Clarification Concerning Completion of Tax Year 2020 Form 1118, Schedule C

 

Notice: Historical Content


This is an archival or historical document and may not reflect current law, policies or procedures.

The examples below replace the example found on pages 14 and 15 of the December 2020 revision of the Instructions for Form 1118.

Complete columns 1c and 5(c) only if a controlled foreign corporation ("CFC") has one or more qualified business units ("QBUs") with passive category income. See Regulations section 1.904-4(c)(4). The following examples illustrate how to complete Schedule C:

Example 1. USC is a domestic corporation. CFC is a controlled foreign corporation incorporated in Country X. CFC has two qualified business units (QBUs): 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, 2020, 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 current year taxes of $50,000 and $200,000 in QBU1 income group 1 and QBU1 income group 2, respectively. QBU2 has 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. USC makes the following entries on the first of three lines on Schedule C.

Column Entry
1a CFC
1b 100000
1c 100011
2 202012
3 OC
4 UUU
5(a) DIRRA
5(b) Regs. sec. 1.904-4(c) (3)(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 202012
3 OC
4 UUU
5(a) DIRRA
5(b) Regs. sec. 1.904-4(c) (3)(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.

Column Entry
1a CFC
1b 100000
1c 100012
2 202012
3 OC
4 UUU
5(a) DIRRA
5(b) Regs. sec. 1.904-4(c) (3)(ii)
5(c) QBU2
6 2,400,000u
7 240,000
8(a) 1,920,000u
8(b) 1,920,000
9 0.800
10 192,000

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, 2020, 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 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, 2020, 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 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.

Column Entry
1a CFC1
1b 100011
1c  
2 202012
3 OC
4 UUU
5(a) DIRRA
5(b) Regs. sec. 1.904-4(c) (3)(ii)
5(c)  
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 CFC1
1b 100011
1c  
2 202012
3 OC
4 UUU
5(a) DIRRA
5(b) Regs. Sec. 1.904-4(c) (3)(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.

Column Entry
1a CFC2
1b 100012
1c  
2 202012
3 OC
4 UUU
5(a) NGCT
5(b) Regs. Sec. 1.904-4(c) (3)(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