| Instructions for Form 1118 |
2006 Tax Year |
This is archived information that pertains only to the 2006 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Use Form 1118 to compute a corporation's foreign tax credit for certain taxes paid or accrued to foreign countries or U.S.
possessions. See
Taxes Eligible for a Credit on page 3.
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.
When to Make the Election
The election to claim the foreign tax credit (or a deduction in lieu of a 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).
Computer-Generated Form 1118
The corporation may submit a computer-generated Form 1118 and schedules if they conform to the IRS version. However, if a
software program is used,
it must be approved by the IRS for use in filing substitute forms. This ensures the proper placement of each item appearing
on the IRS version. For
more information, see Pub. 1167, General Rules and Specifications for Substitute Forms and Schedules.
How To Complete Form 1118
Important:
Complete a separate Schedule A; Schedule B, Parts I & II; Schedules C through G; and Schedule I for each applicable separate
category of
income. See Categories of Income below. Complete Schedule B, Part III; Schedule H; and Schedule J 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 limitations.
-
Use Schedule C to compute taxes deemed paid by the domestic corporation filing the return.
-
Use Schedules D and E to compute taxes deemed paid by lower-tier foreign corporations.
-
Use Schedule F to report gross income and definitely allocable deductions from foreign branches.
-
Use Schedule G to report required reductions of tax paid, accrued, or deemed paid.
-
Use Schedule H to apportion deductions that cannot be definitely allocated to some item or class of income.
-
Use Schedule I (a separate schedule) to compute reductions of taxes paid, accrued, or deemed paid on foreign oil and gas
extraction 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 loss account balances.
Compute a separate foreign tax credit for each applicable separate category described below.
Generally, passive income is:
-
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 sections 551 (which relates to foreign personal holding companies prior to its
repeal effective
for tax years of foreign corporations beginning after December 31, 2004) and 1293 (which relates to certain passive foreign
investment
companies).
Passive income does not include:
-
Any income that belongs in one of the other separate categories described below,
-
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 General Limitation Income on page 2), or
-
Any active rents or royalties received from an unrelated person and active rents or royalties received from a related person
that were paid
or accrued after September 20, 2004. See Regulations section 1.904-4(b)(2) for definitions and exceptions.
Note.
Certain income received from a CFC and certain dividends from a 10/50 corporation that would otherwise be passive income may
be assigned to another
separate category under the look-through rules. See Look-Through Rules on page 3.
High Withholding Tax Interest
High withholding tax interest is any interest subject to a withholding tax or other gross basis tax of a foreign country or
U.S. possession at a
rate of 5% or more.
High withholding tax interest does not include export financing interest (section 904(d)(2)(B)(ii)).
Financial Services Income
Financial services income is income received or accrued while the corporation was a financial services entity if the income
is:
-
Described in section 904(d)(2)(C)(ii),
-
Passive income (determined without regard to section 904(d)(2)(A)(iii)(I) and (III)),
-
Export financing interest (section 904(d)(2)(G)) that would be high withholding tax interest but for section 904(d)(2)(B)(ii),
or
-
Incidental income described in Regulations section 1.904-4(e)(4).
Financial services income does not include:
-
Any high withholding tax interest, or
-
Any export financing interest not described in section 904(d)(2)(C)(i)(III).
Special rules apply for affiliated groups. See Regulations section 1.904-4(e)(3)(ii).
Shipping income is any income the corporation receives or accrues that is of a kind that would be foreign base company shipping
income as defined
in section 954(f) as in effect before its repeal by the American Jobs Creation Act of 2004.
Shipping income does not include:
-
Financial services income,
-
High withholding tax interest, or
-
Foreign trade income.
Dividends From 10/50 Corporations
The American Jobs Creation Act of 2004 eliminated the separate categories of income for dividends received from noncontrolled
section 902
corporations (10/50 corporations). The change is generally effective for tax years beginning after December 31, 2002. Dividends
paid by 10/50
corporations in post-2002 tax years are generally eligible for look-through treatment (see Look-Through Rules on page 3). Corporations that
filed a tax return in which they claimed a foreign tax credit with respect to dividends paid by 10/50 corporations in post-2002
tax years that were
reported in the following separate categories of income should file an amended return and revised Form(s) 1118:
Transition rule.
The corporation may elect not to apply the look-through treatment referred to in the previous paragraph for tax years beginning after
December 31, 2002, and before January 1, 2005. If the corporation makes this election, in the case of tax years beginning
after December 31, 2004, the
corporation should apply section 904(d)(4)(C)(iv) by substituting “ January 1, 2005” for “ January 1, 2003” in both places it appears. The
Treasury Department will issue guidance regarding the manner in which this election is to be made subsequent to the issuance
of these instructions.
Dividends From a DISC or Former DISC
This category includes dividends from a DISC or former DISC (as defined in section 992(a)) that are treated as income from
sources outside the
United States.
