)(1), the gross-up 

is the taxes deemed paid as reported 

in the total of Schedule C, column 7. 

The gross-up for inclusions under 

section 951A is the amount computed 

in Schedule D, Part II, column 3.

Column 4. Report dividends from 

sources outside the United States for 

the applicable separate category. This 

includes dividends eligible for the 

dividends received deduction under 

section 245A. Note that hybrid 

dividends are not eligible for the 

dividends received deduction.

Note. In general, dividends from a 

domestic corporation are U.S. source 

income, including dividends from a 

domestic corporation which has 80% 

or more of its gross income from 

sources outside the United States.

Column 5. Enter interest received 

from foreign sources. See section 

861(c) for the treatment of interest 

from a domestic corporation that 

meets the foreign business 

requirement.

Column 7. Include foreign source 

gross income from sales (net of 

returns and allowances and less costs 

of goods sold). Include the foreign 

source portion of section 863(b) sales 

in this column.

Note. Under section 863(b), income 

from the sale of inventory property is 

sourced to the place of production. 

Accordingly, do not include inventory 

produced in the United States and 

sold overseas in this column.

Column 8. Include gross income, 

including compensation, 

commissions, fees, etc., for technical, 

managerial, engineering, 

construction, scientific, or similar 

services outside the United States.

Columns 9 and 10. Include the 

following amounts in column 9. Use a 

separate line for each type of gain and 

enter the corresponding code in 

column 10.

• Foreign source exchange gain 

recognized under section 986(c) on a 

distribution of PTEP. Enter code 

“986c” in column 10.

• Foreign source exchange gain 

recognized under section 987(3) on a 

remittance from a QBU. Enter code 

“987” in column 10.

• Foreign source exchange gain 

recognized under section 988. Enter 

code “988” in column 10.

Note. Section 988 exchange gain or 

loss is sourced by reference to the 

residence of the taxpayer or the QBU 

of the taxpayer on whose books the 

nonfunctional currency asset or 

liability is properly reflected.

Column 11. Include other gross 

income from sources outside the 

United States for the applicable 

separate category. Attach a schedule 

identifying the gross income by type.

Column 13(a). Enter the dividends 

received deduction allowed on foreign 

source dividends under section 245A. 

This should be equal to the amount 

reported in Schedule A, column 4, if 

all such dividend income is eligible for 

the dividends received deduction.

Note. Certain hybrid dividends are 

not eligible for the dividends received 

deduction under section 245A. See 

section 245A(e)(1).

Note. An amount treated as a 

dividend under section 1291(d)(2)(B) 

(related to PFICs) is ineligible for the 

dividends received deduction. See 

section 245A(f).

Note. The foreign branch income and 

section 951A income categories do 

not include any dividend income 

eligible to be offset by the deduction 

under section 245A.

Column 13(b). Enter the deduction 

allowed under section 250(a)(1)(A) 

with respect to foreign derived 

intangible income, taking into account 

the other provisions of section 250, 

that is allocated and apportioned to 

foreign source income in the 

applicable separate category of 

income. See Regulations section 

1.861-8(e)(13).

Column 13(c). Enter the deduction 

allowed under section 250(a)(1)(B) 

with respect to GILTI (section 951A 

Instructions for Form 1118 (Rev. 12-2023) 11
inclusion), taking into account the 

other provisions of section 250, that is 

allocated and apportioned to foreign 

source income in the applicable 

separate category of income. See 

Regulations section 1.861-8(e)(14).

Column 13(d). Enter the 

depreciation, depletion, and 

amortization deductions related to 

rental, royalty, and licensing expenses 

that are allocated and apportioned to 

foreign source income in the 

applicable separate category of 

income.

Column 13(e). Enter the other 

allocable expenses related to rental, 

royalty, and licensing expenses that 

are allocated and apportioned to 

foreign source income in the 

applicable separate category of 

income.

Column 13(f). Enter expenses 

allocable to gross income from sales 

that are allocated and apportioned to 

foreign source income in the 

applicable separate category of 

income (the amount entered in 

column 7).

Column 13(g). Enter expenses 

allocable to gross income from 

performance of services that are 

allocated and apportioned to foreign 

source income in the applicable 

separate category of income (the 

amount entered in column 8).

Columns 13(h) and 13(i). Include 

any foreign source exchange loss 

recognized under section 986(c) on a 

distribution of PTEP, any foreign 

source exchange loss recognized 

under section 987(3) on a remittance 

from a QBU, and any foreign source 

exchange loss recognized under 

section 988. Use a separate line for 

each type of loss and enter the 

corresponding code in column 13(i). 

See the instructions for Schedule A, 

column 9, earlier, for the applicable 

codes.

Column 13(j). Include other 

deductions allocable to income from 

sources outside the United States 

(dividends, interest, etc.) for the 

applicable separate category that are 

not otherwise included in Schedule H.

Include any reduction of foreign 

source capital gain net income. If 

foreign source capital gain net income 

from all separate categories is more 

than the capital gain net income 

reported on the corporation's tax 

return, enter a pro rata portion of the 

excess as a negative number in each 

separate category. See Capital Gains, 

earlier.

In column 13(j), do not include 

other expenses directly allocable to 

dividends eligible for the dividends 

received deduction under section 

245A. Such directly allocable 

expenses may include wire transfer, 

currency exchange, and similar fees 

incurred in connection with the 

payment of dividends eligible for the 

dividends received deduction under 

section 245A. These expenses 

reduce taxable income, but are not 

taken into account in computing the 

foreign tax credit limitation. See 

section 904(b)(4).

Attach a schedule that lists all other 

deductions included in column 13(j). 

The schedule should include totals for 

each line in column 13(j) that has an 

entry.

Column 14. Enter only the 

apportioned share from the applicable 

line of Schedule H, Part I, column (b); 

Part II, column (f); and Part III, column 

(g) that relates to gross income 

reported in columns 3 through 11 of 

Schedule A. The applicable line of 

Schedule H, Part I, column (b) is the 

amount on line 6a(7), 6b(7), 6c(7), 

6d(7), or 6e(7) of column (b) that 

corresponds with the category of 

income for which the corporation is 

completing Form 1118. For example, if 

the code entered on Schedule H, Part 

I, line 6a is “PAS,” then enter the 

amount from line 6a(7), column (b) on 

the Form 1118 that the corporation is 

completing for the passive category of 

income (as indicated on line a at the 

top of page 1 of Form 1118). The 

applicable line of Schedule H, Part II, 

column (f) is the amount on line 3a(2), 

3b(2), 3c(2), 3d(2),or 3e(2), of column 

(f) that corresponds with the category 

of income for which the corporation is 

completing Form 1118. For example, if 

the code entered on Schedule H, Part 

II, line 3a is “PAS,” then enter the 

amount from line 3a(2), column (f) on 

the Form 1118 that the corporation is 

completing for the passive category of 

income (as indicated on line a at the 

top of page 1 of Form 1118). The 

applicable line of Schedule H, Part III, 

column (g) is the amount on 

line 2a(2), 2b(2), 2c(2), 2d(2), or 2e(2) 

of column (g) that corresponds with 

the category of income for which the 

corporation is completing Form 1118. 

For example, if the code entered on 

Schedule H, Part III, line 2a is “PAS,” 

then enter the amount from line 2a(2), 

column (g) on the Form 1118 that the 

corporation is completing for the 

passive category of income (as 

indicated on line a at the top of page 1 

of Form 1118).

It is not necessary to report the 

apportioned expenses on a 

related-person or per-country basis. 

Therefore, only enter an amount in the 

totals line of column 14.

Note. With respect to the 

apportionment of deductions reported 

on Schedule H, Part II, the reduction 

required by section 904(b)(4) in 

deductions relating to dividends 

eligible for the dividends received 

deduction under section 245A is taken 

into account (for purposes of 

determining foreign source income or 

loss in each separate category) by 

carrying to Schedule A, column 14, 

only the amounts on Schedule H, Part 

II, column (f), lines 3a(2), 3b(2), 3c(2), 

3d(2), and 3e(2). Likewise, with 

respect to the apportionment of 

deductions reported on Schedule H, 

Part III, the reduction required by 

section 904(b)(4) in deductions 

relating to dividends eligible for the 

dividends received deduction under 

section 245A is taken into account (for 

purposes of determining foreign 

source income or loss in each 

separate category) by carrying to 

Schedule A, column 14, only the 

amounts on Schedule H, Part III, 

column (g), lines 2a(2), 2b(2), 2c(2), 

2d(2), or 2e(2).

Column 15. Enter the corporation's 

NOL deduction allowed under section 

172 that is attributable to foreign 

source income in the applicable 

separate category. If the NOL is part 

of an overall foreign loss, see 

Regulations section 1.904(g)-3 for 

allocation rules that apply in 

determining the amount to enter in 

column 15.

It is not necessary to report the 

NOL deduction on a related-person or 

per-country basis. Therefore, only 

enter an amount on the totals line of 

column 15. See Net operating losses, 

earlier.

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

Part I—Foreign Taxes Paid, 

Accrued, and Deemed Paid

Report only foreign income taxes 

paid, accrued, or deemed paid for the 

separate category for which this Form 

1118 is being completed. Report all 

amounts in U.S. dollars. If the 

corporation must convert from foreign 

currency, attach a schedule showing 

the amounts in foreign currency and 

the exchange rate used.

For corporations claiming the credit 

on the accrual basis, the exchange 

rate for translating foreign income 

taxes into U.S. dollars will generally be 

an average exchange rate for the tax 

year to which the taxes relate. 

However, the exchange rate on the 

date of payment must be used if the 

foreign income taxes (a) are paid 

more than 24 months after the close 

of the tax year to which they relate, or 

(b) are paid in a tax year prior to the 

tax year to which they relate. In 

addition, corporations may elect to 

use the exchange rate on the date of 

payment. Corporations may elect to 

use the payment date exchange rates 

for all creditable foreign income taxes 

or only those taxes that are 

attributable to QBUs with U.S. dollar 

functional currencies. The election is 

made by attaching a statement to a 

timely filed (including extensions) 

Form 1118 that indicates the 

corporation is making the election 

under section 986(a)(1)(D). Once 

made, the election applies for all 

subsequent tax years and is revocable 

only with the consent of the IRS. See 

section 986(a)(1)(D).

The information entered on 

each line of Schedule B, Part 

I, must pertain to an 

identifying number and/or country 

code specified on the corresponding 

line of Schedule A, column 1 and/or 

column 2. If foreign tax was paid to 

more than one country on the same 

income, enter the letter corresponding 

to that income on multiple lines. For 

example, if the taxpayer entered on 

Schedule A, line A, foreign source 

sales income and paid tax to both 

Country A and Country B on such 

income, the filer would complete two 

lines A on Schedule B with the tax 

paid to Country A on one line and the 

tax paid to Country B on the other line.

