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Department of the Treasury
Internal Revenue Service
Instructions for Schedule L
(Form 1118)
(Rev. December 2021)
Section references are to the Internal Revenue redetermination changed the taxpayer’s Affected tax year. Affected tax year
Code unless otherwise noted. U.S. tax liability. means any tax year for which the U.S. tax
liability is changed as a result of a foreign
Future Developments Note. If the U.S. tax liability for any year tax redetermination. This includes tax
changes by reason of the foreign tax years in which the U.S. tax liability is
For the latest information about redetermination, the taxpayer must file an changed as a result of a change in a
developments related to Schedule L amended return for the taxable year with carryover of a tax attribute, such as a
(Form 1118) and instructions, such as respect to which the U.S. tax liability is foreign tax credit carryover or a net
legislation enacted after they were adjusted, in addition to filing Schedule L operating loss carryover, from a relation
published, go to IRS.gov/Form1118. for the year in which the foreign tax back year.
redetermination occurs. See Foreign Tax
Redeterminations in the Instructions for Functional currency. Functional
General Instructions Form 1118 for additional information currency means the dollar, or in the case
regarding foreign tax redeterminations that of a qualified business unit (QBU), the
Purpose of Schedule result in a change in U.S. tax liability and currency of the economic environment in
Schedule L (Form 1118) is used to identify for the related reporting requirements. which a significant part of such unit’s
current year foreign tax redeterminations If a foreign tax redetermination does activities are conducted and which is used
in each separate category, the years to not change the amount of U.S. tax due for by such unit in keeping its books and
which they relate, and other information any taxable year, the taxpayer does not records. See section 985(b).
that satisfies the taxpayer’s obligation to need to file an amended return. The Reporting Exchange Rates on
notify the IRS of foreign tax taxpayer satisfies its reporting
redeterminations related to prior years. requirements under Regulations section Schedule L
Use Part I to report foreign tax 1.905-4(b)(1)(v) with respect to such All exchange rates must be reported using
redeterminations that resulted in an foreign tax redetermination by filing a a “divide-by convention” rounded to at
increase in the amount of foreign taxes Schedule L with the return for the taxable least four places. That is, the exchange
accrued and paid by the taxpayer or by a year in which the foreign tax rate must be reported in terms of the
foreign corporation with respect to which redetermination occurs. amount by which the functional currency
amount must be divided in order to reflect
the taxpayer computed an amount of an equivalent amount of U.S. dollars. As
foreign taxes deemed paid. Definitions
such, the exchange rate must be reported
Use Part II to report foreign tax Foreign tax redetermination. A foreign as the units of foreign currency that equal
redeterminations that resulted in a tax redetermination means a change in one U.S. dollar, rounded to at least four
decrease in the amount of foreign taxes the liability for foreign income taxes places. Do not report the exchange rate
paid or accrued by the taxpayer or by a including if: as the number of U.S. dollars that equal
foreign corporation with respect to which • Accrued foreign taxes when paid or one unit of foreign currency.
the taxpayer computed an amount of later adjusted differ from the amounts
foreign taxes deemed paid. claimed as credits (including corrections Note. You must round the result to more
to accrued amounts to reflect final foreign than four places if failure to do so would
Use Part III to report foreign tax tax liability and additional payments of tax materially distort the exchange rate or the
redeterminations that resulted in a change that accrue after the close of the taxable equivalent amount of U.S. dollars.
to the taxpayer’s income inclusions, a year to which the tax relates);
change in the amount of foreign taxes • Accrued foreign taxes are not paid Computer Generated
paid, accrued, or deemed paid, or a within 24 months after the close of the tax Schedule L
change in the amount of foreign tax credits year to which they relate; or Schedule L (Form 1118) will not be
claimed in any relation back year. • Any foreign tax paid is fully or partially electronically enabled for tax year 2021.
refunded. However, you may file Schedule L (Form
Use Part IV to report foreign tax Relation back year. Relation back year 1118) as a PDF attachment to an
redeterminations that resulted in a change means the U.S. tax year in which the electronically filed Form 1118. With
in the U.S. tax liability for any relation back foreign taxes being redetermined were respect to such PDF attachments, in
year or other affected tax year (for originally taken into account. cases where reporting is required for more
example, by reason of a change in than two relation back years in Part I, Part
allowable foreign tax credit carryovers). Example. In U.S. taxable year 1, a II, and/or Part III (or for more than two
taxpayer took into account $2 million of relation back years or affected years in
Who Must File Country X foreign income taxes accrued Part IV), please include additional sheets
with respect to the foreign tax year that for those additional years in the same
Any taxpayer that has a foreign tax ended within U.S. taxable year 1. In year format as that shown on the applicable
redetermination under section 905(c) must 3, Country X assessed an additional $1 Schedule L Part and which includes all the
complete this schedule and attach it to the million of taxes with respect to the foreign information requested on that applicable
income tax return for the taxable year in taxable year that ended within U.S. Schedule L Part.
which the foreign tax redetermination taxable year 1. The relation back year is
occurs. This schedule must be submitted U.S. taxable year 1.
irrespective of whether the foreign tax
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