Instructions for IRS Form 1116 - Foreign Tax Credit (Individual, Estate, or Trust) 2018

December 26, 2018 "Instructions For Irs Form 1116 - Foreign Tax Credit (individual, Estate, Or Trust)" contain the latest filing requirements for the IRS-issued Form 1116. Download your copy of the instructions by clicking the link below.

IRS Form 1116 is a tax form issued by the United States Internal Revenue Service.

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2018
Department of the Treasury
Internal Revenue Service
Instructions for Form 1116
Foreign Tax Credit
(Individual, Estate, or Trust)
Revised sourcing rule for certain
payee statements include Form
Section references are to the Internal Revenue
Code unless otherwise noted.
income from the sale of inventory under
1099-DIV, Form 1099-INT,
section 863(b); and
Schedule K-1 (Form 1041),
Contents
Page
Election to increase pre-2018 section
Schedule K-1 (Form 1065),
General Instructions . . . . . . . . . . . . .
1
904(g) Overall Domestic Loss (ODL)
Schedule K-1 (Form 1120S), or similar
Election To Claim the
recapture.
substitute statements.
Foreign Tax Credit
Your total creditable foreign taxes
Without Filing Form 1116 . . . .
1
More Information
aren't more than $300 ($600 if married
Purpose of Form . . . . . . . . . . . .
1
filing a joint return).
Credit or Deduction . . . . . . . . . .
2
For more information about, or
Foreign Taxes Eligible for a
assistance with, figuring the foreign tax
This election isn't available to estates
Credit . . . . . . . . . . . . . . . . .
2
credit, the following IRS resources are
or trusts.
Foreign Taxes Not Eligible
available.
for a Credit . . . . . . . . . . . . . .
2
If you make this election, the
Foreign Currency
Publications. See Pub. 514, Foreign
following rules apply.
Conversion . . . . . . . . . . . . .
3
Tax Credit for Individuals. The following
You can't carry over to or from any
Foreign Tax
publications also may be helpful.
other year any foreign taxes paid or
Redeterminations . . . . . . . . .
3
Pub. 54, Tax Guide for U.S. Citizens
accrued in a tax year to which the
Income From Sources
and Resident Aliens Abroad.
election applies (but carryovers to and
Outside the United States . . . .
3
Pub. 519, U.S. Tax Guide for Aliens.
from other years are unaffected). See
Categories of Income . . . . . . . . .
4
Pub. 570, Tax Guide for Individuals
the instructions for
line
10, later.
Special Rules . . . . . . . . . . . . . .
5
With Income From U.S. Possessions.
You are still required to take into
Foreign Qualified Dividends
Pub. 575, Pension and Annuity
account the general rules for
and Capital Gains
Income.
(Losses) . . . . . . . . . . . . . . .
7
determining whether a tax is creditable.
Specific Instructions . . . . . . . . . . . .
15
See
Foreign Taxes Eligible for a Credit
If you are overseas, call
Part I—Taxable Income or
and
Foreign Taxes Not Eligible for a
267-941-1000 (not toll free).
Loss From Sources
Credit, later.
Outside the United States . . .
15
You are still required to reduce the
Write to Internal Revenue
Part II—Foreign Taxes Paid
taxes available for credit by any amount
or Accrued . . . . . . . . . . . . .
17
Service, International Accounts,
you would have entered on line 12 of
Part III—Figuring the Credit . . . .
17
Philadelphia, PA 19255-0725.
Form 1116. See the instructions for
Part IV—Summary of
line
12, later.
Credits From Separate
General Instructions
Parts III . . . . . . . . . . . . . . .
23
To make the election, just enter on
the foreign tax credit line of your tax
Future Developments
Election To Claim the
return (for example, Schedule 3 (Form
Foreign Tax Credit Without
1040), line 48) the smaller of (a) your
For the latest information about
total foreign tax, or (b) your regular tax
Filing Form 1116
developments related to Form 1116 and
(for example, the total of Form 1040,
its instructions, such as legislation
You may be able to claim the foreign tax
line 11a and Schedule 2 (Form 1040),
enacted after they were published, go to
credit without filing Form 1116. By
line 46.
