General Instructions

Purpose of Schedule

Schedule K (Form 1118) is used to reconcile the corporation's prior year foreign tax carryover with its current year foreign tax carryover. Corporations are thus reporting running balances of their foreign tax carryovers showing all activity since the filing of the prior year income tax return.

Lines 1 through 3.   On these lines, the corporation computes its adjusted foreign tax carryover from the prior tax year which is available for credit in the current tax year. The line 3 total is included on Form 1118, Schedule B, Part II, line 5.

Line 4.   If the corporation has a current year excess limitation (defined below), some or all of the line 3 adjusted foreign tax carryover amount will be utilized in the current tax year. This activity is shown on line 4 of the Schedule K (Form 1118).

Lines 5 through 8.   If the corporation has current year excess foreign taxes (defined below), none of the line 3 adjusted foreign tax carryover amount will be utilized in the current tax year. If the corporation has any remaining carryover from the 10th preceding tax year, this carryover amount will expire unused. This activity is shown on line 5 of the Schedule K (Form 1118). Furthermore, the corporation will generate a foreign tax carryover in the current tax year which can be carried back to the prior tax year and/or carried forward to future tax years (see Carryback and Carryforward of Excess Foreign Taxes in the instructions for Form 1118 for details). This activity is shown on lines 6 through 8 of the Schedule K (Form 1118).

Who Must File

With respect to each separate category of income, any corporation filing Form 1118 that has a foreign tax carryover in the prior tax year, the current tax year, or both must file Schedule K (Form 1118) for that separate category of income.

Definitions

Excess limitation.   If the corporation's foreign tax credit limitation (Schedule B, Part II, line 11) exceeds its current year foreign taxes available for credit (the sum of Schedule B, Part II, lines 1 through 4), the corporation has excess limitation.

Excess foreign taxes.   If the corporation's current year foreign taxes available for credit (the sum of Schedule B, Part II, lines 1 through 4) exceed its foreign tax credit limitation (Schedule B, Part II, line 11), the corporation has excess foreign taxes.


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