IRS Form 1118 (Schedule L) – Foreign Tax Redeterminations – In the complex world of international taxation, corporations dealing with foreign income often encounter adjustments to their foreign tax liabilities. IRS Form 1118 Schedule L plays a crucial role in handling these changes, ensuring compliance and accurate foreign tax credit calculations. This SEO-optimized guide explores everything you need to know about Foreign Tax Redeterminations using Schedule L, including its purpose, filing requirements, and step-by-step instructions. Whether you’re a tax professional or a corporate executive, understanding this form can help optimize your tax strategy and avoid penalties.
What Is IRS Form 1118 Schedule L?
IRS Form 1118, titled “Foreign Tax Credit – Corporations,” allows U.S. corporations to claim credits for taxes paid to foreign governments, reducing double taxation on foreign-sourced income. Schedule L is a specific attachment to this form dedicated to reporting Foreign Tax Redeterminations. These are adjustments to previously reported foreign taxes that occur in the current tax year but relate to prior tax years.
The schedule ensures that any changes in foreign tax liabilities—such as refunds, additional payments, or corrections—are properly reflected in the U.S. tax return. It must be filed regardless of whether the redetermination impacts the corporation’s U.S. tax liability. This form is essential for maintaining accurate records under section 905(c) of the Internal Revenue Code, which governs foreign tax credit adjustments.
Key updates for the December 2025 revision include clarifications on elections for pre-2018 tax years and handling contested taxes, reflecting ongoing IRS efforts to align with post-TCJA (Tax Cuts and Jobs Act) regulations.
Who Needs to File Schedule L (Form 1118)?
Corporations that claim foreign tax credits under Form 1118 must file Schedule L if they experience a foreign tax redetermination in the current tax year. This includes:
- U.S. corporations with foreign subsidiaries or branches.
- Entities subject to subpart F inclusions (section 951), global intangible low-taxed income (GILTI) under section 951A, or qualified electing fund (QEF) inclusions under section 1293.
- Taxpayers who have received refunds, made additional payments, or faced adjustments to accrued foreign taxes.
- Even those not claiming a credit but with loss account adjustments under section 904(f).
If a redetermination affects deemed paid taxes under section 960, or involves contested foreign income taxes, filing is mandatory. Small corporations or those without international operations typically do not need this schedule.
When and How to File IRS Form 1118 Schedule L?
Schedule L must be attached to the corporation’s income tax return (e.g., Form 1120) for the tax year in which the foreign tax redetermination occurs. If the redetermination changes U.S. tax liability:
- File an amended return (Form 1120-X) with an amended Form 1118, Schedule L, and a detailed statement including taxpayer info, accrual/payment dates, foreign currency amounts, exchange rates, and any changes to distributions or inclusions.
- Note on Form 1120-X: “This amended return and Form 1118 is for a change in Foreign Tax Credit that increases U.S. tax liability.”
For no change in liability, simply attach Schedule L to the original return. In cases of contested taxes, file annually until resolution if claiming a provisional credit via Form 7204.
Deadlines align with the corporation’s tax return due date, typically the 15th day of the 4th month after the tax year-end (extendable). Failure to report can trigger penalties under section 6689.
Key Definitions: What Counts as a Foreign Tax Redetermination?
A foreign tax redetermination is any change that affects the foreign tax credit or U.S. tax liability, including:
- Differences between accrued and actual paid taxes (e.g., corrections or additional payments).
- Accrued taxes unpaid within 24 months after the tax year.
- Refunds of paid taxes.
- Changes impacting distributions or inclusions under sections 951, 951A, or 1293, or the high-tax exception under section 954(b)(4).
- Switches between crediting and deducting foreign taxes.
Exceptions apply for certain section 901 credits (see Reg. § 1.905-3(b)(1)(i)). Redeterminations also require U.S. tax adjustments for effects on deemed paid taxes under section 960. For pre-2018 foreign corporation years, refer to Reg. §§ 1.905-5.
Step-by-Step Instructions for Completing Schedule L
Schedule L is divided into Parts I-V, completed separately for each separate category of income (e.g., general, passive). Part IV is done once.
Part I: Foreign Taxes Paid, Accrued, and Deemed Paid
Report adjustments to foreign taxes due to redeterminations, including refunds, unpaid accruals, or changes in deemed paid taxes. Provide details like refund dates, foreign currency amounts, and exchange rates for section 988 gain/loss calculations.
Part II: Tax Deemed Paid by First- and Lower-Tier Foreign Corporations
Adjust taxes deemed paid under section 960 from redeterminations in foreign corporations. Include changes affecting section 951(a)(1) or 951A inclusions.
Part III: Taxes Paid or Accrued by Domestic Corporation
Detail direct adjustments to taxes paid or accrued by the U.S. corporation.
Part IV: Summary of Redeterminations
Summarize all redeterminations across categories, including total changes to credits, U.S. tax liability, and carryovers. Complete this part only once.
Part V: Other Information
Disclose details on post-1986 earnings pools (balances before/after adjustments, distribution dates/amounts) or pre-1987 accumulated profits (distribution dates, amounts, exchange rates, E&P).
For refunds or unpaid taxes, attach additional info per the instructions.
Special Rules, Elections, and Examples
- Election for Pre-2018 Redeterminations: Make an irrevocable election to account for changes in the foreign corporation’s last pooling year (pre-2018). File a statement under Reg. § 1.964-1(c)(3)(ii), notices, and amended returns. This binds all U.S. shareholders in the controlled foreign corporation (CFC) group.
- Contested Taxes: Cash-method taxpayers credit upon resolution; accrual-method relates back. Provisional credit election via Form 7204 requires annual Schedule L filing until resolved.
- Interest and Penalties: Deficiencies/overpayments accrue interest under §§ 6601/6611; non-compliance penalties under § 6689.
- Large Business Taxpayers: Follow special rules in Reg. § 1.905-4(b)(4).
- Example: If a corporation receives a $10,000 foreign tax refund in 2026 relating to 2024, report it in Part I with currency details, potentially requiring an amended 2024 return if liability changes.
Consult Regulations sections 1.905-3 through 1.905-5 for computations.
Why Accurate Filing Matters?
Properly handling foreign tax redeterminations via Schedule L prevents overpayments, underpayments, and IRS audits. It ensures compliance with U.S. tax laws while maximizing foreign tax credits. Always use the latest form version from IRS.gov.
Frequently Asked Questions (FAQs)
1. What if my foreign tax redetermination doesn’t change my U.S. tax?
You still must attach Schedule L to your current-year return.
2. Can I e-file Schedule L?
Yes, as part of Form 1118 with your corporate return.
3. Where can I download the form?
Access it at https://www.irs.gov/pub/irs-pdf/f1118sl.pdf.
4. What happens if I miss the 24-month payment window for accrued taxes?
It triggers a redetermination, requiring Schedule L and potential amended returns.
For personalized advice, consult a tax advisor or visit IRS.gov for updates.