Taxable Income Attributable to Foreign Trade Income
No credit is allowed for foreign taxes paid or accrued by a FSC on its taxable income attributable to foreign trade income
within the meaning of
section 923(b), as in effect before its repeal. However, this type of income is subject to a separate foreign tax credit limitation.
See section
906(b)(5) and Temporary Regulations section 1.921-3T(d)(3).
Certain Distributions From a FSC or Former FSC
This category includes:
No credit is allowed for foreign taxes imposed by and paid or accrued to certain sanctioned countries. However, income derived
from each
such 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, check the box for section 901(j) income at the top of page 1 and identify the applicable
country in the
space provided.
Sanctioned countries are those designated by the Secretary of State as countries that repeatedly provide support for acts
of international
terrorism, countries with which the United States does not have diplomatic relations, or countries whose governments are not
recognized by the United
States. As of the date these instructions were revised, section 901(j) applied to income derived from Cuba, 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 U.S. 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.
If the corporation paid taxes to a country that ceased to be a sanctioned country during the tax year, see Rev. Rul. 92-62,
1992-2 C.B. 193, for
details on how to figure the foreign tax credit for the period that begins after the end of the sanctioned period.
Note.
Iraq ceased to be a sanctioned country on June 27, 2004.
Income Re-sourced by Treaty
If a sourcing rule in an applicable income tax treaty treats any of the income described below as foreign source, and the
corporation elects to
apply the treaty, the income will be treated as foreign source.
-
Dividends eligible for the dividends received deduction (section 245(a)(10)).
-
Certain gains (section 865(h)).
-
Certain income from a U.S.-owned foreign corporation (section 904(g)(10)). See Regulations section 1.904-5(m)(7) for an example.
Important:
The corporation must compute a separate foreign tax credit limitation for any such income for which it claims benefits under
a treaty, using a
separate Form 1118 for each amount of re-sourced income from a treaty country. On each Form 1118, check the box for income
re-sourced by treaty at the
top of page 1 and identify the applicable country in the space provided.
General Limitation Income
This category includes all income not described above. This includes high-taxed income that would otherwise be passive 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).
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(g) described below; and any applicable source rules contained in any
applicable tax treaties.
Special source rules of section 904(g).
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(g):
-
Any subpart F income, foreign personal holding company income, 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; and
-
Dividends equal to the U.S. source ratio (defined in section 904(g)(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.
Amounts That Do Not Constitute Income Under U.S. Tax Principles
For taxes paid or accrued in tax years beginning after December 31, 2004, and before January 1, 2007, the corporation may
elect to treat creditable
foreign taxes that are imposed on amounts that do not constitute income under U.S. tax principles as imposed on either general
limitation income or
financial services income. An election to treat such taxes as imposed on financial services income is made by attaching a
statement to a timely-filed
(including extensions) Form 1118 that indicates that the corporation is making this election under section 904(d)(2)(H)(ii)
and including the foreign
taxes on the separate Form 1118 filed with respect to financial services income. No separate statement is required to elect
to treat such taxes as
imposed on general limitation income. See Regulations section 1.904-6(a)(1)(iv). Once made, this election applies to all such
taxes for the tax years
described above and is revocable only with the consent of the IRS.
CFCs.
Generally, dividends, interest, rents, and royalties received or accrued by the taxpayer are passive 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 under the look-through
rules of section 904(d)(3).
This includes:
-
Interest, rents, and royalties based on the amount allocable to E&P of the CFC in a separate category and
-
Dividends paid out of the E&P of a CFC in proportion to the ratio of the CFC's E&P in a separate category to its total E&P.
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) to the extent attributable to E&P
of the CFC in a separate
category.
For more information and examples see section 904(d)(3), Regulations section 1.904-4(g)(3), and Regulations section
1.904-5.
10/50 corporations.
Generally, dividends received or accrued by the taxpayer are passive income. However, dividends received or accrued
from a
10/50 corporation may be assigned to other separate categories under the look-through rules of section 904(d)(4). A 10/50
corporation is any
foreign corporation in which the taxpayer (domestic corporation) meets the stock ownership requirements of section 902.
Certain amounts paid by a U.S. corporation to a related corporation.
Look-through rules also apply to foreign source interest, rents, and royalties paid by a U.S. corporation to a related
corporation. See Regulations
section 1.904-5(g).
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-1 from a partnership that includes foreign tax information, use the rules below to report that
information on Form
1118.
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.
The remaining lines of the foreign tax section of the Schedule K-1 are reported on Form 1118 as follows:
Foreign gross income sourced at partnership level.
Report on Schedule A.
Deductions allocated and apportioned at partner level and partnership level.
Report on Schedule A or Schedule H.
Total foreign taxes paid or accrued.
Report on Schedule B.
