Instructions for Form 1118

Instructions for Form 1118

(Rev. December 2025)

(Use with the December 2025 revision of Form 1118, the December 2021 revision of

separate Schedule I, the December 2020 revision of separate Schedule J, the

December 2018 revision of separate Schedule K, and the December 2025 revision of

Schedule L.)

Foreign Tax Credit—Corporations

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

New section 960(d)(4). Section 960(d)(4) was added to

the Internal Revenue Code (“Code”) by section 70312(b)

of Public Law 119-21, 139 Stat. 72 (July 4, 2025),

commonly known as the One, Big, Beautiful Bill Act

(“OBBBA”). New section 960(d)(4) disallows a foreign tax

credit under section 901 for 10% of any foreign income

taxes paid or accrued (or deemed paid under section

960(b)(1)) with respect to section 959(a) distributions, to

the extent the previously taxed earnings and profits were

excluded under section 959(a) by reason of a section

951A inclusion in a U.S. shareholder’s tax year ending

after June 28, 2025.

Form changes. There is a change in the manner in

which special cases of the sourcing of income are

reported on Schedule A. See the specific instructions for

Schedule A, column 1(b).

There is a change in the manner in which Schedule B,

Part I is completed. Column 2(b) has been split into two

columns. Add to new column 2(b)(2) the previously taxed

earnings and profits (PTEP) code attributable to

distributions of PTEP. See the specific instructions for

Schedule B, Part I, column 2(b).

There is a change in the manner in which taxes

attributable to section 951A PTEP distributions are

reported on Schedule E, Part I. See the specific

instructions for Schedule E, Part I, columns 12 through 16.

On Schedule G, new line H provides a reduction for

disallowed taxes under section 960(d)(4). See the specific

instructions for Schedule G, line H.

Reminders

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

Dec 19, 2025

revised Form 4626 to determine foreign tax credits for

purposes of calculating the CAMT tax liability, if any, under

section 55.

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. territories. 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 Form 1118, Schedule A, and

Schedule J (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 (Form

1118) to its income tax return for the tax 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. 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

Instructions for Form 1118 (Rev. 12-2025) Catalog Number 10905I

Department of the Treasury Internal Revenue Service www.irs.gov

time before the end of the period prescribed by section

6511(a) or 6511(c). See Regulations section 1.901-1(d).

indicate the separate category with respect to which you

are completing a given Form 1118.

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 and II; Schedules C through G;

Schedule I (Form 1118); Schedule K (Form 1118); and

Schedule L (Form 1118), Parts I, II, III, and V for each

applicable separate category of income. See Categories

of Income, later. Complete Schedule B, Part III;

Schedule H; Schedule J (Form 1118); and Schedule L

(Form 1118), 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 tax year

and that relate to prior tax 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

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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 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

Instructions for Form 1118 (Rev. 12-2025)

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 (E&P) 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 code from the list at IRS.gov/CountryCodes.

Sanctioned countries are those designated by the

Secretary of State as countries that repeatedly provide

Instructions for Form 1118 (Rev. 12-2025)

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 code 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 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.

3

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 E&P for the tax year is from U.S.

sources.

4

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 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.

Instructions for Form 1118 (Rev. 12-2025)

Schedule K-3, Part II, Section 2

Credit Limitations

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

Schedule H.

Taxes Eligible for a Credit

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

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.

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.

Caution: 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 tax 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.

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

Instructions for Form 1118 (Rev. 12-2025)

5

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.

• 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).

6

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 had it

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.

Instructions for Form 1118 (Rev. 12-2025)

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 after the close of the tax 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 tax 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 tax 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 is 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 enter on page 2 of your Form

1120-X: “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

Instructions for Form 1118 (Rev. 12-2025)

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.

7

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).

Schedule L (Form 1118). 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 (Form 1118)

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 tax 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 (Form 1118) to the original return for the

taxpayer’s tax year in which the foreign tax

redetermination occurs. See Instructions for Schedule L

(Form 1118) for additional information.