IRS.gov/Form1116.
making this election, the foreign tax
credit limitation (lines 15 through 21 of
Purpose of Form
What’s New
the form) won't apply to you. This
election is available only if you meet all
Who should file. File Form 1116 to
On December 22, 2017, Congress
of the following conditions.
claim the foreign tax credit if the
enacted the Tax Cuts and Jobs Act, P.L.
election, earlier, doesn't apply and:
All of your foreign source gross
115-97 (the “2017 Act”). The 2017 Act
You are an individual, estate, or trust;
income was “passive category income”
changes the computation of foreign tax
and
(which includes most interest and
credits for post-2017 tax years as
You paid or accrued certain foreign
dividends). See
c. Passive Category
follows:
taxes to a foreign country or U.S.
Income, later. However, for this
Two new separate categories of
possession.
purpose, passive income also includes
income under section 904(d): (i) any
See
Foreign Taxes Eligible for a
(a) income subject to the special rule for
amount includible in gross income
Credit, later, to determine if the taxes
High-taxed income
described later, and
under section 951A (other than passive
you paid or accrued qualify for the
(b) certain export financing interest.
category income) ("section 951A
credit.
All the income and any foreign taxes
income") and (ii) foreign branch income;
paid on it were reported to you on a
Don't use Form 1116 to figure a
qualified payee statement. Qualified
credit for taxes paid to the U.S. Virgin
Dec 26, 2018
Cat. No. 11441F
2018
Department of the Treasury
Internal Revenue Service
Instructions for Form 1116
Foreign Tax Credit
(Individual, Estate, or Trust)
Revised sourcing rule for certain
payee statements include Form
Section references are to the Internal Revenue
Code unless otherwise noted.
income from the sale of inventory under
1099-DIV, Form 1099-INT,
section 863(b); and
Schedule K-1 (Form 1041),
Contents
Page
Election to increase pre-2018 section
Schedule K-1 (Form 1065),
General Instructions . . . . . . . . . . . . .
1
904(g) Overall Domestic Loss (ODL)
Schedule K-1 (Form 1120S), or similar
Election To Claim the
recapture.
substitute statements.
Foreign Tax Credit
Your total creditable foreign taxes
Without Filing Form 1116 . . . .
1
More Information
aren't more than $300 ($600 if married
Purpose of Form . . . . . . . . . . . .
1
filing a joint return).
Credit or Deduction . . . . . . . . . .
2
For more information about, or
Foreign Taxes Eligible for a
assistance with, figuring the foreign tax
This election isn't available to estates
Credit . . . . . . . . . . . . . . . . .
2
credit, the following IRS resources are
or trusts.
Foreign Taxes Not Eligible
available.
for a Credit . . . . . . . . . . . . . .
2
If you make this election, the
Foreign Currency
Publications. See Pub. 514, Foreign
following rules apply.
Conversion . . . . . . . . . . . . .
3
Tax Credit for Individuals. The following
You can't carry over to or from any
Foreign Tax
publications also may be helpful.
other year any foreign taxes paid or
Redeterminations . . . . . . . . .
3
Pub. 54, Tax Guide for U.S. Citizens
accrued in a tax year to which the
Income From Sources
and Resident Aliens Abroad.
election applies (but carryovers to and
Outside the United States . . . .
3
Pub. 519, U.S. Tax Guide for Aliens.
from other years are unaffected). See
Categories of Income . . . . . . . . .
4
Pub. 570, Tax Guide for Individuals
the instructions for
line
10, later.
Special Rules . . . . . . . . . . . . . .
5
With Income From U.S. Possessions.
You are still required to take into
Foreign Qualified Dividends
Pub. 575, Pension and Annuity
account the general rules for
and Capital Gains
Income.
(Losses) . . . . . . . . . . . . . . .
7
determining whether a tax is creditable.
Specific Instructions . . . . . . . . . . . .
15
See
Foreign Taxes Eligible for a Credit
If you are overseas, call
Part I—Taxable Income or
and
Foreign Taxes Not Eligible for a
267-941-1000 (not toll free).