Reduction in taxes available for credit.
Report on Schedule G.
Foreign source taxable income or (loss) before adjustments in all separate categories in the aggregate should include gain
from the sale or
exchange of capital assets only up to the amount of foreign source capital gain net income (which is the smaller of capital
gain net income from
sources outside the United States or capital gain net income). Therefore, if the corporation has capital gain net income from
sources outside the
United States in excess of the capital gain net income reported on its tax return, enter a pro rata portion of the net U.S.
source capital loss as a
negative number on Schedule A, column 9(d) 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.
Coordination with Section 936
In computing the foreign tax credit limitation, exclude from taxable income any income taken into account in computing the
possessions corporation
tax credit under section 936 (without regard to sections 936(a)(4) and 936(i)) or section 30A.
Taxes Eligible for a Credit
Domestic corporations.
Generally, a domestic corporation may claim a foreign tax credit (subject to the limitation of section 904) for the
following taxes:
-
Income, war profits, and excess profits taxes (defined in Regulations section 1.901-2(a)) paid or accrued during the tax year
to any foreign
country or U.S. possession;
-
Taxes deemed paid under sections 902 and 960; and
-
Taxes paid in lieu of income taxes as described in section 903 and Regulations section 1.903-1.
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 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 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 income, war profits, and excess profits
taxes paid or accrued (or
deemed paid under section 902) to any foreign country or U.S. possession 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. possession 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. possession 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.
A foreign corporation claiming a foreign tax credit will be treated as a domestic corporation in computing tax deemed
paid (section 902(a)) and
dividend gross-up (section 78).
Definition of foreign corporation for purposes of the deemed paid credit.
In computing the deemed paid credit on Schedules C, D, and E, the term “ foreign corporation” includes:
-
A DISC or former DISC, but only for dividends from the DISC or former DISC that are treated as income from sources outside
the United States
and
-
A contiguous country life insurance branch that has made an election to be treated as a foreign corporation under section
814(g).
A corporation may choose to take either a credit or a deduction for eligible foreign taxes paid or accrued. The choice is
made annually. Generally,
if a corporation elects the benefits of the foreign tax credit for any tax year, no portion of the foreign taxes will be allowed
as a deduction in
that year or any subsequent tax year.
Exceptions.
However, a corporation that elects the credit for eligible foreign taxes may be allowed a deduction for certain taxes
for which a credit was not
allowed. These include:
-
Taxes for which the credit was denied because of the boycott provisions of section 908.
-
Certain taxes on foreign oil related income under section 907(b).
-
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)).
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 possessions corporations (section 901(g)).
-
Taxes attributable to foreign trade income (other than section 923(a)(2) non-exempt income) distributed to a shareholder of
a FSC (section
901(h)).
-
Taxes of a FSC on foreign trade income (section 906(b)(5)).
-
Taxes on foreign oil and gas extraction income that were reduced under section 907(a).
-
Taxes paid or accrued to a foreign country or U.S. possession on taxable income that is taken into account in computing the
possessions
corporation tax credit (section 936(c) or section 30A).
-
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. possession 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.
-
Taxes paid, accrued, or deemed paid that are attributable to the deductible portion of any cash dividend described in section
965(a).
Carryback and Carryforward of Excess Foreign Taxes
If the allowable foreign 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 may be:
-
Carried back 2 years to offset taxes imposed in the same category. (For excess foreign taxes arising in tax years beginning
after October
22, 2004, the excess may be carried back 1 year.)
-
Carried forward 5 years to offset taxes imposed in the same category (and 10 years for excess foreign taxes which may be carried
to any tax
year ending after October 22, 2004).
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 taxes paid or accrued. Furthermore,
the corporation
must reduce the amount of any carryback or carryforward by the amount it would have used if it had chosen to claim a credit
rather than a deduction in
that tax year. 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. Attach the statement
described in Regulations section 1.904-2(f) for each tax year to which the corporation is carrying back or carrying forward
the excess credit.
Special rules apply to:
-
The carryback and carryover of foreign taxes paid or accrued on foreign oil and gas extractions or related taxes (see section
907(f))
and
-
An excess foreign tax credit carried to a tax year beginning after September 30, 1993, if an excess limitation account was
established under
section 960(b)(2).
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, generally must disclose this position. 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.
Form 1118 must be carefully filled in with all the information called for and with the calculations of credits indicated.
Important:
Documentation (e.g., receipts of payments or a foreign tax return for accrued taxes) is not required to be attached to Form
1118. However,
proof must be presented upon request by the IRS to substantiate the credit. See Regulations section 1.905-2.
If the corporation claims a foreign tax credit for tax accrued but not paid, the IRS may require a bond to be furnished on
Form 1117, Income Tax
Surety Bond, before the credit is allowed. See Regulations section 1.905-2(c).