Election to account for foreign tax redeterminations

with respect to pre-2018 tax 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 tax years ending on or after

November 2, 2020, with respect to pre-2018 tax years of

foreign corporations as if they occurred in the foreign

corporation’s last tax 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 tax 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.

8

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 tax

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 tax 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 tax

year up to and including the tax year in which the contest

is resolved, file 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).

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

Instructions for Form 1118 (Rev. 12-2025)

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 tax 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 tax year to which

the contested tax relates, together with a Form 1118, and

a Form 7204.

In addition, the taxpayer must, for each subsequent tax

year up to and including the tax year in which the contest

is resolved, file 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(a). Column 1(a) 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(a) 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(a) can be left blank, but only if one of the

following seven entries is made in column 1(b).

• 863(b)

• RIC

Instructions for Form 1118 (Rev. 12-2025)

• NOL

• HTKO

• 951A

• G2B

• B2G

See the instructions for column 1(b), later, for more

information regarding when the above entries can be

made in column 1(b).

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(a) 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(a), 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 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 alphabetic, numeric, or any combination

of the two.

9

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. 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 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(a), 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(a), 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(a), 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).

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(a)

1000016

2

XX

8

10

USC makes the following entries on the second of two

lines on Schedule A.

Column

Entry

1(a)

1000016

2

YY

8

15

Qualified business units (QBUs). For QBUs that are

foreign branches under Regulations section 1.904-4(f)(3)

(vii), 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(a), 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.

Column 1(b). Enter the code(s) for specific types of

foreign source income with respect to which taxpayers are

permitted to aggregate all such income and report the

totals on a single line on Schedule A.

Code

Aggregate Foreign Source Income

863(b)

Section 863(b) income

RIC

Regulated Investment Company

NOL

Net Operating Loss

HTKO

High-Tax Kick-Out

951A

Section 951A income

G2B

General to Branch

B2G

Branch to General

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

10

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 columns 1(a) and 2 blank, enter “863(b)”

in column 1(b), and enter (as a positive number) all

section 863(b) gross income (in columns 3 through 12)

Instructions for Form 1118 (Rev. 12-2025)

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 columns

1(a) and 2 blank, enter “RIC” in column 1(b), 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 columns 1(a) and 2

blank, enter “NOL” in column 1(b), 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 columns 1(a)

and 2 blank and enter “HTKO” in column 1(b) 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 columns 1(a)

and 2 blank, enter “HTKO” in column 1(b), 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

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, Shareholder Calculation of Global

Intangible Low-Taxed Income (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 1(b) instead of a two-letter code. Leave columns

1(a) and 2 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 1(b) instead of a two-letter code. Leave

column 1(a) blank.

For reattribution of income from the foreign branch

category to the general category, enter “B2G” in column

1(b) instead of a two-letter code. Leave column 1(a) blank.

See Regulations section 1.904-4(f)(2)(vi)(B) for more

information regarding the rules pertaining to reattribution

Instructions for Form 1118 (Rev. 12-2025)

of income by reason of disregarded payments between a

foreign branch and its foreign branch owner.

Column 2. Enter the two-letter code (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.

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(a) and the

country of residence of the CFC in column 2.

Note: 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 245A(e)(2).

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.

11

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

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

12

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 made in determining foreign

source capital gain net income. If capital gain net income

from sources outside the United States 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 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

Instructions for Form 1118 (Rev. 12-2025)

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.

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.

Instructions for Form 1118 (Rev. 12-2025)

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).

Caution: 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(a) 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.

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 “Accrued” 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)(1). 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)(1) on a

distribution from the upper-tier foreign corporation to the

13

domestic corporation. These amounts are reported on

Schedule E.

Note: With respect to taxes attributable to section 965(a)

PTEP, section 965(b) PTEP, or section 951A PTEP, do not

reduce the taxes by the foreign tax credit disallowance

under sections 965(g) and 960(d)(4), as applicable. The

disallowance is taken into account in Schedule E, Part I,

columns 15 and 16 and Schedule G.

