Foreign Tax Redeterminations — 2025 Inst 1116 (PDF)

If you claim a credit for foreign taxes paid, and you receive a refund of all or part of those taxes in a later year, you must file an amended return reducing the taxes credited by the amount refunded.

If you claim the foreign tax credit based on foreign taxes accrued instead of foreign taxes paid, your foreign tax credit and U.S. tax liability must be redetermined in any of the following situations (foreign tax redeterminations).

Your accrued taxes when paid differ from the amount you claimed as a credit (including corrections to accrued tax amounts to reflect final foreign tax liability and additional tax you pay after the close of the tax year to which the tax relates).
You don’t pay the accrued taxes within 24 months after the close of the tax year to which they relate.

If this applies to you, you must reduce the credit previously claimed by the amount of the unpaid taxes. You won’t be allowed a credit for the unpaid taxes until you pay them. When you later pay the accrued taxes, a new tax redetermination occurs and you must translate the taxes into U.S. dollars using the exchange rate as of the date they were paid. The foreign tax credit is allowed for the year to which the foreign tax relates. See Foreign Currency Conversion , earlier.

After you pay the accrued taxes, you receive a full or partial refund of them.
You change your election and claim a foreign tax credit for foreign income taxes that you previously deducted, or you change your election and claim a deduction for foreign income taxes that you previously credited.
There is a change in foreign tax liability that affects the amount of distributions or inclusions under section 951,

951A, or 1293, or affects the application of the high-tax exception described in section 954(b)(4).

For taxes taken into account when accrued but translated into dollars on the date of payment, the dollar value of the accrued tax differs from the dollar value of the tax paid because of fluctuations in the exchange rate between the date of accrual and the date of payment. However, no redetermination is required if the change in foreign tax liability for each foreign country is solely attributable to exchange rate fluctuation and is less than the smaller of:

a. $10,000, or b. 2% of the total dollar amount of the foreign tax initially accrued for that foreign country for the U.S. tax year.

In this case, you must adjust your U.S. tax in the tax year in which the accrued foreign taxes are paid.

Reporting requirements. If any of the above foreign tax redeterminations occur after you file your tax return, and the foreign tax redeterminations change the amount of U.S. tax due for any tax year, you must generally file Form 1040-X, Amended U.S. Individual Income Tax Return, or other amended return, to notify the IRS so that your U.S. tax for the year or years affected can be redetermined. If you have a foreign tax redetermination that results in an increase in your U.S. tax liability for any year, note in the explanation of changes section of your amended tax return (for example, Form 1040-X, Part II), “This amended return and Form 1116 are for a change in foreign tax credit that increases U.S. tax liability.” Complete and attach to Form 1040-X (or other amended return) a revised Form 1116 for the tax year(s) affected and a statement that contains information sufficient for the IRS to redetermine your U.S. tax liability. In some cases, you may not have to file Form 1040-X or attach Form 1116. See Pub. 514 for more information, including exceptions. An increase in your U.S. tax liability as a result of a foreign tax redetermination is excepted from the general statute of limitations against assessment and collection. See sections 6501(c)(5) and 905(c).

Schedule C (Form 1116). In addition to filing an amended return with Form 1116 and attached statement for your tax year(s) for which your U.S. tax liability is changed as a result of the foreign tax redetermination, you must file Schedule C (Form 1116) with your current-year tax return summarizing the foreign tax redeterminations that occurred that year that relate to prior tax years. You must file Schedule C (Form 1116) for each applicable separate category of income.

If a foreign tax redetermination doesn’t change the amount of U.S. tax due for any tax year, you don’t need to file an amended return and may instead notify the IRS of the redetermination by attaching for each applicable separate category of income a completed Schedule C (Form 1116) to the original return for your tax year in which the foreign tax redetermination occurs. See the Instructions for Schedule C (Form 1116) for additional information.

Contested foreign income tax liability. In general, you can’t claim a credit for a contested foreign income tax liability until the contest is resolved and the amount of the liability is finally determined.

If you use the cash method of accounting, you can’t claim a credit for a contested foreign income tax liability (or any portion of it) that has been remitted to the foreign country until the contest is resolved and the tax is considered paid for purposes of section 901. You can claim a credit once the contest is resolved and the foreign income tax liability is

4 Instructions for Form 1116 (2025)

finally determined. The tax is considered paid in the tax year in which the payment was made. See Regulations section 1.905-1(c)(2). Alternatively, you can elect to claim a provisional credit for contested taxes, as described later.

If you elected the accrual method of accounting for claiming the foreign tax credit (see Part II, under Specific Instructions, later), you can’t claim a credit for a contested foreign income tax liability (or any portion of it) that has been remitted to the foreign country until the contest is resolved and the tax is considered paid for purposes of section 901. You can claim a credit once the contest is resolved and the foreign income tax liability is finally determined and paid. The tax is considered to accrue in the foreign tax year to which the contested foreign income tax liability is related (“relation-back year”). See Regulations section 1.905-1(d)(3). Alternatively, you can elect to claim a provisional credit for contested taxes. See the next paragraph for details.

Election to claim a provisional credit for contested tax- es. If you use the cash method of accounting, you may elect to claim a credit for a contested foreign income tax liability (or any portion of it) in the tax year you pay the contested amount (or any portion of it) to the foreign country, even though the liability isn’t finally determined and isn’t considered an amount of tax paid for purposes of section 901. This election is available only for contested foreign income taxes that are paid in a tax year in which you elected to claim a credit under section 901(a), instead of a deduction under section 164(a)(3), for foreign income taxes that accrue or are paid in that year. To make the election, you must file Form 1116 for the tax year the contested liability is paid and Form 7204. In addition, for each subsequent tax year up to and including the tax year in which the contest is resolved, you must annually file Schedule C (Form 1116). Any portion of a contested foreign income tax liability for which a provisional credit is claimed that is subsequently refunded by the foreign country is a foreign tax redetermination under Regulations section 1.905-3(a).

If you are an accrual-basis taxpayer or if you elected to claim your foreign tax credit on an accrual basis, you may elect to claim a credit for a contested foreign income tax liability (or any portion of it) in the relation-back year when the contested amount (or a portion of it) is paid to the foreign country, even though the liability isn’t finally determined and hasn’t accrued. This election is available only for contested foreign income taxes that relate to a tax year in which you elected to claim a credit under section 901(a), instead of a deduction under section 164(a)(3), for foreign income taxes that accrue or are paid in that year. To make the election, you must file Form 1116 and Form 7204 with your return (typically an amended return) for the tax year to which the contested tax relates. In addition, for each subsequent tax year up to and including the tax year in which the contest is resolved, you must annually file Schedule C (Form 1116). Any portion of a contested foreign income tax liability for which a provisional credit is claimed that is subsequently refunded by the foreign country is a foreign tax redetermination under Regulations section 1.905-3(a).

Caution: If you don’t notify the IRS of a foreign tax refund or change in the dollar amount of foreign taxes paid or accrued, you will have to pay a penalty unless you can show that the failure to notify the IRS is due to reasonable cause and not due to willful neglect.