U. S. Business Income Tax Return

Instructions for Schedule L
(Form 1118)
(Rev. December 2025)

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

On page 4 of the Schedule L (Form 1118), previous
column 9 of Part V has been split into the following two
new columns.
• Column 9 requesting tax refunded, if any.
• Column 10 requesting additional tax paid, if any.
On page 4 of these instructions, a new instruction for
Part V, columns 8, 9, and 10 explains how to complete
those columns.

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 to satisfy the annual reporting requirement
under Regulations section 1.905-1(d)(4)(iv) for contested
Sep 15, 2025

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 tax 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 tax 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 tax 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 tax 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 tax 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. tax 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. tax year 1. In year 3, Country X assessed an
additional $1 million of foreign income taxes with respect
to the foreign tax year that ended within U.S. tax year 1.
The relation back year is U.S. tax year 1.

Instructions for Schedule L (Form 1118) (Rev. 12-2025) Catalog Number 38267T
Department of the Treasury Internal Revenue Service www.irs.gov

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.

Reporting Exchange Rates on Schedule L

All exchange rates must be reported using a “divide-by
convention” rounded to at least four places. That is, the
exchange rate must be reported in terms of the amount by
which the functional currency amount must be divided in
order to reflect an equivalent amount of U.S. dollars. As
such, the exchange rate must be reported as the units of
foreign currency that equal one U.S. dollar, rounded to at
least four places. Do not report the exchange rate as the
number of U.S. dollars that equal one unit of foreign
currency.
Note: You must round the result to more than four places
if failure to do so would materially distort the exchange
rate or the equivalent amount of U.S. dollars.

Computer-Generated Schedule L

Complete and file a separate Schedule L using code
“TOTAL” that aggregates all amounts listed for each line
and column of all other separate category of income
Schedules L for Parts I, II, III, and V. Complete this
“TOTAL” Schedule L even if you only have one separate
category of income. Because Part IV is based on overall
U.S. tax liability, complete Part IV only once in the “TOTAL”
version. Such “TOTAL” Schedule L should be filed with the
same category of income that completes Schedule B, Part
III (see the Form 1118, Schedule B, Part III, instructions). If
Schedule L reports a foreign tax redetermination in a
category of income for which a Form 1118 is not filed in
the current tax year, file such Schedule L with the category
of income that completes Schedule B, Part III. In addition,
complete and file a separate Schedule L for each
category of income for Parts I, II, III, and V. In some cases,
Schedule L must be expanded to properly report foreign
tax redeterminations. This applies in cases such as the
following.
• In cases where reporting is required for more than three
payor entities for a relation back year, expand Schedule L
for those payor entities following the format of Schedule L.
• In cases where reporting is required for more than 2
relation back years, or there are other affected years in
addition to the relation back years (Part IV), expand
Schedule L for those years following the format of
Schedule L.
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Specific Instructions
Important: All information reported on Schedule L (Form
1118) must be in English. All amounts must be stated in
U.S. dollars, unless otherwise specified on Schedule L.
Line a. On line a, enter the same separate category code
as that shown on the Form 1118 to which this Schedule L
relates.
Line b. If code 901j is entered on line a, enter on line b
the same country code as that shown on the Form 1118 to
which this Schedule L relates.
Line c. If one of the RBT codes is entered on line a, enter
on line c the same country code as that shown on the
Form 1118 to which this Schedule L relates.
Line d. Check the box on line d if an election has been
made under Regulations section 1.905-5(e) to account for
foreign tax redeterminations with respect to pre-2018 tax
years in the foreign corporation's last pooling year.
Election to account for foreign tax
redeterminations with respect to pre-2018 tax years
in the foreign corporation’s last pooling year. Under
Regulations section 1.905-5(e), an irrevocable election
may be made by a foreign corporation’s controlling
domestic shareholders to account for all foreign tax
redeterminations that occur in tax years ending on or after
November 2, 2020, with respect to pre-2018 tax years of
foreign corporations as if they occurred in the foreign
corporation’s last tax year beginning before January 1,
2018 (last pooling year). Check the box on line d if an
election under Regulations section 1.905-5(e) has been
made or is being made in the current tax year.

