Instructions for Form 1118, Foreign Tax Credit - Corporations Revision Date 01/05/2022

• Issuer: Treasury Department
• Section: Treasury Department

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Instructions for Schedule L

(Form 1118)

(Rev. December 2023)

Department of the Treasury

Internal Revenue Service

Section references are to the Internal Revenue

Code unless otherwise noted.

Future Developments

For the latest information about

developments related to Schedule L (Form

1118) and its instructions, such as

legislation enacted after they were

published, go to IRS.gov/Form1118.

What’s New

Schedule L will be electronically enabled

for tax year 2023. See

Computer-Generated Schedule L on

page 2 for additional information.

The entry spaces for the following

columns have been modified to allow for

the entry of a maximum of 12 characters.

•Page 1, Part I, column 13.

•Page 4, Part V, column 3.

The above columns request the reference

ID number for contested foreign income

tax. The instructions for those columns tell

filers to enter the reference ID number for

the contested foreign income tax that was

reported on the applicable Form 7204.

Because the reference ID number for

contested foreign income tax reported on

Form 7204 is limited to 12 characters, the

entry spaces for the above columns can

be limited to 12 characters.

On page 4 of the Schedule L, the

sentence “Do not complete Part V for the

tax year 2022” has been deleted in the

Part V heading.

General Instructions

Purpose of Schedule

Schedule L (Form 1118) is used to identify

foreign tax redeterminations that occur in

the current tax year in each applicable

separate category, the years to which they

relate, and other information that satisfies

the taxpayer’s obligation to notify the IRS

of foreign tax redeterminations related to

prior years.

Use Part I to report foreign income tax

redeterminations that resulted in an

increase in the amount of foreign taxes

accrued and paid by the taxpayer or by a

foreign corporation with respect to which

the taxpayer computed an amount of

foreign income taxes deemed paid.

Use Part II to report foreign income tax

redeterminations that resulted in a

decrease in the amount of foreign taxes

paid or accrued by the taxpayer or by a

foreign corporation with respect to which

the taxpayer computed an amount of

foreign income taxes deemed paid.

Use Part III to report foreign tax

redeterminations that resulted in a change

to the taxpayer’s income inclusions, a

change in the amount of foreign income

taxes paid, accrued, or deemed paid, or a

change in the amount of foreign tax credits

claimed in any relation back year.

Use Part IV to report foreign tax

redeterminations that resulted in a change

in the U.S. tax liability for any relation back

year or other affected tax year(s) (for

example, by reason of a change in

allowable foreign tax credit carryovers).

Use Part V beginning with the 2023 tax

year, to satisfy the annual reporting

requirement under Regulations section

1.905-1(d)(4)(iv) for contested foreign

income taxes for which the taxpayer

claimed a provisional foreign tax credit.

Who Must File

Any taxpayer that has a foreign tax

redetermination under section 905(c) must

complete this schedule and attach it to the

income tax return for the taxable year in

which the foreign tax redetermination

occurs. This schedule must be submitted

irrespective of whether the foreign tax

redetermination changed the taxpayer’s

U.S. tax liability.

Note. If the U.S. tax liability for any year

changes by reason of the foreign tax

redetermination, the taxpayer must file an

amended return for the taxable year with

respect to which the U.S. tax liability is

adjusted, in addition to filing Schedule L

for the year in which the foreign tax

redetermination occurs. See Foreign Tax

Redeterminations in the Instructions for

Form 1118 for additional information

regarding foreign tax redeterminations that

result in a change in U.S. tax liability and

for the related reporting requirements.

If a foreign tax redetermination does

not change the amount of U.S. tax due for

any taxable year, the taxpayer does not

need to file an amended return. The

taxpayer satisfies its reporting

requirements under Regulations section

1.905-4(b)(1)(v) with respect to such

foreign tax redetermination by filing a

Schedule L with the return for the taxable

year in which the foreign tax

redetermination occurs.

Definitions

Foreign tax redetermination. A foreign

tax redetermination means a change in

the liability for foreign income taxes

including if:

•Accrued foreign 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 taxable

year to which the tax relates);

•Accrued foreign taxes are not paid

within 24 months after the close of the tax

year to which they relate; or

•Any foreign tax paid is fully or partially

refunded.

Relation back year. Relation back year

means the U.S. tax year in which the

foreign taxes being redetermined were

originally taken into account.

Example. In U.S. taxable year 1, a

taxpayer took into account $2 million of

Country X foreign income taxes accrued

with respect to the foreign tax year that

ended within U.S. taxable year 1. In year 3,

Country X assessed an additional $1

million of foreign income taxes with

respect to the foreign taxable year that

ended within U.S. taxable year 1. The

relation back year is U.S. taxable year 1.

Affected tax year. Affected tax year

means any tax year for which the U.S. tax

liability is changed as a result of a foreign

tax redetermination. This includes tax

years in which the U.S. tax liability is

changed as a result of a change in a

carryover of a tax attribute, such as a

foreign tax credit carryover or a net

operating loss carryover, from a relation

back year.

Functional currency. Functional

currency means the dollar, or in the case

of a qualified business unit (QBU), the

currency of the economic environment in

which a significant part of such unit’s

activities are conducted and which is used

by such unit in keeping its books and

records. See section 985(b).

Reference ID number for contested

tax. See the Instructions for Form 7204

for the definition of and requirements for

the reference ID number for contested

foreign income tax.

Dec 27, 2023 Cat. No. 38267T