Loss From Sources
Credit, later.
Outside the United States . . .
15
You are still required to reduce the
Write to Internal Revenue
Part II—Foreign Taxes Paid
taxes available for credit by any amount
or Accrued . . . . . . . . . . . . .
17
Service, International Accounts,
you would have entered on line 12 of
Part III—Figuring the Credit . . . .
17
Philadelphia, PA 19255-0725.
Form 1116. See the instructions for
Part IV—Summary of
line
12, later.
Credits From Separate
General Instructions
Parts III . . . . . . . . . . . . . . .
23
To make the election, just enter on
the foreign tax credit line of your tax
Future Developments
Election To Claim the
return (for example, Schedule 3 (Form
Foreign Tax Credit Without
1040), line 48) the smaller of (a) your
For the latest information about
total foreign tax, or (b) your regular tax
Filing Form 1116
developments related to Form 1116 and
(for example, the total of Form 1040,
its instructions, such as legislation
You may be able to claim the foreign tax
line 11a and Schedule 2 (Form 1040),
enacted after they were published, go to
credit without filing Form 1116. By
line 46.
IRS.gov/Form1116.
making this election, the foreign tax
credit limitation (lines 15 through 21 of
Purpose of Form
What’s New
the form) won't apply to you. This
election is available only if you meet all
Who should file. File Form 1116 to
On December 22, 2017, Congress
of the following conditions.
claim the foreign tax credit if the
enacted the Tax Cuts and Jobs Act, P.L.
election, earlier, doesn't apply and:
All of your foreign source gross
115-97 (the “2017 Act”). The 2017 Act
You are an individual, estate, or trust;
income was “passive category income”
changes the computation of foreign tax
and
(which includes most interest and
credits for post-2017 tax years as
You paid or accrued certain foreign
dividends). See
c. Passive Category
follows:
taxes to a foreign country or U.S.
Income, later. However, for this
Two new separate categories of
possession.
purpose, passive income also includes
income under section 904(d): (i) any
See
Foreign Taxes Eligible for a
(a) income subject to the special rule for
amount includible in gross income
Credit, later, to determine if the taxes
High-taxed income
described later, and
under section 951A (other than passive
you paid or accrued qualify for the
(b) certain export financing interest.
category income) ("section 951A
credit.
All the income and any foreign taxes
income") and (ii) foreign branch income;
paid on it were reported to you on a
Don't use Form 1116 to figure a
qualified payee statement. Qualified
credit for taxes paid to the U.S. Virgin
Dec 26, 2018
Cat. No. 11441F
Islands. Instead, use Form 8689,
10 under
Foreign Taxes Not Eligible for
repeatedly provide support for acts of
Allocation of Individual Income Tax to
a
Credit, later.
international terrorism, countries with
the U.S. Virgin Islands.
which the United States doesn't have or
If you want to change your election to
doesn't conduct diplomatic relations, or
take a deduction instead of a credit, or a
Nonresident aliens. If you are a
countries whose governments aren't
credit instead of a deduction, you must
nonresident alien, you generally can't
recognized by the United States and
do so within a special 10-year limitation
take the credit. However, you may be
aren't otherwise eligible to purchase
period. Although the limitations period
able to take the credit if:
defense articles or services under the
for refund claims relating to a foreign tax
You were a resident of Puerto Rico
Arms Export Control Act. Pub. 514
credit generally runs parallel with the
during your entire tax year, or
contains a list of these countries.
election period, the limitations period for
You pay or accrue tax to a foreign
3. Foreign taxes withheld on a
refund claims relating to a deduction of
country or U.S. possession on income
dividend from a corporation, if you
foreign tax doesn't, and may expire
from foreign sources that is effectively
haven't held the stock for at least 16
before the end of the election period.
connected with a trade or business in
days within the 31-day period that
See Pub. 514 for more information.
the United States. But if you must pay
begins 15 days before the ex-dividend
tax to a foreign country or U.S.
Foreign Taxes Eligible for
date. This required holding period is
possession on income from U.S.
greater for preferred-stock dividends
a Credit
sources only because you are a citizen
attributable to periods totaling more
or a resident of that country or U.S.