Part I
Column 1. Enter the ending date of the relation back
year. See definition of relation back year, earlier. If an
election under Regulations section 1.905-5(e) has been
made, report all foreign tax redeterminations with respect
to pre-2018 tax years under the last pooling year.
Columns 2a through 2d. Enter in columns 2a and 2b
the name and the employer identification number (EIN) or
reference ID number of the payor entity. If the payor entity
is not a corporation, enter in columns 2c and 2d the name
and the EIN or reference ID number of the domestic or
foreign corporation that owns the payor entity. In columns
2b and 2d, do not enter “FOREIGNUS” or “APPLIED
FOR.” Instead, if an entity does not have an EIN, the
taxpayer must enter a reference ID number that uniquely
identifies the payor entity or owner for which such number
is requested. See Reference ID numbers in the
Instructions for Form 1118 for requirements and additional
details.
Column 3. Enter the code for the country or U.S. territory
to which tax is paid using the country codes provided at
IRS.gov/CountryCodes.
Columns 4 and 5. Enter in column 4 the date(s) the
additional foreign taxes were paid and enter in column 5
the ending date of the foreign tax year to which such taxes
relate.

Instructions for Schedule L (Form 1118) (Rev. Dec. 2025)

Column 6. Enter the payor entity’s income subject to tax
in the foreign jurisdiction, as reported on the foreign tax
return.

Column 13. Check the box if the foreign tax
redetermination is a result of the application of the section
905(c)(2) 2-year rule.

Column 7. Enter the amounts of additional tax accrued in
the local currency in which the tax is payable.

Note: Under section 905(c)(2), if accrued foreign income
taxes are not paid on or before the date that is 24 months
after the close of the tax year to which they relate (2-year
rule), there is a resulting foreign tax redetermination that is
accounted for as if the unpaid portion of the foreign
income taxes were refunded on that date. Credit may be
claimed for those taxes if and when they are ultimately
paid. Foreign income taxes that first accrue after the date
24 months after the close of the tax year to which such
taxes relate may not be claimed as a credit or added to
PTEP group taxes until paid.

Column 8. Enter the amounts of the additional tax
denominated in the functional currency of the taxpayer's
QBU (as defined under Regulations section 1.904-4(f)(3)
(vii)) or foreign corporation that accrued the additional tax.
Column 9. Enter the exchange rate originally used to
convert the local currency (in which the redetermined
foreign tax was paid) to U.S. dollars. See Reporting
Exchange Rates on Schedule L, earlier, for additional
information.
Column 11. Enter the U.S. dollar amount of foreign tax of
each payor entity that was reported by the taxpayer on its
original or amended return (not taking into account the
foreign tax redetermination).
Column 13. Enter the reference ID number for contested
foreign income tax, if applicable, using the reference ID
number reported on the Form 7204 filed with respect to
the contested foreign income tax.
Column 14. Check the box if the foreign tax
redetermination changes the determination as to whether
a grouping of income and related taxes of a foreign
corporation qualifies for the high-tax exception or
exclusion described in section 954(b)(4).

Part II
Columns 1, 2a, 2b, 2c, and 2d. Use the instructions for
columns 1, 2a, 2b, 2c, and 2d of Part I to complete the
corresponding columns in Part II.
Column 3. Enter the code for the country or U.S. territory
from which tax was refunded using the country codes
provided at IRS.gov/CountryCodes.
Columns 4 and 5. Enter in column 4 the date(s) the
foreign taxes were refunded or deemed refunded and
enter in column 5 the ending date of the foreign tax year to
which such taxes relate. If the foreign taxes are deemed
refunded by reason of the section 905(c)(2) 2-year rule
described in the Note in the instructions for column 13,
enter in column 4 the date that is 24 months after the
close of the tax year to which the foreign taxes relate.
Column 6. Use the instructions for column 6 of Part I to
complete column 6 of Part II.
Column 7. Enter the amount of the tax refunded or
deemed refunded in the local currency in which the tax is
payable.
Column 8. Enter the amount refunded or deemed
refunded denominated in the functional currency of the
taxpayer's QBU (as defined under Regulations section
1.904-4(f)(3)(vii)) or foreign corporation that paid or
accrued the refunded amount.
Columns 9 and 11. Use the instructions for columns 9
and 11 of Part I to complete the corresponding columns in
Part II.

Instructions for Schedule L (Form 1118) (Rev. Dec. 2025)

Column 14. Use the instructions for column 14 of Part I
to complete column 14 of Part II.