CAUTION

!

Column 1. Claim the foreign tax 

credit for the tax year in which the 

taxes were paid or accrued, 

depending on the method of 

accounting used.

Note. For any given tax year, the 

corporation can use the cash method 

or the accrual method, but not both. If 

a credit for taxes accrued is claimed, 

show both the date accrued and the 

date paid.

If the cash method of accounting is 

used, an election under section 

905(a) may be made to claim the 

credit based on accrued taxes.

To make this election, check the 

accrual box in column 1. Once made, 

the election is binding on all 

subsequent tax years in which a 

foreign tax credit is claimed. Also, the 

credits for foreign taxes, regardless of 

whether they are claimed on the 

accrual or cash basis, are subject to 

the redetermination provisions of 

section 905(c). See Foreign Tax 

Credit Redeterminations, earlier, for 

details.

Column 2(a). Include foreign income 

taxes withheld at source on dividends 

from a first-tier foreign corporation. 

After December 31, 2017, such taxes 

are not creditable to the extent the 

distribution is a dividend eligible for a 

dividends received deduction under 

section 245A. However, continue to 

report the taxes in this column 2(a) 

and reverse the taxes on Schedule G.

Column 2(b). Include foreign income 

taxes withheld at source on PTEP 

distributions from a first-tier foreign 

corporation. See sections 901 and 

903. Do not include foreign income 

taxes withheld at source on PTEP 

distributions from a lower-tier foreign 

corporation to an upper-tier foreign 

corporation and then deemed paid by 

the domestic corporation under 

section 960(b) on a distribution from 

the upper-tier foreign corporation to 

the domestic corporation. These 

amounts are reported on Schedule E.

Note. With respect to taxes 

attributable to section 965(a) PTEP or 

section 965(b) PTEP, do not reduce 

the taxes by the applicable 

percentage. The applicable 

percentage reduction is taken into 

account on Schedule G.

Column 2(c). Include foreign income 

taxes withheld on branch distributions 

or transfers as determined under 

section 987. See sections 901 and 

903.

Column 2(f). Include foreign income 

taxes withheld at source on income 

not specifically reportable in columns 

2(a) through 2(e). For example, some 

countries withhold at source on sales 

of stock of their resident companies 

and such foreign income tax paid or 

accrued by the domestic corporate 

seller would be reported in column 

2(f).

Column 2(g). Include foreign income 

taxes paid or accrued on the portion 

of sales income sourced to a foreign 

country. This does not include taxes 

withheld at source reported in column 

(f).

Column 3. Enter in column 3 the total 

of the taxes deemed paid that 

corresponds with the identifying 

number specified on the 

corresponding line of Schedule A, 

column 1, with respect to the following 

amounts.

• The taxes deemed paid under 

section 960(a) as reported in 

Schedule C, column 10.

• The taxes deemed paid under 

section 960(b) as reported in 

Schedule E, Part I, column 11.

Enter on the Schedule B, Part I line 

that corresponds with the Schedule A 

line with “951A” in column 2 the tax 

deemed paid under section 960(d) 

equal to the total amount reported in 

Schedule D, Part II, column 4.

Part II—Separate

Foreign Tax Credit

Line 1b. If the corporation had a 

foreign tax credit splitting event in a 

prior tax year that resulted in a 

suspension of foreign taxes under 

section 909, enter the amount of 

those taxes attributable to related 

income taken into account in the 

current tax year. The amount of taxes 

suspended in a prior tax year should 

have appeared on Schedule G, line E, 

on your Form 1118 for that prior tax 

year. See the regulations under 

section 909 for rules for determining 

when related income is taken into 

account and the amount of previously 

suspended taxes that are attributable 

to that related income.

Line 4. If the corporation is 

reclassifying high-taxed income from 

passive category income, enter the 

Instructions for Form 1118 (Rev. 12-2023) 13
related tax adjustment on line 4. 

Indicate whether the adjustment is 

positive or (negative).

Line 5. Enter the total amount of 

foreign income taxes carried forward 

or back to the current year. The 

amount of foreign income taxes 

carried forward to the current tax year 

is the amount from Schedule K (Form 

1118), line 3, column (xiv), plus the 

amount from Schedule I (Form 1118), 

Part III, line 3. Attach Schedule I (Form 

1118) and Schedule K (Form 1118) to 

Form 1118.

Line 7. If the corporation has a 

current-year overall domestic loss or 

recapture of an overall domestic loss 

account, or, in any of its separate 

categories, a current-year separate 

limitation loss, an overall foreign loss, 

recapture of an overall foreign loss, or 

current-year separate limitation 

income in a category in which it has a 

beginning balance of income that 

must be recharacterized, adjustments 

must be made. See the separate 

Instructions for Schedule J to 

determine if that schedule must be 

filed.

Line 8b. Enter as a positive amount 

taxable income that should not be 

taken into account in computing the 

foreign tax credit limitation. These 

adjustments will decrease the net 

worldwide taxable income reported on 

line 8c (see the line 8c instructions, 

later).

Enter as a negative amount 

adjustments that increase the net 

worldwide taxable income reported on 

line 8c (see the line 8c instructions, 

later). For example, the net worldwide 

taxable income you report on line 8c 

should not include expenses allocated 

and apportioned to dividends for 

which a dividends received deduction 

is allowed under section 245A (see 

section 904(b)(4)). Because the 

line 8a amount (taxable income from 

your tax return) includes these 

expenses, a positive adjustment is 

needed to back out these expenses 

(thus increasing the net worldwide 

taxable income reported on line 8c). 

As such, include as a negative 

adjustment on line 8b these expense 

amounts from Schedule H, Part II, 

lines 5 and 6.

Line 8c. If the negative adjustments 

included on line 8b (such as those 

amounts coming in from Schedule H, 

Part II, lines 5 and 6) exceed any 

positive adjustments that are also 

included on line 8b, the net line 8b 

adjustment will be negative. When this 

net negative amount on line 8b is 

subtracted from a positive taxable 

income amount on line 8a, the result 

will be a positive line 8c amount that is 

larger than the positive amount on 

line 8a.

Line 9. Divide line 7 by line 8c to 

determine the limitation fraction. Enter 

the fraction on line 9 as a decimal with 

the same number of places as the 

number of digits to the left of the 

decimal in adjusted taxable income on 

line 8c. For example, if adjusted 

taxable income on line 8c is $100,000, 

compute the limitation fraction to 6 

decimal places.

Line 12. The limitation may be 

increased under section 960(c) for 

any tax year that the domestic 

corporation receives a PTEP 

distribution. Enter on line 12 the 

increase described in section 960(c)

(1).

If the line 12 amount exceeds the 

domestic corporation's U.S. income 

tax liability, the excess is deemed an 

overpayment and can be claimed on 

the domestic corporation's income tax 

return as a refundable credit (Form 

1120, Schedule J, Part III, line 20d, or 

the corresponding line of other 

corporate income tax returns). See 

section 960(c)(5).

Part III—Summary of

Separate Credits

Complete Part III only once. Enter on 

lines 1 through 6 the separate foreign 

tax credits from Part II, line 14, for 

each applicable separate category.

Note. Complete Part III only on the 

Form 1118 with the largest amount 

entered on Part II, line 14.

Line 8. If the corporation participates 

in or cooperates with an international 

boycott, the foreign tax credit may be 

reduced. Complete Form 5713, 

International Boycott Report. If the 

corporation chooses to apply the 

international boycott factor to 

calculate the reduction in the credit, 

enter the amount from line 2a(3) of 

Schedule C (Form 5713) on line 8.

Schedule C

Report taxes deemed paid by the 

domestic corporation under section 

960(a) with respect to inclusions 

under section 951(a)(1). This 

schedule should be completed by 

separate category of income and 

subpart F income group. If there is a 

subpart F inclusion related to more 

than one subpart F income group, 

complete a separate line for each 

subpart F income group.

An individual (or an estate or trust) 

that has made an election under 

section 962 ("section 962 elector") 

should also complete Schedule C and 

report taxes deemed paid.

Column 1a. Enter the name of the 

foreign corporation whose earnings 

were included in income by the 

domestic corporation filing the return.

Column 1b. Enter the foreign 

corporation's EIN or reference ID 

number. See Reference ID numbers, 

earlier.

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the foreign corporation 

does not have an EIN, the taxpayer 

must use a reference ID number that 

uniquely identifies such foreign 

corporation, using the rules set forth in 

Reference ID numbers, in the 

Requirements section, earlier.

Column 1c. Enter the tested unit’s 

reference ID number (if applicable). 

See Reference ID numbers, earlier. 

Complete column 1c only if a CFC has 

one or more tested units with passive 

category income. See Regulations 

section 1.904-4(c)(4).

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the tested unit (or the CFC, 

if applicable) does not have an EIN, 

the taxpayer must use a reference ID 

number that uniquely identifies such 

tested unit (or the CFC, if applicable), 

using the rules set forth in Reference 

ID numbers, in the Requirements 

section, earlier.

Column 2. Enter the year and month 

in which the foreign corporation's U.S. 

tax year ended using format 

YYYYMM.

14 Instructions for Form 1118 (Rev. 12-2023)
Example. When figuring foreign 

taxes deemed paid in 2023 by a 

calendar year domestic corporation 

with respect to inclusions out of E&P 

not previously taxed for the foreign 

corporation's tax year that ended 

November 30, 2023, enter “202311.”

Column 3. Enter the applicable 

two-letter codes from the list at 

IRS.gov/CountryCodes.

Column 4. Enter the applicable 

three-character alphabet code for the 

foreign corporation's functional 

currency using the ISO 4217 

standard.

Column 5(a). Enter the code which 

describes the subpart F income group 

classification (as set forth in 

Regulations section 1.960-1(d)(2)(ii)

(B)(2)). Please enter the applicable 

code from the following list.

Code Subpart F Income Group (Reg. 

sec. 1.960-1(d)(2)(ii)(B)(2))

DIRRA Dividends, interest, rents, royalties, 

and annuities

NGCPT Net gain from certain property 

transactions

NGCT Net gain from commodities 

transactions

NFCG Net foreign currency gain

IEQI Income equivalent to interest

NPC Income from notional principal 

contracts

PILOD Payments in lieu of dividends

PSC Personal service contracts

FBCSA Foreign base company sales 

income

FBCSE Foreign base company services 

income

FIFBC Full inclusion foreign base 

company income

INSUR Insurance income described in 

section 952(a)(1)

BOYC Boycott income

BKOP Bribes, kickbacks, and other 

payments described in section 

952(a)(4)

901J Income subject to section 901(j) 

described in section 952(a)(5)

Column 5(b). Enter the code which 

describes the subpart F income group 

classification (as set forth in 

Regulations section 1.904-4(c)(3)(i) 

through (iv)). Please enter the 

applicable code from the following list.