You can take a credit for income, war
than 366 days. See section 901(k)(3) or
possession, don't use that tax in figuring
profits, and excess profits taxes paid or
Pub. 514.
the amount of your credit.
accrued during your tax year to any
4. Foreign taxes withheld on a
See section 906 for more information
foreign country or U.S. possession, or
dividend to the extent that you have to
on the foreign tax credit allowed to a
any political subdivision (for example,
make related payments on positions in
nonresident alien individual.
city, state, or province) of the country or
substantially similar or related property.
possession. This includes taxes paid or
Credit or Deduction
accrued in lieu of a foreign or
Example. You receive a dividend
possession income, war profits, or
subject to foreign withholding tax. You
Instead of claiming a credit for eligible
excess profits tax that is otherwise
are obligated to pay someone else an
foreign taxes, you can choose to deduct
generally imposed. For purposes of the
amount equal to all these dividends you
foreign income taxes. Form 1040 filers
credit, U.S. possessions include Puerto
receive. You can't claim a foreign tax
choosing to do so would deduct foreign
Rico and American Samoa.
credit for the withholding tax on these
income taxes on Schedule A (Form
dividends.
1040), Itemized Deductions. Generally,
U.S. citizens living in certain treaty
if you take the credit for any eligible
5. Foreign taxes withheld on income
countries may be able to take an
foreign taxes, you can't take any part of
or gain (other than dividends) from
additional foreign tax credit for foreign
that year's foreign taxes as a deduction.
property if you haven't held the property
tax imposed on certain items of income
However, even if you take the credit for
for at least 16 days within the 31-day
from the United States. See Tax
eligible foreign taxes for the year, you
period that begins 15 days before the
Treaties in Pub. 514 for details.
can take a deduction for the following.
date on which the right to receive the
Foreign taxes not allowed as a credit
Foreign Taxes Not Eligible
payment arises. See section 901(l) or
because of boycott provisions.
Pub. 514.
for a Credit
Taxes paid to certain foreign
6. Foreign taxes withheld on income
You can't take a credit for the following
countries for which a credit has been
or gain (other than dividends) from
foreign taxes.
denied, as described in item 2 under
property to the extent you have to make
Foreign Taxes Not Eligible for a
Credit,
1. Taxes paid to a foreign country
related payments on positions in
later.
that you don't legally owe, including
substantially similar or related property.
Taxes on income or gain that aren't
amounts eligible for refund by the
7. Payments of foreign tax that are
creditable because you don't meet the
foreign country. If you don't exercise
returned to you in the form of a subsidy.
holding period requirement, as
your available remedies to reduce the
described in item 3 or 5 under
Foreign
8. Taxes paid or accrued to a
amount of foreign tax to what you legally
Taxes Not Eligible for a
Credit, later.
foreign country in connection with the
owe, a credit for the excess amount isn't
Taxes on income or gain that aren't
purchase or sale of oil or gas extracted
allowed. The amount of tax actually
creditable because you have to make
in that country if you don't have an
withheld by a foreign country isn't
related payments, as described in item
economic interest in the oil or gas, and
necessarily 100% creditable. See
4 or 6 under
Foreign Taxes Not Eligible
the purchase price or sales price is
Regulations section 1.901-2(e)(2)(i).
for a
Credit, later.
different from the fair market value of
Example. Country X withholds $25
Certain taxes paid or accrued to a
the oil or gas at the time of the purchase
of tax from a payment made to you.
foreign country in connection with the
or sale.
Under the income tax treaty between
purchase or sale of oil or gas extracted
9. Foreign taxes paid or accrued on
the United States and Country X, you
in that country, as described in item 8
income for which you are claiming an
owe only $15 and can claim a refund
under
Foreign Taxes Not Eligible for a
exclusion on Form 8873, Extraterritorial
from Country X for the other $10. Only
Credit, later.
Income Exclusion. However, see
$15 is eligible for the foreign tax credit
Taxes on income or gain that aren't
section 943(d) for an exception for
(whether or not you apply for a refund).
creditable because they were paid or
certain withholding taxes.