Column 2(b)(2). Enter the PTEP group code associated

with the column 2(a) line amount. The PTEP group codes

are detailed below under the instructions for Schedule E,

Part I, column 5.

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(a), 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 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,

14

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 (Form 1118) 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 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, line 20z, or the

corresponding line of other corporate income tax returns).

See section 960(c)(5).

Instructions for Form 1118 (Rev. 12-2025)

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 9. 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 9.

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.

Example. When figuring foreign taxes deemed paid in

2025 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, 2025, enter “202511.”

Instructions for Form 1118 (Rev. 12-2025)

Column 3. Enter the applicable two-letter code 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 (Regulations section

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 (Regulations section

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).

15

Column 6. Enter the total net income in the subpart F

income group (identified in columns 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) are being

completed.

Column 7. Enter the total eligible current-year taxes in

the subpart F income group (identified in columns 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

columns 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, 2025, 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.

16

USC makes the following entries on the first of three

lines on Schedule C.

Column

Entry

1a

CFC

1b

100000

1c

100011

2

202512

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

202512

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.

Instructions for Form 1118 (Rev. 12-2025)

Column

Entry

1a

CFC1

100000

1b

100011

1c

100012

1c

2

202512

2

3

OC

3

OC

4

UUU

4

UUU

5(a)

DIRRA

5(a)

DIRRA

5(b)

ii

5(b)

ii

5(c)

QBU2

5(c)

6

2,400,000u

6

1,000,000u

7

240,000

7

50,000

8(a)

1,920,000u

8(a)

800,000u

8(b)

1,920,000

8(b)

800,000

9

0.800

9

0.800

10

192,000

10

40,000

Column

Entry

1a

CFC

1b

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, 2025, 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, 2025, 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.

Instructions for Form 1118 (Rev. 12-2025)

202512

USC makes the following entries on the second of three

lines on Schedule C.

Column

Entry

1a

CFC1

1b

100011

1c

2

202512

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.

17

Column

Entry

1a

CFC2

1b

100012

1c

2

202512

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.

18

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 code 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 in

Schedule A (Form 8992), 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 in 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 in Schedule A (Form 8992), 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 in 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

Instructions for Form 1118 (Rev. 12-2025)

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.

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 paid, accrued, and deemed paid by the

domestic corporation under section 901 and 960(b) with

respect to PTEP distributions. 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 reported on Schedule E,

Part I, column 14. Such taxes are also reported on

Schedule B, Part I, column 2(b)(1), as tax withheld on

distributions of PTEP. Also, reported on this schedule are

foreign income taxes levied on distributions of PTEP from

a lower-tier foreign corporation to an upper-tier foreign

corporation which are subsequently deemed paid under

section 960(b)(1) by the domestic corporation upon

distribution of such PTEP by the upper-tier foreign

corporation to the domestic corporation.

Part I—Taxes Paid, Accrued, and Deemed Paid

by Domestic Corporation

Column 1a. Enter the name of each first-tier foreign

corporation that made PTEP distributions to a domestic

corporation with respect to which foreign income taxes

were paid, accrued, or deemed paid by the domestic

corporation (and 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

Instructions for Form 1118 (Rev. 12-2025)

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 code from the

list at IRS.gov/CountryCodes.

Column 4. Enter the applicable three-character

alphabetic 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 section 951(a) and section

951A 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, or section 951A, report the

19

foreign income taxes properly attributable to such PTEP

under section 960(b)(1) without reduction for the foreign

tax credit disallowance under sections 965(g) and 960(d)

(4), as applicable. The disallowance is taken into account

in columns 12 and 13 and Schedule G. See the specific

instructions for Schedule G, later.

Column 12. Report the amount disallowed under the

section 965(g) applicable percentage with respect to the

taxes deemed paid under section 960(b)(1) identified in

column 11.