Code Subpart F Income Group 

(Reg. sec. 1.904-4(c)(3)(i) 

through (iv))

i

All passive income received 

during the tax year that is 

subject to a withholding tax of 

15% or greater.

ii

All passive income received 

during the tax year that is 

subject to a withholding tax of 

less than 15% (but greater than 

zero).

iii

All passive income received 

during the tax year that is 

subject to no withholding tax or 

other foreign tax.

iv

All passive income received 

during the tax year that is 

subject to no withholding tax but 

is subject to a foreign tax other 

than a withholding tax.

Column 5(c). Enter the name of the 

tested unit. Complete column 5(c) 

only if a CFC has one or more tested 

units with passive category income. 

See Regulations section 1.904-4(c)

(4).

Column 6. Enter the total net income 

in the subpart F income group 

(identified in column 5(a) and 5(b)) in 

the functional currency of the foreign 

corporation. If there is net income 

related to more than one subpart F 

income group, use a separate line for 

each subpart F income group. In 

general, the amount entered on a 

given line will be equal to the total of 

all amounts in column (xvi) of 

Schedule Q (Form 5471) for the 

subpart F income group identified in 

Schedule C, column 5 for the foreign 

corporation identified in column 1 and 

for the category of income with 

respect to which a Form 1118 and the 

corresponding Schedule Q (Form 

5471) is being completed.

Column 7. Enter the total eligible 

current-year taxes in the subpart F 

income group (identified in column 

5(a) and 5(b)) in U.S. dollars.

Note. See the instructions for 

Schedule G, later, for information on 

reduction of foreign taxes for failure to 

furnish information required under 

section 6038.

Column 8(a). Enter the section 

951(a)(1) inclusion attributable to the 

subpart F income group (identified in 

column 5(a) and 5(b)) in the functional 

currency of the foreign corporation.

Column 8(b). Enter the amount from 

column 8(a) translated into U.S. 

dollars at the appropriate exchange 

rate specified in section 989(b).

Column 10. For each line, multiply 

the amount in column 7 by the amount 

in column 9 and enter the result in 

column 10. This is the tax deemed 

paid computed under section 960(a).

Example 1. USC is a domestic 

corporation. CFC is a controlled 

foreign corporation incorporated in 

Country X. CFC has two tested units, 

each of which is a qualified business 

unit (QBU): QBU1 and QBU2. QBU1 

and QBU2 are organized in Country 

X. The U.S. tax year for USC, CFC, 

QBU1, and QBU2 ends on December 

31. The functional currency of CFC, 

QBU1, and QBU2 is the “u.” At all 

relevant times, 1u = $1. For its U.S. tax 

year ending December 31, 2023, after 

foreign taxes, QBU1 has 1,000,000u 

passive category dividend income 

subject to a less than 15% withholding 

tax (“QBU1 income group 1”). QBU1 

has 1,000,000u passive category 

dividend income subject to a greater 

than 15% withholding tax (“QBU1 

income group 2”). QBU2 has 

2,400,000u passive category dividend 

income subject to a less than 15% 

withholding tax (“QBU2 income 

group”). QBU1 has eligible 

current-year taxes of $50,000 and 

$200,000 in QBU1 income group 1 

and QBU1 income group 2, 

respectively. QBU2 has eligible 

current-year taxes of $240,000 in 

QBU2 income group. USC has a 

subpart F inclusion with respect to 

CFC of which an amount of 800,000u 

is attributable to each of QBU1 

income group 1 and QBU1 income 

group 2 and 1,920,000u is attributable 

to QBU2 income group. The country 

code for Country X is “OC.” CFC, 

QBU1, and QBU2 have reference ID 

numbers of 100000, 100011, and 

100012, respectively. The applicable 

three-character alphabet code for the 

“u” using the ISO 4217 standard is 

“UUU.” USC completes Schedule C of 

its Form 1118 with respect to the 

passive category as follows.

USC makes the following entries on 

the first of three lines on Schedule C.

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

1a CFC

1b 100000

1c 100011

2 202312

3 OC

4 UUU

5(a) DIRRA

5(b) ii

5(c) QBU1

6 1,000,000u

7 50,000

8(a) 800,000u

8(b) 800,000

9 0.800

10 40,000

USC makes the following entries on 

the second of three lines on 

Schedule C.

Column Entry

1a CFC

1b 100000

1c 100011

2 202312

3 OC

4 UUU

5(a) DIRRA

5(b) i

5(c) QBU1

6 1,000,000u

7 200,000

8(a) 800,000u

8(b) 800,000

9 0.800

10 160,000

USC makes the following entries on 

the third of three lines on Schedule C.

Column Entry

1a CFC

1b 100000

1c 100012

2 202312

3 OC

4 UUU

5(a) DIRRA

5(b) ii

5(c) QBU2

6 2,400,000u

7 240,000

8(a) 1,920,000u

8(b) 1,920,000

9 0.800

10 192,000

Example 2. USC is a domestic 

corporation. CFC1 and CFC2 are 

controlled foreign corporations 

incorporated in Country X. The U.S. 

tax year for USC, CFC1, and CFC2 

ends on December 31. At all relevant 

times, 1u = $1. For its U.S. tax year 

ending December 31, 2023, after 

foreign taxes, CFC1 has 1,000,000u 

passive category dividend income 

subject to a withholding tax of less 

than 15% (“CFC1 income group 1”) 

and 2,400,000u passive category 

interest income subject to foreign tax 

other than withholding tax (“CFC1 

income group 2”). CFC1 has eligible 

current-year taxes (including the 

withholding tax) of $50,000 in CFC1 

income group 1 and $240,000 in 

CFC1 income group 2. USC has a 

subpart F inclusion with respect to 

CFC1 of which 800,000u is 

attributable to CFC1 income group 1 

and 1,920,000u is attributable to 

CFC1 income group 2. For its U.S. tax 

year ending December 31, 2023, after 

foreign taxes, CFC2 has 1,800,000u 

of passive category gain from 

commodities transactions subject to 

foreign tax other than withholding tax 

(“CFC2 income group”). CFC2 has 

eligible current-year taxes of $450,000 

in the CFC2 income group. USC has a 

subpart F inclusion of 1,440,000u 

attributable to the CFC2 income 

group. The country code for Country X 

is “OC.” CFC1 and CFC2 have 

reference ID numbers of 100011 and 

100012, respectively. The functional 

currency of both CFC1 and CFC2 is 

the “u.” The applicable three-character 

alphabet code for the “u” using the 

ISO 4217 standard is “UUU.” USC 

completes Schedule C of its Form 

1118 with respect to the passive 

category as follows.

USC makes the following entries on 

the first of three lines on Schedule C.

Column Entry

1a CFC1

1b 100011

1c 

2 202312

3 OC

4 UUU

5(a) DIRRA

5(b) ii

5(c)

6 1,000,000u

7 50,000

8(a) 800,000u

8(b) 800,000

9 0.800

10 40,000

USC makes the following entries on 

the second of three lines on 

Schedule C.

Column Entry

1a CFC1

1b 100011

1c 

2 202312

3 OC

4 UUU

5(a) DIRRA

5(b) iv

5(c)

6 2,400,000u

7 240,000

8(a) 1,920,000u

8(b) 1,920,000

9 0.800

10 192,000

USC makes the following entries on 

the third of three lines on Schedule C.

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

1a CFC2

1b 100012

1c 

2 202312

3 OC

4 UUU

5(a) NGCT

5(b) iv

5(c)

6 1,800,000u

7 450,000

8(a) 1,440,000u

8(b) 1,440,000

9 0.800

10 360,000

Schedule D

Report taxes deemed paid under 

section 960(d) with respect to 

inclusions under section 951A. This 

schedule should only be completed 

with respect to the Form 1118 filed for 

the section 951A category, and, in 

rare cases, the passive category.

Schedule D is generally completed 

by a domestic corporation that owns, 

within the meaning of section 958(a), 

stock in one or more CFCs that claims 

taxes deemed paid with respect to 

inclusions under section 951A.

Schedule D is also generally 

completed by an individual (or an 

estate or trust) that has made an 

election under section 962 ("section 

962 elector").

If more than one line is needed in 

Part II:

• In Part II, column 2, the same 

denominator will be used (the Part I, 

column 5 total) in the inclusion 

percentage calculation for each line; 

and

• In Part II, column 3, the same 

multiplication factor will be used (the 

Part I, column 9 total) for each line.

If more than one line is completed 

in Part II, the column 4 amounts 

should be summed and included on a 

single line on Form 1118, Schedule B, 

Part I, column 3 (that is, the line on 

Schedule B, Part I, column 3, that 

corresponds with the line in 

Schedule A with “951A” in column 2 of 

Schedule A).

Part I—Foreign Corporation's 

Tested Income and Foreign 

Taxes

Column 1a. Enter the name of each 

CFC that has tested income, as 

defined in section 951A(c)(2)(A). Do 

not report information of CFCs with 

tested losses, as defined in section 

951A(c)(2)(B).

Column 1b. Enter the EIN or 

reference ID number of the foreign 

corporation. See Reference ID 

numbers, earlier.

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the foreign corporation 

does not have an EIN, the taxpayer 

must use a reference ID number that 

uniquely identifies such foreign 

corporation, using the rules set forth in 

Reference ID numbers, in the 

Requirements section, earlier.

Column 2. Enter the year and month 

in which the CFC's U.S. tax year 

ended using the format YYYYMM.

Column 3. Enter the applicable 

two-letter codes from the list at 

IRS.gov/CountryCodes.

Column 4. Enter the applicable 

three-character alphabet code for the 

foreign corporation's functional 

currency using the ISO 4217 

standard.

Column 5. Enter the U.S. 

shareholder's pro rata share of the 

CFC's tested income from the 

applicable Form 8992 schedule. If the 

U.S. shareholder is not a member of a 

U.S. consolidated group, enter the 

amount reported on Form 8992, 

Schedule A, column (e), for the CFC. 

If the U.S. shareholder is a member of 

a U.S. consolidated group, enter the 

amount reported with respect to that 

U.S. shareholder on Schedule B 

(Form 8992), Part I, column (g), for the 

CFC.

If the domestic corporation is a 

partner in a partnership, enter the 

domestic corporate partner's pro rata 

share of CFC tested income from 

Schedule K-3, Part VIII, line 3.