2. Taxes imposed by and paid to
accrued in connection with a covered
10. The disqualified portion of any
certain foreign countries. These
asset acquisition, as described in item
foreign tax paid or accrued in
countries are those designated by the
connection with a covered asset
Secretary of State as countries that
-2-
Instructions for Form 1116 (2018)
acquisition. Covered asset acquisitions
the tax year of at least 30%, as
translate the taxes into U.S. dollars
include certain acquisitions that result in
determined by reference to the
using the exchange rate as of the date
a stepped-up basis for U.S. tax
consumer price index of the country
they were paid. The foreign tax credit is
purposes. For more information, see
listed in the monthly issues of
allowed for the year to which the foreign
section 901(m) and the temporary
International Financial Statistics, or a
tax relates. See
Foreign Currency
regulations under that section, including
successor publication, of the
Conversion, earlier.
Treasury Decision 9800, in Internal
International Monetary Fund.
3. After you pay the accrued taxes,
Revenue Bulletin 2016-52 at
IRS.gov/
you receive a full or partial refund of
Election to use exchange rate on
irb/2016-52_IRB/ar09.html.
them.
date paid. If you have accrued foreign
You can't take a credit for any
taxes that you are otherwise required to
4. For taxes taken into account
interest or penalties you must pay. For
convert using the average exchange
when accrued but translated into dollars
more information, see Foreign Taxes for
rate, you can elect to use the exchange
on the date of payment, the dollar value
Which You Cannot Take a Credit in
rate in effect on the date the foreign
of the accrued tax differs from the dollar
Pub. 514.
taxes are paid if the taxes are
value of the tax paid because of
denominated in a nonfunctional foreign
11. Foreign taxes disallowed under
fluctuations in the exchange rate
currency. If any of the accrued taxes are
section 965(g).
between the date of accrual and the
unpaid, you must translate them into
date of payment. However, no
Foreign Currency
U.S. dollars using the exchange rate on
redetermination is required if the change
the last day of the U.S. tax year to which
Conversion
in foreign tax liability for each foreign
those taxes relate. Once made, the
country is solely attributable to
Report all amounts in U.S. dollars
election applies to the tax year for which
exchange rate fluctuation and is less
except where specified otherwise in
made and all subsequent tax years
than the smaller of:
Part
II. If you have to convert from
unless revoked with the consent of the
a. $10,000, or
foreign currency, attach a detailed
IRS. It must be made by the due date
explanation of how you figured the
b. 2% of the total dollar amount of
(including extensions) for filing the tax
conversion rate.
the foreign tax initially accrued for that
return for the first tax year to which the
foreign country for the U.S. tax year.
election applies. Make the election by
If you take a credit for taxes paid, the
attaching a statement to the applicable
conversion rate is the rate of exchange
In this case, you must adjust your
tax return.
in effect on the day you paid the foreign
U.S. tax in the tax year in which the
taxes (or on the day the tax was
accrued foreign taxes are paid.
Special rules for a qualified busi-
withheld). If you receive a refund of
ness unit. If you have a qualified
If any of the above situations occurs
foreign taxes paid, the conversion rate
business unit, see Pub. 514 for special
after you file your return, you generally
is the rate in effect when you paid the
rules for converting foreign income and
must file Form 1040X, Amended U.S.
taxes, not when you receive the refund.
taxes into U.S. dollars. You may have a
Individual Income Tax Return, or other
If you choose to account for foreign
qualified business unit if you own and
amended return, to notify the IRS so
income taxes on an accrual basis, you
operate a business or are self-employed
that your U.S. tax for the year or years
must generally use the average
in a foreign country.
affected can be redetermined.
exchange rate for the tax year to which
Complete and attach to Form 1040X (or
Foreign Tax
the taxes relate. However, you can't do
other amended return) a revised Form
so if any of the following apply.
Redeterminations
1116 for the tax year(s) affected and a
1. The foreign taxes are actually
statement that contains information
If you claim a credit for foreign taxes
paid more than 2 years after the close of
sufficient for the IRS to redetermine your
paid, and you receive a refund of all or
the tax year to which they relate.