Foreign Tax Credit Redeterminations
The corporation's foreign tax credit must be redetermined if:
-
Accrued foreign taxes when paid differ from the amounts claimed as credits;
-
Accrued foreign taxes that relate to tax years beginning after 1997 are not paid within 2 years after the close of the tax
year to which
they relate; or
-
Any foreign tax paid is fully or partially refunded.
If any of the above occurs, the corporation generally must redetermine its U.S. tax liability. To do this, the corporation
must:
-
File an amended return and Form 1118 with the Service Center where it filed the tax return on which it claimed the affected
foreign tax
credit and
-
Provide identifying information such as the corporation's name, address, employer identification number (EIN), and the tax
year or years
that are affected by the redetermination.
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 taxes paid—
-
The date or dates on which the foreign taxes were paid;
-
The amount of foreign taxes paid on each date (in foreign currency);
-
The exchange rate on each date the foreign taxes were paid; and
-
The amount of foreign taxes refunded (in foreign currency).
-
Foreign taxes that when paid differ from the accrued amounts claimed as credits for a year beginning before 1998—
-
The date on which the foreign taxes were accrued;
-
The dates on which the foreign taxes were paid;
-
The exchange rate for each date the foreign taxes were accrued and paid; and
-
The amount of foreign taxes accrued or paid on each such date (in foreign currency).
-
Foreign taxes that when paid differ from accrued amounts claimed as credits for a tax year beginning after 1997 because the
corporation
paid more or less foreign tax than was originally accrued or failed to pay accrued taxes within 2 years—
-
The date on which the foreign taxes were accrued;
-
The dates on which the foreign taxes were paid;
-
The average exchange rate for the year for which the foreign taxes were accrued;
-
For taxes paid more than 2 years after the year to which they relate, the exchange rate at the time of payment; and
-
The amount of tax accrued or paid for each such date, and the amount of accrued tax that was not paid within 2 years (in foreign
currency).
-
Foreign taxes deemed paid under section 902 or 960—If the corporation is required to make a redetermination under Temporary
Regulations section 1.905-3T(d)(4), include the following basic information as an attachment to the tax return for the year
for which the
redetermination applies:
-
The dates and amounts of any dividend distributions or other inclusions from E&P for the affected year or years;
-
The amount of E&P from which such dividends were paid for the affected year or years; and
-
The information described above for foreign taxes paid or accrued, as applicable.
If foreign taxes deemed paid under sections 902 or 960 are adjusted and the corporation is not required to redetermine
its U.S. tax liability,
adjust the appropriate pools of foreign taxes and E&P using the rules outlined in Temporary Regulations section 1.905-3T(d)(2)(ii).
If an adjustment to the appropriate pools of foreign taxes and E&P is required, attach a notice of the adjustment
to the tax return for the tax
year during which the foreign tax adjustment occurs. Provide the following information:
-
The corporation's name and EIN;
-
The foreign corporation's name, address, and EIN (if any);
-
The amount of any refunds of foreign taxes and the exchange rate originally used to translate the refunded foreign taxes;
-
The amounts of unrefunded foreign taxes when paid and when accrued in foreign currency, the exchange rates applicable to the
unrefunded
foreign taxes, and the dollar amounts of unrefunded foreign taxes paid and accrued; and
-
The current balances of the pools of E&P and foreign taxes before and after the foreign tax adjustment.
If an adjustment relates to a foreign tax overaccrual of 2% or more, identify each such adjustment and include a complete
factual description
justifying the reasons for the overaccrual (Temporary Regulations section 1.905-3T(d)(2)(iii)).
If the corporation fails to attach the required notice, to provide the necessary information, or to make the required
adjustments, it must provide
notification of the foreign tax changes under Temporary Regulations section 1.905-4T. The notification must include a complete
factual description
justifying the reasons for the failure to attach the required notification or make the required adjustments. The IRS may,
in its discretion, make a
redetermination of the corporation's U.S. tax liability and apply the interest provisions of section 6601 and the penalty
provisions of section 6689.
Important:
Temporary Regulations section 1.905-3T(d)(2)(ii)(A) has been suspended, as well as that portion of Regulations section 1.905-3T(d)(2)(ii)(C)
that
refers to Regulations section 1.905-3T(d)(2)(ii)(A). These suspensions are effective for taxes deemed paid or accrued for
E&P of a foreign
corporation accumulated in tax years beginning after 1986.
Until final regulations are issued under section 905(c), redeterminations otherwise subject to those regulations sections
must be accounted
for through adjustment to the appropriate pools of E&P and foreign taxes as described in Temporary Regulations section 1.905-3T(d)(3)
and subject
to the exceptions in Temporary Regulations section 1.905-3T(d)(4). See Notice 90-26, 1990-1 C.B. 336, for details.
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 Temporary Regulations section 1.905-4T(c) 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.
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