Column 6. Enter the CFC's tested 

income from the applicable Form 

8992 schedule. If the U.S. shareholder 

is not a member of a U.S. 

consolidated group, enter the amount 

reported on Form 8992, Schedule A, 

column (c), for the CFC. If the U.S. 

shareholder is a member of a U.S. 

consolidated group, enter the amount 

reported with respect to that U.S. 

shareholder on Schedule B (Form 

8992), Part I, column (e), for the CFC.

Column 8. Enter the CFC's tested 

foreign income taxes from Schedule Q 

(Form 5471), line 3, column (xii).

Column 9. Enter the pro rata share of 

tested foreign income taxes paid or 

accrued by the CFC. To determine this 

amount, multiply the amount in 

column 7 by the amount in column 8.

Note. See the instructions for 

Schedule G, later, for information on 

reduction of foreign taxes for failure to 

furnish information required under 

section 6038.

Part II—Foreign Income Tax 

Deemed Paid

Note. While multiple line entries may 

be necessary for Schedule D, Part I, 

because such lines are completed for 

each CFC, in general, only one line 

will be completed in Schedule D, Part 

II, because the domestic corporation 

filing Form 1118 only has one section 

951A inclusion. However, there is an 

exception if Form 1118 is completed 

by an individual (or by an estate or 

trust) that has made an election under 

section 962 ("section 962 elector") 

and the section 962 elector is a 

shareholder of an S corporation that 

has made an election to treat the S 

corporation as an entity (rather than 

as an aggregate of its owners), as 

provided in Notice 2020-69, 2020-39 

I.R.B. 604, on a timely (including 

extensions) filed original Form 1120-S 

with respect to the first tax year 

ending on or after September 1, 2020. 

In this case, the section 962 elector 

may have more than one section 951A 

inclusion that will be reported on 

separate lines on Schedule D, Part II. 

There might be multiple lines as a 

result of (1) the section 962 elector's 

section 951A inclusion, and (2) the 

section 962 elector's share of the 

section 951A inclusion of the S 

corporation. There could also be 

multiple lines if the section 962 elector 

has an interest in more than one S 

corporation.

Instructions for Form 1118 (Rev. 12-2023) 17
Column 1. Enter the GILTI (that is, 

the section 951A inclusion) from Form 

8992, Part II, line 5.

Column 3. This amount as 

determined on this line is the section 

78 gross-up with respect to an 

inclusion under section 951A which is 

reported on Form 1118, Schedule A, 

column 3(b).

Schedule E

Report taxes deemed paid by the 

domestic corporation under section 

960(b) with respect to PTEP 

distributions. Taxes reported on this 

schedule are with respect to foreign 

income taxes levied on distributions of 

PTEP from a lower-tier foreign 

corporation to an upper-tier foreign 

corporation when those taxes are 

subsequently deemed paid by the 

domestic corporation upon 

distribution of such PTEP by the 

upper-tier foreign corporation to the 

domestic corporation.

Note. Foreign withholding taxes 

levied on a domestic corporation as a 

result of distributions of PTEP from a 

first-tier foreign corporation to such 

domestic corporation are not reported 

on Schedule E. Such taxes are 

reported on Schedule B, Part I, 

column 2(b), as tax withheld on 

distributions of PTEP.

Part I—Tax Deemed Paid by 

Domestic Corporation

Column 1a. Enter the name of each 

first-tier foreign corporation that had 

foreign income taxes properly 

attributable to PTEP distributions to a 

domestic corporation that were not 

previously deemed paid by a 

domestic corporation. For 

distributions of PTEP that originated in 

lower-tier foreign corporations, enter a 

unique alphabetic character before 

the name of the distributing foreign 

corporation to identify the source of 

the PTEP distribution. See the 

instructions for Part II, Column 1a. for 

more information, including an 

example.

Column 1b. Enter the EIN or 

reference ID number of the foreign 

corporation. See Reference ID 

numbers, earlier.

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the foreign corporation 

does not have an EIN, the taxpayer 

must use a reference ID number that 

uniquely identifies such foreign 

corporation, using the rules set forth in 

Reference ID numbers, in the 

Requirements section, earlier.

Column 2. Enter the year and month 

for the U.S. tax year of the first-tier 

foreign corporation in which the 

first-tier foreign corporation made the 

PTEP distribution to the domestic 

corporation. Use the format YYYYMM. 

If there is a PTEP distribution related 

to more than one PTEP group within 

an annual PTEP account, complete a 

separate line for each PTEP group 

within an annual PTEP account. See 

Regulations section 1.960-3(c)(2).

Column 3. Enter the applicable 

two-letter codes from the list at 

IRS.gov/CountryCodes.

Column 4. Enter the applicable 

three-character alphabet code for the 

distributing foreign corporation's 

functional currency using the ISO 

4217 standard.

Column 5. Enter the code which 

describes the PTEP group 

classification (as set forth in 

Regulations section 1.960-3(c)(2)). 

Please enter the applicable PTEP 

group code from the following list.

Taxes related to previously 

taxed E&P 

PTEP 

Group 

Code

Reclassified section 965(a) PTEP R965a

Reclassified section 965(b) PTEP R965b

General section 959(c)(1) PTEP 959c1

Reclassified section 951A PTEP R951A

Reclassified section 245A(d) 

PTEP

R245Ad

Section 965(a) PTEP 965a

Section 965(b) PTEP 965b

Section 951A PTEP 951A

Section 245A(d) PTEP 245Ad

Section 951(a)(1)(A) PTEP 951a1A

Column 6. Enter the inclusion year 

for the PTEP of the foreign corporation 

to which inclusion under section 

951(a) and GILTI inclusion amounts of 

U.S. shareholders are attributable. 

This is the annual PTEP account. See 

Regulations section 1.960-3(c)(1).

Column 7. Enter the total amount of 

the foreign corporation’s PTEP in the 

PTEP group within an annual PTEP 

account identified in columns 5 and 6. 

Enter the amount in the functional 

currency of the first-tier foreign 

corporation.

Column 8. Enter the total amount of 

the foreign corporations’ PTEP group 

taxes with respect to the PTEP group 

within the annual PTEP account 

identified in columns 5 and 6. Enter 

the amount in U.S. dollars.

Column 9. Enter the PTEP 

distribution from the PTEP group 

within the annual PTEP account 

identified in columns 5 and 6 in the 

functional currency of the first-tier 

foreign corporation. If there is a PTEP 

distribution related to more than one 

PTEP group within an annual PTEP 

account, complete a separate line for 

each PTEP group within an annual 

PTEP account.

Column 11. For each line, multiply 

the amount in column 8 by the amount 

in column 10. This is the U.S. dollar 

amount of the foreign income taxes 

properly attributable to the PTEP 

distribution reported in column 9 and 

not deemed to have been paid by the 

domestic corporation for the tax year 

or any prior tax year.

Note. With respect to distributions of 

PTEP resulting from inclusions under 

section 965, report the taxes properly 

attributable to such PTEP without 

reduction for the foreign tax credit 

disallowance. The disallowance is 

taken into account in Schedule G. See 

the specific instructions for 

Schedule G, later.

Part II—Tax Paid or Deemed 

Paid by First- and Lower-Tier 

Foreign Corporations

The purpose of Part II is to track the 

current-year and historical PTEP 

distributions between foreign 

corporations and taxes paid, accrued, 

or deemed paid by upper-tier foreign 

corporations on such PTEP 

distributions. These amounts are to be 

reported on this Part II only to the 

extent that there is a PTEP distribution 

to the domestic corporation entered in 

Part I. The amounts entered in Part II 

could relate to current-year or 

prior-year PTEP distributions between 

foreign corporations, so the applicable 

18 Instructions for Form 1118 (Rev. 12-2023)
year should be noted in column 2 

using the format YYYYMM.

If foreign income taxes paid, 

accrued, or deemed paid by a first-tier 

foreign corporation are properly 

attributable to a PTEP distribution 

from one or more lower-tier foreign 

corporations, report all such PTEP 

distributions by the lower-tier foreign 

corporations in Part II, even if the 

distributing lower-tier foreign 

corporations did not pay or accrue 

(and were not deemed to pay) any 

foreign income taxes with respect to 

the PTEP distributions. For each tier, 

report the amount of the PTEP 

distribution from the first-tier foreign 

corporation that is attributable to a 

PTEP distribution from the lower-tier 

foreign corporation and the amount of 

foreign income taxes paid, accrued, or 

deemed paid by that lower-tier foreign 

corporation with respect to that 

portion of the PTEP distribution. 

Because only eligible current-year tax 

paid or accrued by a CFC with respect 

to its receipt of a PTEP distribution 

from a lower-tier foreign corporation 

are eligible to be treated as deemed 

paid under section 960(b), no foreign 

income taxes of the lowest-tier foreign 

corporation to which the PTEP 

distribution is attributable are properly 

attributable to a PTEP distribution 

made to an upper-tier foreign 

corporation. See Regulations section 

1.960-1(d)(3)(ii)(C).

Column 1a. Enter the name of each 

lower-tier foreign corporation that 

distributed PTEP to an upper-tier 

foreign corporation, in the current year 

or a prior year, that in turn was 

distributed in the current year to a 

domestic corporation. In column 1a, 

preceding the name of the distributing 

lower-tier foreign corporation, enter a 

unique alphabetic character that 

corresponds to a PTEP distribution 

reported in Part I. For example, in the 

case of a PTEP distribution from 

CFC3, third-tier foreign corporation, to 

CFC2, second-tier foreign 

corporation, to CFC1, first-tier foreign 

corporation, to USP, a domestic 

corporation, the domestic corporation 

correlates the distributions as follows.

Part I, column 1a. Enter “A CFC1” 

(to report distribution from CFC1 to 

domestic corporation sourced from 

PTEP distributions from CFC2 and 

CFC3).

Part II, column 1a. Enter “A 

CFC2” (to report distribution from 

CFC2 to CFC1), and enter “A CFC3” 

(to report distribution from CFC3 to 

CFC2).

Column 1b. Enter the EIN or 

reference ID number of the distributing 

foreign corporation. See Reference ID 

numbers, earlier.

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the distributing foreign 

corporation does not have an EIN, the 

taxpayer must use a reference ID 

number that uniquely identifies such 

foreign corporation, using the rules set 

forth in Reference ID numbers, in the 

Requirements section, earlier.

Column 2. Enter the U.S. tax year of 

the distributing foreign corporation 

which includes the date when the 

foreign corporation distributed the 

PTEP to the upper-tier foreign 

corporation.

Note. If the PTEP distributed in Part I 

relates to PTEP distributions from 

lower-tier foreign corporations made 

in more than 1 tax year, figure and 

show the tax deemed paid on a 

separate line for each distribution.

Column 3. Enter the applicable 

two-letter codes from the list at 

IRS.gov/CountryCodes.

Column 4b. Enter the EIN or 

reference ID number of the recipient 

foreign corporation. See Reference ID 

numbers, earlier.