U.S. tax liability. In some cases, you
part of those taxes in a later year, you
may not have to file Form 1040X or
2. The foreign taxes are actually
must file an amended return reducing
attach Form 1116. See Pub. 514 for
paid in a tax year prior to the year to
the taxes credited by the amount
more information, including exceptions.
which they relate.
refunded.
3. The foreign tax liability is
If you don't notify the IRS of a
If you claim the foreign tax credit
denominated in any inflationary
foreign tax refund or change in
!
based on foreign taxes accrued instead
currency.
the dollar amount of foreign
of foreign taxes paid, your credit must
CAUTION
taxes paid or accrued, you will have to
Accrued foreign taxes not eligible for
be redetermined in any of the following
pay a penalty unless you can show that
conversion at the yearly average
situations.
the failure to notify the IRS is due to
exchange rate must be converted using
1. Your accrued taxes when paid
reasonable cause and not due to willful
the exchange rate on the date of
differ from the amount you claimed as a
neglect.
payment of the tax. However, accrued
credit.
but unpaid foreign taxes denominated in
2. You don't pay the accrued taxes
Income From Sources
inflationary currency must be translated
within 2 years after the close of the tax
into U.S. dollars using the exchange
Outside the
year to which they relate.
rate on the last day of the U.S. tax year
United States
If this applies to you, you must
to which those taxes relate.
reduce the credit previously claimed by
Foreign source income generally
Inflationary currency. Inflationary
the amount of the unpaid taxes. You
includes, but isn't limited to, the
currency means the currency of a
won't be allowed a credit for the unpaid
following.
country in which there is cumulative
taxes until you pay them. When you pay
Compensation for services performed
inflation during the 36 calendar months
the accrued taxes, a new tax
outside the United States.
immediately preceding the last day of
redetermination occurs and you must
Instructions for Form 1116 (2018)
-3-
Interest income from a payer located
certain controlled foreign corporations.
qualify as a financial services entity
outside the United States.
See Pub. 514 for additional details.
because you treat certain items of
Dividends from a corporation
income as active financing income
b. Foreign Branch Income
incorporated outside the United States.
under Regulation section 1.904-4(e)(2)
Foreign branch income consists of the
Subpart F income inclusions and
(i)(Y), you must show the type and
business profits of U.S. persons that are
section 951A income inclusions.
amount of each item on an attachment
attributable to one or more qualified
Gain on the sale of nondepreciable
to Form 1116.
business units (QBUs) in one or more
personal property you sold while
Specified passive category income.
foreign countries. Foreign branch
maintaining a tax home outside the
Dividends from a DISC (domestic
income doesn’t include any passive
United States, if you paid a tax of at
international sales corporation) or
category income. See Pub. 514 for
least 10% of the gain to a foreign
former DISC to the extent they are
further information.
country.
treated as foreign source income, and
c. Passive Category Income
certain distributions from a former FSC
Foreign source income generally
(foreign sales corporation) are specified
doesn't include gain realized on the sale
Passive category income consists of
passive category income.
or exchange of personal property by a
passive income and specified passive
U.S. resident as defined in section
category income.
d. General Category Income
865(g).
General category income is income that
Passive category income doesn't
Special rules apply in determining the
isn't section 951A income, foreign
include gain from the sale of inventory
source of income from the sale of
branch income, passive category
or property held primarily for sale to
inventory; sale of depreciable property
income, or income described in
customers in the ordinary course of your
used in a trade or business; sale of
categories e, f, and g, discussed later.
trade or business; gain from
intangible property such as a patent,
General category income may include
commodities hedging transactions; and
copyright, or trademark; and
the following.
active business gains or losses of
transportation services that begin or end
Wages, salary, and overseas
producers, processors, merchants, or
in the United States or a U.S.
allowances of an individual as an
handlers of commodities. It may also not
possession. See Pub. 514 for more
employee.
include dividends, interest, rents, or
information.