Part III
Column 1. Use the instructions for column 1 of Part I to
complete column 1 of Part III.
Columns 2 and 3. Enter in column 2 the redetermined
direct section(s) 901 and/or 903 taxes paid or accrued,
and enter in column 3 the direct section(s) 901 and/or 903
taxes paid or accrued per the taxpayer’s original or
previously amended return.
Columns 4 and 5. Enter in column 4 the redetermined
amount of the taxpayer’s section 951(a)(1) inclusion
(including inclusions under sections 956 and 965), and
enter in column 5 the amount of section 951(a)(1)
inclusion on the taxpayer’s original or previously amended
return.
Columns 6 and 7. Enter in column 6 the redetermined
amount of foreign income taxes deemed paid under
section 960(a), and enter in column 7 the amount of
foreign income taxes deemed paid under section 960(a)
as reported on the taxpayer’s original or previously
amended return.
Columns 8 and 9. Enter in column 8 the redetermined
amount of the taxpayer’s section 951A inclusion, and
enter in column 9 the amount of section 951A inclusion
reported on the taxpayer’s original or previously amended
return.
Columns 10 and 11. Enter in column 10 the
redetermined amount of foreign income taxes deemed
paid under section 960(d), and enter in column 11 the
amount of foreign income taxes deemed paid under
section 960(d) on the taxpayer’s original or previously
amended return.
Columns 12 and 13. Enter in column 12 the
redetermined taxes deemed paid under section 960(b)(1),
and enter in column 13 the section 960(b)(1) deemed paid
taxes per the taxpayer’s original or previously amended
return.
Columns 14 and 15. Enter in column 14 the
redetermined taxes deemed paid under section 902, and
enter in column 15 the section 902 deemed paid taxes per
the taxpayer’s original or previously amended return.

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Columns 16 and 17. Enter in column 16 the total amount
of foreign tax credit claimed in the separate category on
the taxpayer’s original or previously amended return, and
enter in column 17 the total amount of foreign tax credit
claimed after the foreign tax redetermination. Include
changes attributable to foreign tax redeterminations that
affect the amount of foreign taxes deemed paid under
section 902 prior to its repeal and under section 960(b) in
these totals.

Part IV
Column 1. Enter the ending date of the relation back year
or affected year. See the definitions of relation back year
and affected tax year, earlier. If an election under
Regulations section 1.905-5(e) has been made, report all
foreign tax redeterminations with respect to pre-2018 tax
years under the last pooling year.
Columns 2 through 4. Enter in column 2 the total
redetermined U.S. tax liability, and enter in column 3 the
total U.S. tax liability reported on the taxpayer’s original or
previously amended return. In column 4, enter the
difference by subtracting column 3 from column 2 for each
affected tax year.

Part V
Column 1. For taxpayers that claim credits on the accrual
basis, enter the relation back year. For taxpayers that
claim credits on the cash basis, enter the year in which the
contested foreign income tax was remitted to the foreign
country. The tax year entered in column 1 should

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correspond with the tax year entered on line 1 on the Form
7204 that was filed in order to claim a provisional credit for
the contested foreign income tax.
Columns 2 and 3. Enter in column 2 the name of the
payor entity and enter in column 3 the reference ID
number for the contested foreign income tax that was
reported on the Form 7204.
Columns 4 and 5. Enter in column 4 the code of the
country or U.S. territory to which the tax was paid using
the country codes provided at IRS.gov/CountryCodes,
and enter in column 5 the amount of contested foreign
income tax that was provisionally claimed as a credit.
Columns 6 and 7. Check the box in column 6 if the
contest is still ongoing, and check the box in column 7 if
the contest was resolved.
Columns 8, 9, and 10. Enter in column 8 the date the
contest was resolved. Enter in column 9 the amount of tax
refunded, if any. Enter in column 10 the amount of
additional tax paid, if any. Any portion of a contested
foreign income tax for which a provisional credit is claimed
that is subsequently refunded results in a foreign tax
redetermination that must be reported on Schedule L and,
if applicable, an amended return for the tax year(s) with
respect to the U.S. tax liability changes as a result of such
foreign tax redetermination.

Additional Information

For more information, see section 905(c); and Regulations
sections 1.905-1, 1.905-3, 1.905-4, and 1.905-5.

Instructions for Schedule L (Form 1118) (Rev. Dec. 2025)