Note. Taxpayers no longer have the 

option of entering “FOREIGNUS” or 

“APPLIED FOR” in this column. 

Instead, if the recipient foreign 

corporation does not have an EIN, the 

taxpayer must use a reference ID 

number that uniquely identifies such 

foreign corporation, using the rules set 

forth in Reference ID numbers, in the 

Requirements section, earlier.

Column 5. Enter the U.S. tax year of 

the recipient foreign corporation which 

includes the date the foreign 

corporation received the PTEP 

distribution.

Column 6. Enter the applicable 

two-letter codes from the list at 

IRS.gov/CountryCodes.

Column 7. Enter the applicable 

three-character alphabet code for the 

distributing foreign corporation's 

functional currency using the ISO 

4217 standard.

Column 8. Enter the applicable 

PTEP group code from the list 

provided in the specific instructions for 

Schedule E, Part I, Column 5, earlier.

Column 9. Enter the annual PTEP 

account. See the instructions for 

Schedule E, Part I, Column 6, earlier.

Column 10. Enter the total amount of 

the foreign corporation’s PTEP in the 

PTEP group within the annual PTEP 

account identified in column 8 and 

column 9. Enter such amount in the 

functional currency of the distributing 

foreign corporation.

Column 11. Enter the total amount of 

the foreign corporation’s PTEP group 

taxes with respect to the PTEP group 

within the annual PTEP account 

identified in column 8 and column 9. 

Enter this amount in U.S. dollars. To 

determine the appropriate translation 

rate, see section 986(a).

Column 12. Enter the PTEP 

distribution with respect to the PTEP 

group within the annual PTEP account 

identified in columns 8 and 9 in the 

functional currency of the distributing 

foreign corporation. If there is a PTEP 

distribution related to more than one 

PTEP group within an annual PTEP 

account, complete a separate line for 

each PTEP group within an annual 

PTEP account. Only report the 

amount of PTEP that was ultimately 

distributed to the domestic 

corporation in the current year, even if 

the amount of PTEP distributed to the 

upper-tier foreign corporation was 

greater than that amount.

Column 14. Enter the U.S. dollar 

amount of the recipient foreign 

corporation's income taxes paid, 

accrued, and deemed paid that are 

properly attributable to the PTEP 

distribution reported in column 12 and 

not deemed to have been paid by the 

domestic corporation for any prior tax 

year.

Note. See the Note in the instructions 

for Part I, column 11, for purposes of 

reporting foreign income taxes 

properly attributable to PTEP 

distributions resulting from inclusions 

under section 965.

Note. See the instructions for 

Schedule G, later, for information on 

Instructions for Form 1118 (Rev. 12-2023) 19
reduction of foreign taxes for failure to 

furnish information required under 

section 6038.

Example 1. USC is a domestic 

corporation. CFC1, a Country Y 

corporation, wholly owns Country X 

corporations CFC2 and CFC3. The 

U.S. tax year for USC, CFC1, CFC2, 

and CFC3 ends on December 31. 

During the U.S. tax year ending 

December 31, 2023, CFC2 and 

CFC3, both second-tier CFCs, each 

distribute 100u, comprising all of their 

respective section 965(a) PTEP within 

the annual PTEP account for the 2017 

tax year (“2017 section 965(a) PTEP”) 

within the general category, to CFC1, 

a first-tier CFC. CFC1 pays 40u equal 

to $40 of eligible current-year taxes to 

Country X on the 200u PTEP 

distributions, reducing the 2017 

section 965(a) PTEP to 160u. In that 

same year, CFC1 distributes all 160u 

of the 2017 section 965(a) PTEP to 

USC. CFC1 does not have any other 

PTEP balances. The reference ID 

numbers for CFC1, CFC2, and CFC3 

are 10041, 10042, and 10043, 

respectively. The country codes for 

Country X and Country Y are OC and 

BC, respectively. The functional 

currency of CFC1, CFC2, and CFC3 

is the “u.” The applicable 

three-character alphabet code for the 

“u” using the ISO 4217 standard is 

“UUU.”

USC makes the following entries on 

a single line on Schedule E, Part I.

Column Entry

1a A CFC1

1b 10041

2 202312

3 BC

4 UUU

5 965a

6 2017

7 160u

8 40

9 160u

10 1.000

11 40

USC makes the following entries on 

the first of two lines on Schedule E, 

Part II.

Column Entry

1a A CFC2

1b 10042

2 202312

3 OC

4a CFC1

4b 10041

5 202312

6 BC

7 UUU

8 965a

9 2017

10 80u

11 0

12 80u

13 1.000

14 0

USC makes the following entries on 

the second of two lines on 

Schedule E, Part II.

Column Entry

1a A CFC3

1b 10043

2 202312

3 OC

4a CFC1

4b 10041

5 202312

6 BC

7 UUU

8 965a

9 2017

10 80u

11 0

12 80u

13 1.000

14 0

Example 2. USC is a domestic 

corporation. CFC1 and CFC2 are 

Country X corporations, and CFC3 is 

a Country Y corporation. The U.S. tax 

year for USC, CFC1, CFC2, and 

CFC3 ends on December 31. During 

CFC3’s U.S. tax year ending 

December 31, 2018, CFC3 distributes 

100u, comprising its entire section 

965(a) PTEP within the annual PTEP 

account for the 2017 tax year (“2017 

section 965(a) PTEP”) within the 

general category, to CFC2, a CFC that 

wholly owns CFC3. CFC2 pays 

eligible current-year tax of 20u to 

Country X equal to $20 on the 100u 

PTEP distribution, reducing the 2017 

section 965(a) PTEP to 80u. In 

CFC2’s U.S. tax year ending 

December 31, 2019, CFC2 distributes 

40u of the 2017 section 965(a) PTEP 

to CFC1, a CFC that wholly owns 

CFC2. CFC1 pays no tax on such 

distribution, but is deemed to pay $10 

of the eligible current-year tax that 

was paid by CFC2 in 2017. In CFC1’s 

U.S. tax year ending December 31, 

2023, CFC1 distributes 40u to USC, 

who wholly owns CFC1. USC pays no 

foreign tax on such distribution, but is 

deemed to pay the $10 of eligible 

current-year tax that was paid by 

CFC2 in 2017 and deemed paid by 

CFC1 in 2019. The reference ID 

numbers for CFC1, CFC2, and CFC3 

are 20041, 20042, and 20043, 

respectively. The country codes for 

Country X and Country Y are OC and 

BC, respectively. The functional 

currency of CFC1, CFC2, and CFC3 

is the “u.” The applicable 

three-character alphabet code for the 

“u” using the ISO 4217 standard is 

“UUU.”

Schedule E reporting is not 

necessary for USC’s tax years ending 

December 31, 2018, 2019, 2020, 

2021, and 2022. For USC's tax year 

ending December 31, 2023, USC 

makes the following entries on a 

single line on its general category 

Form 1118, Schedule E, Part I.

Column Entry

1a A CFC1

1b 20041

2 202312

3 OC

4 UUU

5 965a

6 2017

7 40u

8 10

9 40u

10 1.000

11 10

20 Instructions for Form 1118 (Rev. 12-2023)
USC makes the following entries on 

the first of two lines on Schedule E, 

Part II.

Column Entry

1a A CFC2

1b 20042

2 201912

3 OC

4a CFC1

4b 20041

5 201912

6 OC

7 UUU

8 965a

9 2017

10 80u

11 20

12 40u

13 0.500

14 10

USC makes the following entries on 

the second of two lines on 

Schedule E, Part II.

Column Entry

1a A CFC3

1b 20043

2 201812

3 BC

4a CFC2

4b 20042

5 201812

6 OC

7 UUU

8 965a

9 2017

10 80u

11 0

12 40u

13 0.500

14 0

Example 3. USC is a domestic 

corporation. CFC1 is a Country X 

corporation, CFC2 is a Country Y 

corporation, and CFC3 is a Country Z 

corporation. The U.S. tax year of USC, 

CFC1, CFC2, and CFC3 ends on 

December 31. During CFC3’s U.S. tax 

year ending December 31, 2018, 

CFC3 distributes 1,000u, comprising 

all of its subpart F PTEP within the 

annual PTEP account for the 2016 tax 

year (“2016 section 951(a)(1)(A) 

PTEP”) within the general category, to 

CFC2, a CFC that wholly owns CFC3. 

CFC2 pays eligible current-year tax of 

100u to Country Y equal to $100 on 

the 1,000u PTEP distribution, 

reducing the 2016 section 951(a)(1)

(A) PTEP to 900u. In CFC2’s tax year 

ending December 31, 2019, CFC2 

distributes 250u, comprising all of its 

section 951A PTEP within the annual 

PTEP account for the 2018 tax year 

(“2018 section 951A PTEP”) within the 

section 951A category, to CFC1, a 

CFC that wholly owns CFC2. CFC1 

pays eligible current-year tax of 25u to 

Country X equal to $25 on the 250u 

PTEP distribution, reducing the 2018 

section 951A PTEP to 225u. During 

CFC2’s tax year ending December 31, 

2023, CFC2 distributes 450u out of its 

2016 section 951(a)(1)(A) PTEP 

balance of 900u to CFC1. CFC1 pays 

eligible current-year tax of 45u to 

Country X equal to $45 on the 450u 

PTEP distribution, reducing the 2016 

section 951(a)(1)(A) PTEP to 405u. 

CFC1 is also deemed to pay $50 of 

the eligible current-year tax paid by 

CFC2 on its receipt of the 2018 

distribution of the PTEP from CFC3. In 

the same year, CFC1 distributes 630u 

to USC, which wholly owns CFC1. 

Such distribution includes all of 

CFC1’s 2016 section 951(a)(1)(A) 

PTEP of 405u and 2018 section 951A 

PTEP of 225u. USC pays no foreign 

tax on such distribution, but is 

deemed to pay $50 of the eligible 

current-year tax deemed paid by 

CFC1 and $70 on the eligible 

current-year tax paid by CFC1 on the 

2019 and 2023 distributions of the 

PTEP from CFC2.

The reference ID numbers for 

CFC1, CFC2, and CFC3 are 10041, 

10042, and 10043, respectively. The 

country codes for Country X, Country 

Y, and Country Z are OC, CC, and BC, 

respectively. The functional currency 

of CFC1, CFC2, and CFC3 is the “u.” 

The applicable three-character 

alphabet code for the “u” using the 

ISO 4217 standard is “UUU.”

Schedule E reporting is not 

necessary for USC's tax years ending 

December 31, 2018, 2019, 2020, 

2021, and 2022. For USC's tax year 

ending December 31, 2023, USC 

completes Form 1118, Schedule E, as 

follows:

USC makes the following entries on 

Schedule E, Part I, with respect to 

general category income.