Column 13. Report the amount disallowed under section

960(d)(4) with respect to the taxes deemed paid under

section 960(b)(1) identified in column 11.

Column 14. Report the foreign income taxes paid or

accrued with respect to distributions of PTEP from a

first-tier foreign corporation to a domestic corporation that

are creditable under section 901. For each line in

Schedule E, Part I, also include the column 14 amount in

column 2(b)(1) of the line in Schedule B, Part I, that

corresponds with the identifying number specified in

column 1(a) of Schedule A and that also corresponds with

the identifying number specified in column 1b of this

Schedule E, Part I.

Note: With respect to distributions of PTEP resulting from

inclusions under section 965 or section 951A, report the

foreign income taxes paid or accrued with respect to such

PTEP distributions (that are creditable under section 901)

without reduction for the foreign tax credit disallowance

under sections 965(g) and 960(d)(4), as applicable. The

disallowance is taken into account in columns 15 and 16

and Schedule G. See the specific instructions for

Schedule G, later.

Column 15. Report the amount disallowed under the

section 965(g) applicable percentage with respect to the

taxes paid or accrued under section 901 identified in

column 14.

Column 16. Report the amount disallowed under section

960(d)(4) with respect to the taxes paid or accrued under

section 901 identified in column 14.

Note: The totals reported for columns 12 and 15 with

respect to the section 965(g) disallowance are reported on

Schedule G, line F. The totals reported for columns 13 and

16 with respect to the section 960(d)(4) disallowance are

reported on Schedule G, line H.

Part II—Tax 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 year should be noted in column 2 using the

format YYYYMM.

20

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 is 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 one tax year, figure and show the tax deemed

paid on a separate line for each distribution.

Instructions for Form 1118 (Rev. 12-2025)

Column 3. Enter the applicable two-letter code from the

list at IRS.gov/CountryCodes.

properly attributable to PTEP distributions resulting from

inclusions under section 965 or section 951A.

Column 4b. Enter the EIN or reference ID number of the

recipient foreign corporation. See Reference ID numbers,

earlier.

Note: See the instructions for Schedule G, later, for

information on reduction of foreign taxes for failure to

furnish information required under section 6038.

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.

Example 1. USC, a domestic corporation, wholly owns

CFC1, a Country Y corporation, which 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, 2025,

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. The applicable percentage under

section 965(g) with respect to the $40 of taxes is 0.6. In

that same year, CFC1 distributes all 160u of the 2017

section 965(a) PTEP to USC. USC pays no foreign tax on

such distribution. 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

alphabetic code for the “u” using the ISO 4217 standard is

“UUU.”

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 code from the

list at IRS.gov/CountryCodes.

Column 7. Enter the applicable three-character

alphabetic 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 attributable to the 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

Instructions for Form 1118 (Rev. 12-2025)

USC makes the following entries on a single line on its

general category, Schedule E, Part I.

Column

Entry

1a

A CFC1

1b

10041

2

202512

3

BC

4

UUU

5

965a

6

2017

7

160u

8

40

9

160u

10

1.000

11

40

12

24

13

0

14

0

15

0

16

0

USC makes the following entries on the first of two lines

on Schedule E, Part II.

21

Column

Entry

1a

A CFC2

1b

10042

2

202512

3

OC

4a

CFC1

4b

10041

5

202512

6

BC

7

UUU

8

965a

9

2017

10

100u

11

0

12

100u

13

1.000

14

0

USC makes the following entries on the second of two

lines on Schedule E, Part II.

PTEP to 80u. The applicable percentage under section

965(g) with respect to the $20 of taxes is 0.6. 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, 2025, 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 alphabetic

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 to December 31, 2024.

