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Part I Adjustments to Separate Limitation Income or (Losses) in Determining Numerators of Limitation Fractions (See instructions.)
(vi) (vii) (viii)
(i) (ii) (iii) (iv) (v) Certain (ix)
Dividends Taxable income
General Passive High Financial Shipping from a DISC attributable to distributions Other
limitation income withholding services income or former foreign trade from a FSC or
income tax interest income income*
DISC income former FSC
1 Income or (loss) before adjustments (see
instructions).
2 Allocation of current year separate limitation losses:
a General limitation income ( )( )( )( ) ( ) ( ) ( ) ( )
b Passive income ( ) ( )( )( ) ( ) ( ) ( ) ( )
c High withholding tax interest ( ) ( ) ( )( ) ( ) ( ) ( ) ( )
d Financial services income ( ) ( )( ) ( ) ( ) ( ) ( ) ( )
e Shipping income ( ) ( )( )( ) ( ) ( ) ( ) ( )
f Dividends from a DISC or former DISC ( ) ( )( )( )( ) ( ) ( ) ( )
g Taxable income attributable to foreign trade income ( ) ( )( )( )( )( ) ( ) ( )
h Certain distributions from a FSC or former FSC ( ) ( )( )( )( )( )( ) ( )
i Other Income* ( ) ( )( )( )( )( )( )( )
3 Subtotal—Combine lines 1 through 2i.
4 Overall foreign losses
5 Recapture of overall foreign losses
PERFORATE: (NONE)
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Part II Year-End Balances of Future Separate Limitation Income That Must Be Recharacterized
a General limitation income
b Passive income
c High withholding tax interest
d Financial services income
e Shipping income
f Dividends from a DISC or former DISC
g Taxable income attributable to foreign trade
income
h Certain distributions from a FSC or former FSC
i Other income*
Part III Overall Foreign Loss Account Balances (section 904(f)(1))
Complete for each separate limitation income category
1 Beginning balance
2 Current year additions
3 Current year reductions (other than recapture) ( )( )( )( )( )( )( )( )( )
4 Subtotal—Combine lines 1 through 3
5 Current year recapture (from Part I, line 5)
General Instructions 2. If the combined separate limitation To compute the portion of the $2,000
losses for the tax year do not exceed separate limitation loss that is allocable
Section references are to the Internal the combined separate limitation income to general limitation income, Corporation
Revenue Code unless otherwise noted. for the tax year, the pro rata share of X divides the $4,000 of income by
each separate limitation loss to allocate $5,000 (the combined separate limitation
Purpose of Schedule to each category with positive income is income from all separate categories with
as follows: positive income). The result of 80% is
● Use Part I to show adjustments to Separate limitation multiplied by the separate limitation loss
separate limitation income or (losses) in income Separate of $2,000. Corporation X enters the
determining the numerator of the × limitation loss product of $1,600 on line 2e, column (i).
Combined separate being allocated
limitation fraction for each separate limitation income from To compute the portion of the $2,000
category. all categories with separate limitation loss that is allocable
positive income
● Use Part II to show the year-end to financial services income, Corporation
balances of future separate limitation 3. If the combined separate limitation X divides the $1,000 of separate
income that must be recharacterized as losses for the tax year exceed the limitation income by $5,000. The result
income of other separate categories (as combined separate limitation income for of 20% is multiplied by the separate
the result of current year or prior year the tax year, the pro rata share of each limitation loss of $2,000. Corporation X
separate limitation losses that were separate limitation loss to allocate to enters the product of $400 on line 2e,
allocated to those other separate each category having income is as column (iv).
categories). follows: Corporation X enters $2,400 ($4,000
● Use Part III to show: (a) the balances Separate limitation loss minus $1,600) on line 3, column (i); $600
in the corporation’s overall foreign loss being allocated Separate limitation ($1,000 minus $400) on line 3, column
× income in a given
accounts at the beginning of the tax Combined separate category (iv); and $0 (negative $2,000 plus
year, (b) any current year adjustments, limitation losses from all positive $2,000) on line 3, column (v).