Column Entry

1a A CFC1

1b 10041

2 202312

3 OC

4 UUU

5 951a1A

6 2016

7 405u

8 95

9 405u

10 1.000

11 95

USC makes the following entries on 

the first of two lines on Schedule E, 

Part II, of its Form 1118 with respect to 

general category income.

Column Entry

1a A CFC2

1b 10042

2 202312

3 CC

4a CFC1

4b 10041

5 202312

6 OC

7 UUU

8 951a1A

9 2016

10 810u

11 100

12 405u 

13 0.500

14 50

USC makes the following entries on 

the second of two lines on 

Schedule E, Part II, of its Form 1118 

with respect to general category 

income.

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

1a A CFC3

1b 10043

2 201812

3 BC

4a CFC2

4b 10042

5 201812

6 CC

7 UUU

8 951a1A

9 2016

10 810u

11 0

12 405u

13 0.500

14 0

USC makes the following entries on 

a line on Schedule E, Part I, of its 

Form 1118 with respect to section 

951A category income.

Column Entry

1a B CFC1

1b 10041

2 202312

3 OC

4 UUU

5 951A

6 2018

7 225u

8 25

9 225u

10 1.000

11 25

USC makes the following entries on 

a line on Schedule E, Part II, of its 

Form 1118 with respect to section 

951A category income.

Column Entry

1a B CFC2

1b 10042

2 201912

3 CC

4a CFC1

4b 10041

5 201912

6 OC

7 UUU

8 951A

9 2018

10 225u

11 0

12 225u

13 1.000

14 0

Schedule F

Reserved for future use. 

Schedule G

Part I

Line A. If the corporation claims a 

deduction for percentage depletion 

under section 613 with respect to any 

part of its foreign mineral income (as 

defined in section 901(e)(2)) for the 

tax year, any foreign taxes on that 

income must be reduced by the 

smaller of:

1. The foreign taxes minus the tax 

on that income, or

2. The tax on that income 

determined without regard to the 

deduction for percentage depletion 

minus the tax on that income.

The reduction must be made on a 

country-by-country basis (Regulations 

section 1.901-3(a)(1)). Attach a 

separate schedule showing the 

reduction.

Line C. If the corporation chooses to 

calculate the reduction in the foreign 

tax by identifying taxes specifically 

attributable to participation in or 

cooperation with an international 

boycott, enter the amount from 

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 

fails to furnish any return or any 

information in any return required 

under section 6038(a) by the due 

date, reduce the foreign income taxes 

available for credit under sections 901 

and 960 by 10%. If the failure 

continues for 90 days or more after 

the date of written notice by the IRS, 

reduce the tax by an additional 5% for 

each 3-month period or fraction 

thereof during which the failure 

continues after the 90-day period has 

expired. See section 6038(c) for 

limitations and special rules.

In addition, a $10,000 penalty is 

imposed under section 6038(b) for 

failure to supply the information 

required under section 6038(a) for 

each entity within the time prescribed. 

If the required information is not 

submitted within 90 days after the IRS 

has mailed notice to the U.S. person, 

additional penalties may apply.

Note. The reduction in foreign 

income taxes available for credit is 

reduced by any dollar penalty 

imposed under section 6038(b).

Line E. Enter foreign income taxes 

paid or accrued during the current tax 

year that have been suspended due to 

the rules of section 909.

Line F. Enter disallowed taxes under 

section 965(g).

Taxes paid or accrued with respect 

to distributions of section 965(a) 

PTEP and section 965(b) PTEP must 

be reduced by the relevant applicable 

percentage. See Regulations section 

1.965-5(b). Taxes deemed paid with 

respect to distributions of section 

965(a) PTEP and section 965(b) 

PTEP must be reduced by the 

relevant applicable percentage. See 

Regulations section 1.965-5(c)(1)(i) 

and (iii).

Line G. Enter disallowed taxes under 

section 245A. Such disallowed taxes 

may also include, for example, gain on 

certain sales of CFC stock treated as 

dividends. See section 964(e)(4).

Line H. For any other reductions in 

taxes, enter the code “OTH” and 

attach a statement with the amount 

and the nature of such other 

reduction.

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

Computer-Generated

Schedule H

A computer-generated Schedule H 

may be filed if it conforms to the IRS 

version. In some cases, Schedule H 

must be expanded to properly report 

apportioned deductions. This applies 

in cases such as when the 

corporation:

• Has more than two product lines 

(under the gross receipts method of 

apportioning research and 

experimental (R&E) deductions in Part 

I), or

• Has more than five categories of 

income (statutory groupings within 

Part I, line 6; Part II, line 3; or Part III, 

line 2) with respect to which expenses 

are required to be apportioned.

Note. If there are more than five 

foreign source statutory groupings 

within Part II, line 3, or Part III, line 2, 

add them after the U.S. source 

residual grouping.

Part I—Research and 

Experimental Deductions

Note. These instructions refer to the 

regulations issued on November 12, 

2020. See Regulations section 

1.861-17 (T.D. 9922, 85 FR 72042, as 

corrected by 86 FR 54367).

Use Part I to apportion R&E 

deductions. Use the gross receipts 

method described in Regulations 

section 1.861-17 and report 

applicable amounts in column (a).

Column (a), Gross Receipts 

Method

Enter in the spaces provided the SIC 

Code numbers (based upon the 

Standard Industrial Classification 

System) of the product lines to which 

the R&E deductions relate. See 

Regulations section 1.861-17(b)(3) for 

details on choosing SIC codes and 

changing a product category.

Note. If the corporation has more 

than two product lines, see 

Computer-Generated Schedule H, 

earlier.

Columns (a)(i) and (a)(iv)

Line 1. For each product line, enter 

the taxpayer’s worldwide “gross 

intangible income” (as defined in 

Regulations section 1.861-17(b)(2)).

Line 4a. For each product line, enter 

the U.S. source “gross intangible 

income” (as defined in Regulations 

section 1.861-17(b)(2)) of the 

taxpayer that is neither income 

pertaining to sales, licenses, leases, 

or services of controlled parties (as 

defined in Regulations section 

1.861-17(d)(4)) nor income pertaining 

to sales, licenses, leases, or services 

of uncontrolled parties (as defined in 

Regulations section 1.861-17(d)(3)).

Line 4b. For each product line, enter 

the U.S. source “gross intangible 

income” (as defined in Regulations 

section 1.861-17(b)(2)) of the 

taxpayer that is income pertaining to 

sales, licenses, leases, or services of 

controlled parties (as defined in 

Regulations section 1.861-17(d)(4)).

Line 4c. For each product line, enter 

the U.S. source “gross intangible 

income” (as defined in Regulations 

section 1.861-17(b)(2)) of the 

taxpayer that is income pertaining to 

sales, licenses, leases, or services of 

uncontrolled parties (as defined in 

Regulations section 1.861-17(d)(3)).

Line 4d. For each product line, add 

lines 4a through 4c and enter the sum 

on line 4d.

Line 5a. For each product line, enter 

the aggregate foreign source “gross 

intangible income” (as defined in 

Regulations section 1.861-17(b)(2)) of 

the taxpayer that is neither income 

pertaining to sales, licenses, leases, 

or services of controlled parties (as 

defined in Regulations section 

1.861-17(d)(4)) nor income pertaining 

to sales, licenses, leases, or services 

of uncontrolled parties (as defined in 

Regulations section 1.861-17(d)(3)).

Line 5b. For each product line, enter 

the aggregate foreign source “gross 

intangible income” (as defined in 

Regulations section 1.861-17(b)(2)) of 

the taxpayer that is income pertaining 

to sales, licenses, leases, or services 

of controlled parties (as defined in 

Regulations section 1.861-17(d)(4)).

Line 5c. For each product line, enter 

the aggregate foreign source “gross 

intangible income” (as defined in 

Regulations section 1.861-17(b)(2)) of 

the taxpayer that is income pertaining 

to sales, licenses, leases, or services 

of uncontrolled parties (as defined in 

Regulations section 1.861-17(d)(3)).

Line 5d. For each product line, add 

lines 5a through 5c and enter the sum 

on line 5d.

Lines 6a through 6e. For lines 6a 

through 6e, enter the code for the 

applicable separate category of 

income (foreign source statutory 

grouping). See Categories of Income 

earlier. If code “901j” or one of the 

“RBT” codes applies, also enter the 

applicable country.

Note. If the corporation has more 

than five separate categories of 

income, Schedule H, Part I, line 6 

must be expanded to properly report 

apportioned R&E deductions. See 

Computer-Generated Schedule H, 

earlier.

Lines 6a(1), 6b(1), 6c(1), 6d(1), 

and 6e(1). For each product line and 

for each separate category, enter the 

foreign source “gross intangible 

income” (as defined in Regulations 

section 1.861-17(b)(2)) of the 

taxpayer that is neither income 

pertaining to sales, licenses, leases, 

or services of controlled parties (as 

defined in Regulations section 

1.861-17(d)(4)) nor income pertaining 

to sales, licenses, leases, or services 

of uncontrolled parties (as defined in 

Regulations section 1.861-17(d)(3)).

Lines 6a(2), 6b(2), 6c(2), 6d(2), 

and 6e(2). For each product line and 

for each separate category, enter the 

foreign source “gross intangible 

income” (as defined in Regulations 

section 1.861-17(b)(2)) of the 

taxpayer that is income pertaining to 

sales, licenses, leases, or services of 

controlled parties (as defined in 

Regulations section 1.861-17(d)(4)).

Lines 6a(3), 6b(3), 6c(3), 6d(3), 

and 6e(3). For each product line and 

for each separate category, enter the 

foreign source “gross intangible 

income” (as defined in Regulations 

section 1.861-17(b)(2)) of the 

taxpayer that is income pertaining to 

sales, licenses, leases, or services of 

uncontrolled parties (as defined in 

Regulations section 1.861-17(d)(3)).

Lines 6a(4), 6b(4), 6c(4), 6d(4), 

and 6e(4). For each product line and 

for each separate category, add lines 

(1), (2), and (3) and enter the sum on 

line (4).

Instructions for Form 1118 (Rev. 12-2023) 23
Columns (a)(ii) and (a)(v)

Line 1. For each product line, enter 

the taxpayer’s worldwide gross 

receipts from sales and leases of 

products or services.

Line 4a. For each product line, enter 

the taxpayer’s gross receipts from 

sales and leases of products or 

services related to U.S. source gross 

intangible income.

Line 4b. For each product line, enter 

the controlled parties’ (as defined in 

Regulations section 1.861-17(d)(4)) 

gross receipts from sales, leases, 

licenses, or services that are related 

to the taxpayer’s U.S. source gross 

intangible income.