Income earned in the active conduct
royalties received from a controlled
of a trade or business.
foreign corporation (CFC) in which you
Compensation for labor or personal
Gains from the sale of inventory or
are a U.S. shareholder who owns 10%
services as an employee. If you are
depreciable property used in a trade or
or more of the total voting power or the
an employee and receive compensation
business. See Pub. 514 for additional
total value of all classes of the
for labor or personal services performed
details.
corporation's stock.
both inside and outside the United
States, special rules apply in
e. Section 901(j) Income
Passive income. Passive income
determining the source of the
generally includes dividends, interest,
No credit is allowed for foreign taxes
compensation. Compensation (other
royalties, rents, annuities, excess of
imposed by and paid or accrued to
than fringe benefits) is sourced on a
gains over losses from the sale of
certain sanctioned countries. However,
time basis. Fringe benefits (such as
property that produces such income or
income derived from each sanctioned
housing and education) are sourced on
of non-income-producing investment
country is subject to a separate foreign
a geographical basis. Or you may be
property, and excess of gains over
tax credit limitation. Therefore, you must
able to use an alternative basis to
losses from foreign currency or
use a separate Form 1116 for income
determine the source. If you use an
commodities transactions. Capital gains
derived from each sanctioned country.
alternative basis, you may have to
not related to the active conduct of a
check the box on line 1b (discussed
trade or business are also generally
Note. A foreign tax credit may be
later). See Pub. 514 for more
passive income.
claimed for foreign taxes paid or
information.
accrued with respect to section 901(j)
Passive income doesn't include
income if such tax is paid or accrued to
export financing interest, active
Categories of Income
a country other than a sanctioned
business rents and royalties, or
Use a separate Form 1116 to figure the
country. For example, if a U.S. citizen
high-taxed income. High-taxed income
credit for each category of foreign
resident in a non-sanctioned country
is income if the foreign taxes you paid
source income listed above Part I of
pays a residence-based income tax in
on the income (after allocation of
Form 1116. The following instructions
that country on income derived from
expenses) exceed the highest U.S. tax
tell you what kind of income to include in
business activities in a sanctioned
that can be imposed on the income.
each category. For more information,
country, those foreign taxes would be
Passive income also doesn't include
see Pub. 514, Code section 904, and
eligible for a foreign tax credit. Any
financial services income derived by a
Regulations sections 1.904-4 and
taxes imposed on that income by the
financial services entity. You are a
1.904-5.
sanctioned country would not be eligible
financial services entity if you are
for a foreign tax credit. If no taxes are
a. Section 951A Income
predominantly engaged in the active
paid or accrued to sanctioned countries,
conduct of a banking, insurance,
Section 951A income includes any
you would generally complete Form
financing, or similar business for the tax
amount included in gross income under
1116 for this category only through
year. Financial services income of a
section 951A (other than passive
line 17.
financial services entity generally
category income). Section 951A income
includes income derived in the active
is otherwise referred to as global
Sanctioned countries are those
conduct of a banking, financing,
intangible low-taxed income (GILTI) and
designated by the Secretary of State as
insurance or similar business. If you
is included by U.S. shareholders of
countries that repeatedly provide
-4-
Instructions for Form 1116 (2018)
source lump-sum distribution from a
pension plan. Special formulas may be
Keep for Your Records
Worksheet for Lump-Sum Distributions
used to figure a separate tax on a
qualified lump-sum distribution for the
1. Enter the amount from Form 1116, line 8
1.
year in which the distribution is
received. See Pub. 575 for more
2. Enter the sum of the amounts from Form 4972, lines 6 and 12,
information.
that are from foreign sources. Also enter this amount
on Form 1116, line 17
2.
If you are able to elect, and do elect,
to figure your U.S. tax on a lump-sum
3. Enter the sum of the amounts from Form 4972, lines 6 and 12,
distribution using Form 4972, Tax on
that are from all sources (both U.S. and foreign). Also enter
Lump-Sum Distributions, a separate
this amount on Form 1116, line 18
3.
foreign tax credit limitation applies. Use
a separate Form 1116. On this separate
4. Divide line 2 by line 3. Enter the result as a decimal (rounded
Form 1116, check box g above Part I.
to at least four places) here and on Form 1116, line 19. If
Skip Part I. Complete Part II showing
line 2 is equal to or more than line 3, enter “1”
4.
only foreign taxes that are attributable to
5. Enter the amount from Form 4972, line 30. Also include
the lump-sum distribution. Then,
this amount on Form 1116, line 20
5.
complete the
Worksheet for Lump-Sum
Distributions
to figure the amounts to
Don't include the amount on line 5 above in the
enter in Part III.