and (c) the balances in the overall categories with losses
Line 4. Enter the overall foreign losses
foreign loss accounts at the end of the If separate limitation losses can be for the tax year (from line 3) if they have
tax year. allocated, enter the total amounts reduced U.S. source income for the tax
Important: Complete Schedule J only allocated in the bold-outlined boxes as year.
once. Include adjustments for each positive numbers. Enter each separate Important: If an overall foreign loss has
applicable separate category. amount allocated to a given category reduced U.S. source income, do not
across the same line under the complete the remainder of Part I for that
Computer-Generated Schedule J appropriate column heading to which it separate category. However, complete
A computer-generated Schedule J can was allocated. Parts II and III for that category to show
be filed if it conforms to the IRS version Note: The numbers entered across any the year-end balance in the separate
of the schedule. Expand Schedule J to given line should “zero out.” limitation loss and overall foreign loss
properly complete Parts I, II, and III of The combined separate limitation accounts.
the Schedule if the corporation has more losses for the tax year that are more Line 5. Recapture overall foreign losses
than one separate category of “other than the combined separate limitation that reduced U.S. source income in prior
income.” Income from each sanctioned income for the tax year reduce the U.S. tax years (section 904(f)(1)). To do this,
country to which section 901(j) applies source income (if any) for the tax year. If treat a portion of the current year
and each item of income resourced the corporation has no U.S. source separate limitation income that is of the
under a tax treaty are treated as a income for the tax year, or if the excess same category as the loss that resulted
separate category of “other income.” of its combined separate limitation in the prior year overall foreign loss as
losses for the tax year over combined U.S. source income. Recapture
Specific Instructions separate limitation income for the tax continues until the applicable overall
year exceeds its U.S. source income for foreign loss account balance (Part III) is
Part I the tax year, the excess is treated as a reduced to zero.
net operating loss. This loss may be The amount of any current year
Note: See Notice 89-3, 1989-1 C.B.
carried over or back to other tax years separate limitation income subject to
623, and Regulations section 1.904(f)-12
according to the rules of section 172. recapture is the smaller of the balance in
for more information on the ordering of
adjustments in Part I. Example 1. Corporation X has separate the applicable overall foreign loss
limitation income of $4,000 in its general account (the applicable line 1 amount of
Line 1. Enter in each applicable column
limitation income category (line 1, Part III), or 50% of all amounts entered
the income or (loss) from column 12 of
column (i)) and separate limitation on line 3, Part I.
the corresponding Schedule A for that
income of $1,000 in its financial services The corporation can make an annual,
separate category.
income category (line 1, column (iv)). In revocable election to recapture a greater
Important: Be sure to consider on this addition, the corporation has a separate
line the possible interplay between portion of the balance in an overall
limitation loss of $2,000 in its shipping foreign loss account by attaching a
separate limitation losses and any net income category (line 1, column (v)).
operating losses or net capital losses of statement to Form 1118 indicating:
Since the corporation’s combined 1. The percentage and dollar amount
which they may be a part.
separate limitation losses for the tax of the separate limitation income that is
Line 2. This allocation grid must be year ($2,000) do not exceed its
completed to show the pro rata share of treated as U.S. source income and
combined separate limitation income for
each separate limitation loss to allocate the tax year ($5,000), the entire $2,000 2. The percentage and dollar amount
among other applicable separate may be allocated to other separate of the balance (both before and after
categories. categories. Therefore, Corporation X recapture) in the overall foreign loss
To determine each pro rata share: enters a positive $2,000 account that is recaptured.
1. Add all of the separate limitation in the bold-outlined box on line 2e,
loss amounts entered across line 1. column (v).
Then add all of the separate limitation
income amounts entered across line 1.
4
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Sch J (1118), PAGE 4 OF 4
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PERFORATE: None
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