Line 4c. For each product line, enter 

the uncontrolled parties’ (as defined in 

Regulations section 1.861-17(d)(3)) 

gross receipts from sales, leases, 

licenses, or services of uncontrolled 

parties that are related to the 

taxpayer’s U.S. source gross 

intangible income.

Line 4d. For each product line, add 

lines 4a through 4c and enter the sum 

on line 4d.

Line 5a. For each product line, enter 

the taxpayer’s gross receipts from 

sales and leases of products or 

services related to foreign source 

gross intangible income.

Line 5b. For each product line, enter 

the controlled parties’ (as defined in 

Regulations section 1.861-17(d)(4)) 

gross receipts from sales, leases, 

licenses, or services that are related 

to the taxpayer’s foreign source gross 

intangible income.

Line 5c. For each product line, enter 

the uncontrolled parties' (as defined in 

Regulations section 1.861-17(d)(3)) 

gross receipts from sales, licenses, 

leases, or services that are related to 

the taxpayer's foreign source gross 

intangible income.

Line 5d. For each product line, add 

lines 4a through 4c and enter the sum 

on line 4d.

Lines 6a(1), 6b(1), 6c(1), 6d(1), 

and 6e(1). For each product line, 

enter the taxpayer's gross receipts 

from sales and leases of products or 

services that are related to foreign 

source gross intangible income within 

the relevant separate category.

Lines 6a(2), 6b(2), 6c(2), 6d(2), 

and 6e(2). For each product line, 

enter the controlled parties’ (as 

defined in Regulations section 

1.861-17(d)(4)) gross receipts from 

sales, licenses, leases, or services 

that are related to foreign source 

gross intangible income within the 

relevant statutory grouping.

Lines 6a(3), 6b(3), 6c(3), 6d(3), 

and 6e(3). For each product line, 

enter the uncontrolled parties’ (as 

defined in Regulations section 

1.861-17(d)(3)) gross receipts from 

sales, licenses, leases, or services 

that are related to foreign source 

gross intangible income within the 

relevant statutory grouping.

Lines 6a(4), 6b(4), 6c(4), 6d(4), 

and 6e(4). For each product line and 

for each separate category, add lines 

(1), (2), and (3) and enter the sum on 

line (4).

Columns (a)(iii) and (a)(vi)

Line 1. Enter the total R&E 

deductions connected with the 

product lines.

Line 2a or 2b. Reduce the line 1 

totals by a 50% exclusive 

apportionment amount (Regulations 

section 1.861-17(c)).

Note. For tax years beginning on or 

after January 1, 2020, there is no 

longer a rule with respect to legally 

mandated R&E. See Regulations 

section 1.861-17 (T.D. 9922) 

published in the Federal Register on 

November 12, 2020.

Under the exclusive apportionment 

rules, 50% of the R&E deductions are 

apportioned exclusively to the residual 

grouping of U.S. source gross income, 

if the R&E that accounts for more than 

50% of the amount of such R&E 

deductions were performed in the 

United States. A similar rule applies 

when a majority of R&E is performed 

outside the United States.

Enter 50% of line 1 on either line 2a 

or line 2b (as explained above).

Line 4d. According to Regulations 

section 1.861-17(d)(1), to determine 

the line 3 amount of R&E 

expenditures to be apportioned to the 

residual grouping of U.S. source gross 

income, divide the gross receipts 

related to the gross intangible income 

within the residual grouping by the 

worldwide gross receipts for the 

product line. Multiply the result by the 

line 3 R&E deductions to be 

apportioned.

Example 1. With respect to the 

first product line reported on 

Schedule H, Part I, to determine the 

amount to enter on line 4d, column (a)

(iii), divide the amount on line 4d, 

column (a)(ii) by the amount on line 1, 

column (a)(ii). Multiply the result by 

the amount on line 3, column (a)(iii).

Line 5d. According to Regulations 

section 1.861-17(d)(1), to determine 

the line 3 amount of R&E 

expenditures to be apportioned to the 

aggregate statutory grouping of 

foreign source gross income, divide 

the gross receipts related to the gross 

intangible income within the statutory 

grouping(s) by the worldwide gross 

receipts for the product line. Multiply 

the result by the line 3 R&E 

deductions to be apportioned.

Example 2. With respect to the 

first product line reported on 

Schedule H, Part I, to determine the 

amount to enter on line 5d, column (a)

(iii), divide the amount on line 5d, 

column (a)(ii) by the amount on line 1, 

column (a)(ii). Multiply the result by 

the amount on line 3, column (a)(iii).

Lines 6a(5), 6b(5), 6c(5), 6d(5), 

and 6e(5). Enter the amount of line 3 

R&E deductions apportioned to each 

separate category. According to 

Regulations section 1.861-17(d)(1), to 

determine the line 3 amount of R&E 

expenditures to be apportioned 

among the statutory groupings of 

foreign source gross income, divide 

the gross receipts related to the gross 

intangible income within the statutory 

grouping by the worldwide gross 

receipts for the product line. Multiply 

the result by the line 3 R&E 

deductions to be apportioned.

Example 3. With respect to the 

first product line reported on 

Schedule H, Part I, there are two 

foreign tax credit separate limitation 

categories with gross receipts that are 

related to foreign source gross 

intangible income within each of the 

two categories. With respect to the 

first separate category, to determine 

the amount to enter on line 6a(5), 

column (a)(iii), divide the amount on 

line 6a(4), column (a)(ii) by the 

amount on line 1, column (a)(ii) and 

multiply the result by the amount on 

24 Instructions for Form 1118 (Rev. 12-2023)
line 3, column (a)(iii). Similarly, with 

respect to the second separate 

category, to determine the amount to 

enter on line 6b(5), column (a)(iii), 

divide the amount on line 6b(4), 

column (a)(ii) by the amount on line 1, 

column (a)(ii) and multiply the result 

by the amount on line 3, column (a)

(iii).

Lines 6a(6), 6b(6), 6c(6), 6d(6), 

and 6e(6). Enter the amount of 

line 2b R&E deductions, if any, to be 

apportioned to each separate 

category. As indicated in Regulations 

section 1.861-17(c), if there are 

multiple separate categories with 

foreign source gross intangible 

income with respect to a given 

product line, the line 2b amount is 

apportioned ratably based on the 

relative amounts of gross receipts 

from gross intangible income in each 

separate category, as determined 

under Regulations section 

1.861-17(d).

Column (b)

Line 1. Enter total R&E deductions 

for all product lines (for example, from 

column (a)(iii) and, if applicable, 

columns (a)(vi), (a)(ix), etc.).

Note. Line 1, column (b) is the total 

worldwide R&E deductions for all 

product lines.

Lines 2a and 4d. Enter on line 2a 

the total amount exclusively 

apportioned to U.S. source gross 

intangible income for all product lines. 

Enter on line 4d the total amount of 

line 3 R&E expenditures apportioned 

to the residual grouping of U.S. source 

gross intangible income for all product 

lines.

Note. Line 2a, column (b) plus 

line 4d, column (b) equals the total 

amount of R&E deductions for all 

product lines apportioned to U.S. 

source gross intangible income for all 

product lines.

Lines 6a(7), 6b(7), 6c(7), 6d(7), 

and 6e(7). Enter on each of these 

lines the total amount of line 3 R&E 

expenditures apportioned to the 

statutory grouping of foreign source 

gross income for all product lines.

Note. The sum of lines 6a(7), 6b(7), 

6c(7), 6d(7), and 6e(7) in column (b) 

equals the total amount of R&E 

deductions for all product lines 

apportioned to foreign source gross 

intangible income for all product lines.

Note. Include the amount from 

column (b) of line 6a(7) in column 14 

of the Schedule A that corresponds 

with the code entered on line 6a. If 

applicable, you should likewise 

include the amount from column (b) of 

line 6b(7) in column 14 of the 

Schedule A that corresponds with the 

code entered on line 6b. If applicable, 

on page 10 of Form 1118, you should 

likewise include the amount(s) from 

column (b) of lines 6c(7), 6d(7), and 

6e(7) in column 14 of the Schedule A 

that corresponds with the code 

entered on lines 6c, 6d, and 6e, 

respectively.

Part II—Deductions Allocated 

and Apportioned Based on 

Assets

Columns (a)(i) Through (b)(iv)

Use these columns to apportion 

interest deductions. See final and 

temporary Regulations sections 

1.861-8 through 1.861-14 for rules on 

the apportionment of interest 

deductions based on the tax book 

value or adjusted tax book value of 

assets.

A corporation may elect to use the 

alternative tax book value method. 

See Regulations section 1.861-9(i).

Columns (a) and (b) are subdivided 

into “Nonfinancial Corporations” and 

“Financial Corporations.” In allocating 

interest deductions, members of an 

affiliated group that are financial 

corporations must be treated as a 

separate affiliated group. Complete 

columns (a)(ii) and (b)(iv) for 

members of the corporation's affiliated 

group that are financial corporations 

and columns (a)(i) and (b)(iii) for 

members that are nonfinancial 

corporations.

See Regulations section 1.861-11 

for the definition of an affiliated group.

Columns (a)(i) and (a)(ii)

Line 1a. Enter the average of the 

total assets of the affiliated group. See 

Regulations section 1.861-9(g)(2) for 

the definition of “average” for these 

purposes.

Line 1b. Enter the assets included on 

line 1a that are characterized as 

excess related party indebtedness. 

See Regulations section 1.861-10(e) 

for an exception to the general rule of 

fungibility for excess related party 

indebtedness.

Line 1c. Enter all other assets that 

attract specifically allocable interest 

deductions. See Regulations section 

1.861-10 for other exceptions to the 

general rule of fungibility (such as 

qualified nonrecourse indebtedness 

and integrated financial transactions).

Line 1d. Enter the total of the exempt 

assets and assets without directly 

identifiable yield that are to be 

excluded from the interest 

apportionment formula (Regulations 

section 1.861-8(d)(2) and Temporary 

Regulations sections 1.861-8T(d)(2) 

and 1.861-9T(g)(3)). This could 

include an exempt portion of assets 

that produce foreign-derived 

intangible income and/or an exempt 

portion of CFC stock that gives rise to 

inclusions under section 951A.

Lines 3a through 3f. For lines 3a 

through 3e, enter the code for the 

applicable separate category of 

income (statutory grouping). See 

Categories of Income, earlier. If code 

“901j” or one of the “RBT” codes 

applies, also enter the applicable 

country.

Note. If the corporation had more 

than five separate categories of 

income, Schedule H, Part II, line 3 

must be expanded to properly report 

deductions apportioned based on 

assets. See Computer-Generated 

Schedule H, earlier.