!
tax you enter on line 20 of any other Form 1116 you
CAUTION
are filing.
Special Rules
6. Multiply line 5 by line 4. Enter the result here and on
Look-Through Rules
Form 1116, line 21
6.
Certain income received or accrued by
you as a 10%-or-more U.S. shareholder
7. Enter the smaller of line 1 or line 6 here and on Form 1116,
in a controlled foreign corporation (CFC)
line 22. To the left of line 22, write “LSD”
7.
is treated as income in one of the
separate categories listed under
Categories of
Income, earlier. For
support for acts of international
from all sanctioned countries. However,
example, Subpart F inclusions,
terrorism, countries with which the
a separate Form 1116 must be
dividends, interest, rents, and royalties
United States doesn't have or doesn't
completed with respect to section 965
from a CFC are treated as separate
conduct diplomatic relations, or
inclusions attributable to each
category income to the extent they are
countries whose governments aren't
sanctioned country.
attributable to separate category income
recognized by the United States and
f. Certain Income Re-Sourced
of the CFC. See Regulations section
aren't otherwise eligible to purchase
by Treaty
1.904-5 for more information.
defense articles or services under the
Arms Export Control Act. Pub. 514
If a sourcing rule in an applicable
Reporting Foreign Tax
contains a list of these countries.
income tax treaty treats U.S. source
Information From Partnerships
income as foreign source, and you elect
and S Corporations
If you paid taxes to a country that
to apply the treaty, the income will be
ceased to be a sanctioned country
If you received a 2018 Schedule K-1
treated as foreign source.
during the tax year, see Pub. 514 for
from a partnership or S corporation that
details on how to figure the foreign tax
Important. You must compute a
includes foreign tax information, use the
credit for the period that begins after the
separate foreign tax credit limitation for
rules below to report that information on
end of the sanctions.
any income for which you claim benefits
Form 1116.
under a treaty, using a separate Form
Presidential waiver. The President of
1116 for each amount of re-sourced
the United States has the authority to
General Information for Partners
income from a treaty country. See
waive the denial of the credit with
and S Corporation Shareholders
sections 865(h), 904(d)(6), and 904(h)
respect to a sanctioned country if:
(10) and the regulations under those
Less-than-10% limited partners and
The waiver is in the national interest
sections (including 1.904-5(m)(7)) for
certain less-than-10% S corporation
of the United States and will expand
any grouping rules and exceptions. Add
shareholders. If you are a limited
trade and investment opportunities for
the amounts from line 22 of each
partner or an S corporation shareholder
U.S. companies in the sanctioned
separate Form 1116 and enter the total
who doesn't actively participate in the
country; and
on line 28 of your summary Form 1116
The President reports to the
management of the S corporation and
(that is, the Form 1116 for which you are
Congress, not less than 30 days before
you own a less-than-10% interest (by
completing Part IV). In addition, you
the waiver is granted, the intention to
value) in the partnership or S
may be required to file Form 8833,
grant the waiver and the reason for the
corporation, you generally may
Treaty-Based Return Position
waiver.
categorize your distributive share of
Disclosure Under Section 6114 or
foreign source income and deductions
Note. Taxpayers will complete one
7701(b), for the re-sourced income.
from that partnership or S corporation
Schedule H of Form 965, Inclusion of
as passive income. See Regulations
g. Lump-Sum Distributions
Deferred Foreign Income Upon
section 1.904-5(h)(2) for more details
You can take a foreign tax credit for
Transition to Participation Exemption
and exceptions.
taxes you paid or accrued on a foreign
System, with respect to income derived
Instructions for Form 1116 (2018)
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Download Instructions for IRS Form 1116 - Foreign Tax Credit (Individual, Estate, or Trust) 2018

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