For USC’s tax year ending December 31, 2025, 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

202512

Column

Entry

2

1a

A CFC3

3

OC

1b

10043

4

UUU

2

202512

5

965a

3

OC

6

2017

4a

CFC1

7

40u

4b

10041

8

10

5

202512

9

40u

6

BC

10

1.000

7

UUU

11

10

8

965a

12

6

9

2017

13

0

10

100u

14

0

11

0

15

0

12

100u

16

0

13

1.000

14

0

USC makes the following entries on the first of two lines

on Schedule E, Part II.

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)

22

Instructions for Form 1118 (Rev. 12-2025)

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

100u

11

0

12

50u

13

0.500

14

0

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, 2025, 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 2025 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 alphabetic 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 to December 31, 2024.

For USC’s tax year ending December 31, 2025, USC

completes Form 1118, Schedule E, as follows:

USC makes the following entries on Schedule E, Part I,

with respect to general category income.

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

Instructions for Form 1118 (Rev. 12-2025)

23

Column

Entry

Column

Entry

1a

A CFC1

1a

A CFC3

1b

10041

1b

10043

2

202512

2

201812

3

OC

3

BC

4

UUU

4a

CFC2

5

951a1A

4b

10042

6

2016

5

201812

7

405u

6

CC

8

95

7

UUU

9

405u

8

951a1A

10

1.000

9

2016

11

95

10

1000u

12

0

11

0

13

0

12

500u

14

0

13

0.500

15

0

14

0

16

0

USC makes the following entries on the first of two lines

on Schedule E, Part II, with respect to general category

income.

Column

Entry

B CFC1

Column

Entry

1a

1a

A CFC2

1b

10041

1b

10042

2

202512

2

202512

3

OC

3

CC

4

UUU

4a

CFC1

5

951A

4b

10041

6

2018

5

202512

7

225u

6

OC

8

25

7

UUU

9

225u

8

951a1A

10

1.000

9

2016

11

25

10

900u

12

0

11

100

13

0

12

450u

14

0

13

0.500

15

0

14

50

16

0

USC makes the following entries on the second of two

lines on Schedule E, Part II, with respect to general

category income.

24

USC makes the following entries on a line on

Schedule E, Part I, of its Form 1118, with respect to

section 951A category income.

USC makes the following entries on a line on

Schedule E, Part II, of its Form 1118, with respect to

section 951A category income.

Instructions for Form 1118 (Rev. 12-2025)

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

250u

11

0

12

250u

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.

Instructions for Form 1118 (Rev. 12-2025)

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).

These amounts should correspond to the total amounts

reported from Schedule E, Part I, columns 12 and 15.

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. Enter disallowed taxes under section 960(d)(4).

These amounts should correspond to the total amounts

reported from Schedule E, Part I, columns 13 and 16.

Section 960(d)(4) disallows a foreign tax credit under

section 901 for 10% of any foreign income taxes paid or

accrued (or deemed paid under section 960(b)(1)) with

respect to section 959(a) distributions, to the extent the

previously taxed earnings and profits were excluded under

section 959(a) by reason of a section 951A inclusion in a

U.S. shareholder’s tax year ending after June 28, 2025.

Line I. For any other reductions in taxes, enter the code

“OTH” and attach a statement with the amount and the

nature of such other reduction.

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.

25

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.

income pertaining to sales, licenses, leases, or services of

controlled parties (as defined in Regulations section

1.861-17(d)(4)).

Part I—Research and Experimental Deductions

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)).

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 codes (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

26

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).

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

Instructions for Form 1118 (Rev. 12-2025)

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.

Instructions for Form 1118 (Rev. 12-2025)

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 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).

27

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).

28

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 sections 1.861-12 and 1.861-13 and

Instructions for Form 1118 (Rev. 12-2025)

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).

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.

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 (f)

Column (c)

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.

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).

Instructions for Form 1118 (Rev. 12-2025)

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).

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 under 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),

29

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 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 these columns 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

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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.

Instructions for Form 1118 (Rev. 12-2025)

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.

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 through 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.

Instructions for Form 1118 (Rev. 12-2025)

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