The assets in each statutory 

grouping (lines 3a through 3e) and the 

residual grouping (line 3f) are divided 

between those assets generating 

dividend income eligible to be offset 

by the deduction under section 245A 

versus those generating all other 

types of gross income. The foreign 

branch income and section 951A 

income categories do not include 

assets generating dividend income 

eligible to be offset by the deduction 

under section 245A. The assets on 

line 2 are characterized as assets in 

one of the statutory groupings or as 

belonging to the residual grouping.

Enter the value of the assets in 

each of the statutory groupings on 

lines 3a through 3e, and enter the 

value of the assets in the residual 

grouping on line 3f. See Regulations 

Instructions for Form 1118 (Rev. 12-2023) 25
sections 1.861-12 and 1.861-13 and 

Temporary Regulations sections 

1.861-9T(g)(3), 1.861-12T(g)(2), and 

1.861-12T for the rules for 

characterizing the assets.

Columns (b)(iii) and (b)(iv)

Line 1a. Enter the total interest 

deductions for the members of the 

corporation's affiliated group. These 

include any expense that is currently 

deductible under section 163 

(including original issue discount), 

and interest equivalents. See 

Regulations section 1.861-9 and 

Temporary Regulations section 

1.861-9T for the definition of interest 

equivalents and a list of the sections 

that disallow or suspend interest 

deductions or require the 

capitalization of interest deductions.

Line 1b. Enter the interest 

deductions associated with the assets 

on line 1b of columns (a)(i) and (a)(ii), 

respectively, that attract specifically 

allocable interest deductions under 

Regulations section 1.861-10(e).

Note. These interest deductions will 

be divided among the statutory 

groupings and the residual grouping. 

The interest deductions allocated and 

apportioned to the statutory groupings 

will appear as a definitely allocable 

deduction in Schedule A, column 

13(j).

Line 1c. Enter the interest 

deductions associated with the assets 

on line 1c of columns (a)(i) and (a)(ii), 

respectively, that attract specifically 

allocable interest deductions.

Lines 3a through 3f. To figure the 

amount of interest deductions to 

apportion to each separate category 

of income (statutory grouping) and to 

the residual grouping, divide the 

assets apportioned to the grouping by 

the total assets apportioned and 

multiply the result by the interest 

deductions to be apportioned.

Example 1. To determine the 

amount to enter on line 3a(1), column 

(b)(iii), do the following.

1. Divide the amount entered on 

line 3a(1), column (a)(i), by the 

amount on line 2, column (a)(i).

2. Multiply the result by the 

amount on line 2, column (b)(iii).

Example 2. To determine the 

amount to enter on line 3b(2), column 

(b)(iv), do the following.

1. Divide the amount on line 3b(2), 

column (a)(ii), by the amount on line 2, 

column (a)(ii).

2. Multiply the result by the 

amount on line 2, column (b)(iv).

Column (c)

Complete this column to apportion 

stewardship deductions. See 

Regulations section 1.861-8(e)(4)(ii).

Column (d)

Complete this column to apportion 

certain industrial/investor damages. 

See Regulations section 1.861-8(e)(5)

(ii) and (iii).

Column (e)

Complete this column to apportion all 

other deductions allocated and 

apportioned based on assets (other 

than interest deductions, stewardship 

deductions, and certain industrial/

investor damages). See final and 

temporary Regulations sections 

1.861-8 and 1.861-14.

Line Instructions for Columns (c), 

(d), and (e)

Line 1a. For each column, enter the 

total expenses to be allocated and 

apportioned. See final and temporary 

Regulations sections 1.861-8 and 

1.861-14. Also report this amount on 

line 2.

Lines 3a through 3f. For lines 3a 

through 3e, enter the code for the 

applicable separate category of 

income (statutory grouping). See 

Categories of Income, earlier. If code 

“901j” or one of the “RBT” codes 

applies, also enter the applicable 

country.

Note. If the corporation had more 

than five separate categories of 

income, Schedule H, Part II, line 3 

must be expanded to properly report 

stewardship deductions in column (c), 

certain industrial/investor damages in 

column (d), and “other deductions” in 

column (e). To clarify, in column (e), 

report all other deductions allocated 

and apportioned based on assets 

(other than those listed in columns (b), 

(c), and (d)). See 

Computer-Generated Schedule H, 

earlier.

Enter on lines 3a through 3e the 

amount of expenses apportioned to 

each separate category of income as 

further apportioned between dividend 

income eligible to be offset by the 

deduction under section 245A and all 

other gross income.

Enter on line 3f the amount of 

expenses apportioned to income in 

the residual grouping (U.S. source 

income) as further apportioned 

between dividend income eligible to 

be offset by the deduction under 

section 245A and all other gross 

income.

Attach a schedule that explains in 

detail how the above apportionments 

were made.

Column (f)

To determine the totals to enter in 

column (f), use the following steps.

Step 1: For each applicable line 

beginning with line 3a(1), enter the 

sum of the amounts in columns (b)(iii), 

(b)(iv), (c), (d), and (e) in this column 

(f).

Step 2: With respect to section 245A 

dividends, enter the sum of any 

amounts entered in column (f) of lines 

3a(1), 3b(1), 3c(1), 3d(1), 3e(1), and 

3f(1) on line 4, column (f). Include this 

line 4 result as a negative amount on 

Schedule B, Part II, line 8b.

Note. This is the adjustment required 

by section 904(b)(4) to worldwide 

taxable income to eliminate the 

expenses properly allocated or 

apportioned to stock or dividend 

income for which a dividends received 

deduction is allowed in section 245A. 

As such, it includes both foreign 

source amounts (that is, the amounts 

from the applicable statutory 

groupings on lines 3a(1), 3b(1), 3c(1), 

3d(1), and 3e(1)) and U.S. source 

amounts (that is, the amount from the 

residual grouping on line 3f(1)).

Step 3: With respect to amounts 

other than section 245A dividends, for 

each applicable statutory grouping, 

include the amount in column (f) of 

line 3a(2), 3b(2), 3c(2), 3d(2), or 3e(2) 

in column 14 of the corresponding 

Schedule A. For example, if the 

taxpayer enters "PAS" on Schedule H, 

Part II, line 3a, the taxpayer takes the 

26 Instructions for Form 1118 (Rev. 12-2023)
total on line 3a(2), column (f) and 

includes it in column 14 of the 

Schedule A being completed for the 

Passive Category.

Note. Do not include the amount on 

line 3f(2), column (f) in column 14 on 

any Schedule A. The amount on 

line 3f(2), column (f) is a residual 

grouping amount and not an 

applicable statutory grouping amount.

Note. Due to the reporting 

requirement described in step 3 

above, you do not need to report a 

grand total for amounts other than 

section 245A dividends (that is, the 

amount reported on line 4).

Part III—Other Deductions

Report in Schedule H, Part III 

information pertaining to the allocation 

and apportionment of deductions 

other than research and experimental 

deductions (reported in Schedule H, 

Part I) and other than deductions 

allocated and apportioned based on 

assets (reported in Schedule H, Part 

II).

Column (a). Complete this column to 

apportion officers' compensation 

expense in accordance with the rules 

of Regulations section 1.861-8(b)(3).

Columns (b) and (c). Complete this 

column to apportion amortization 

deductions and depletion deductions, 

respectively, in accordance with the 

rules of Regulations section 

1.861-8(b)(2) and Temporary 

Regulations section 1.861-8T(c)(1), 

for example.

Column (d). Complete this column to 

apportion product liability damages in 

accordance with the rules of 

Regulations section 1.861-8(e)(5)(ii).

Column (e). Complete this column to 

apportion deductions other than those 

reported on Schedule H, Part I; 

Schedule H, Part II; or Schedule H, 

Part III, columns (a) through (d). See 

final and temporary Regulations 

sections 1.861-8 and 1.861-14.

Column (f). Column (f) is a totals 

column. It requests total deductions 

allocated and apportioned to section 

245A dividends. This is the sum of 

any amounts entered in columns (a) 

through (e) on lines 2a(1), 2b(1), 

2c(1), 2d(1), 2e(1), and 2f(1). The 

total is entered on line 3 and is also 

included on Schedule B, Part II, 

line 8b as a negative number.

Note. This is the adjustment required 

by section 904(b)(4) to worldwide 

taxable income to eliminate the 

expenses properly allocated or 

apportioned to stock or dividend 

income for which a dividends received 

deduction is allowed in section 245A. 

As such, it includes both foreign 

source amounts (that is, the amounts 

from the applicable statutory 

groupings on lines 3a(1), 3b(1), 3c(1), 

3d(1), and 3e(1)) and U.S. source 

amounts (that is, the amount from the 

residual grouping on line 3f(1)).

Column (g). With respect to each 

applicable statutory grouping, column 

(g) requests the sum of any amounts 

entered in columns (a) through (e) for 

lines 2a(2), 2b(2), 2c(2), 2d(2), and 

2e(2). These are amounts other than 

section 245A dividends.

Note. Unlike column (f), this column 

(g) does not request a total. Instead, 

for each applicable statutory grouping, 

the column (g) total for each 

applicable line is carried over to 

column 14 of the corresponding 

Schedule A. For example, if the 

taxpayer enters "PAS" on Schedule H, 

Part III, line 2a, the taxpayer takes the 

total on line 2a(2), column (g) and 

includes it in column 14 of the 

Schedule A being completed for the 

Passive Category.

Line instructions

Line 1. For each column, enter the 

total expenses to be allocated and 

apportioned.

Lines 2a through 2f. For lines 2a 

through 2e, enter the code for the 

applicable separate category of 

income (statutory grouping). See 

Categories of Income, earlier. If code 

“901j” or one of the “RBT” codes 

applies, also enter the applicable 

country.

Note. If the corporation had more 

than five separate categories of 

income, Schedule H, Part III, line 2 

must be expanded to properly report 

deductions other than research and 

experimental deductions (reported in 

Schedule H, Part I), and other than 

deductions allocated and apportioned 

based on assets (reported in 

Schedule H, Part II). See 

Computer-Generated Schedule H, 

earlier.

Enter on lines 2a through 2e the 

amount of expenses apportioned to 

each separate category of income as 

further apportioned between dividend 

income eligible to be offset by the 

deduction under section 245A and all 

other gross income.

Enter on line 2f the amount of 

expenses apportioned to income in 

the residual grouping (U.S. source 

income) as further apportioned 

between dividend income eligible to 

be offset by the deduction under 

section 245A and all other gross 

income.

Attach a schedule that explains in 

detail how the above apportionments 

were made.

Line 3. See the instructions for 

column (f) above.

Schedules I, J, K, and L

See the separate instructions for 

Schedule I, Schedule J, Schedule K, 

and Schedule L to see if the 

corporation must file these schedules.

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 section 6103.

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