IRS Form 1117 Guide: Income Tax Surety Bond Requirements

1. Introduction – What is Form 1117?

IRS Form 1117, officially titled “Income Tax Surety Bond,” is a legal financial guarantee document used in connection with federal Foreign Tax Credits. The Internal Revenue Service (IRS) governs this form under Section 901 and Section 905(c) of the Internal Revenue Code.

When an individual or domestic corporation claims a Foreign Tax Credit for foreign income taxes that have accrued but have not yet been paid, the IRS may require financial security. Form 1117 acts as a surety bond that guarantees payment of U.S. income tax if the accrued foreign tax is later changed, refunded, or left unpaid.

2. Purpose of the Form

The primary purpose of Form 1117 is to protect the U.S. government from financial loss when allowing tax credits for unpaid foreign taxes. Under U.S. tax law, taxpayers using the accrual method can claim a Foreign Tax Credit on Form 1116 or Form 1118 before physically paying the tax to a foreign government.

If the actual foreign tax paid later turns out to be lower than accrued—or if the foreign tax is refunded—Section 905(c) requires the IRS to redetermine the taxpayer’s U.S. tax liability. Form 1117 binds a licensed surety company to guarantee that any additional U.S. tax and interest owed as a result of this redetermination will be paid promptly.

3. Who Needs to File This Form

Form 1117 is not filed by every taxpayer claiming a Foreign Tax Credit. It is required only when the IRS or a local IRS District Director specifically demands a surety bond as a condition for approving foreign tax credits on accrued taxes.

You may be required to file Form 1117 if you meet the following conditions:

• You are an individual filing Form 1116 or a domestic corporation filing Form 1118.
• You claimed a credit for foreign income, war profits, or excess profits taxes that were accrued but not yet paid.
• The IRS explicitly requested a surety bond to secure the potential tax liability.

4. Who Is Exempt / Not Required to File

The vast majority of taxpayers claiming foreign tax credits are exempt from filing Form 1117. Filing is not required under the following circumstances:

• You claim Foreign Tax Credits for foreign taxes that were already paid during the tax year on a cash basis.
• The IRS or District Director has not issued a formal request requiring you to post a surety bond.
• You claim the Foreign Tax Credit de minimis exemption ($300 for single filers, $600 for joint filers).
• You deduct foreign income taxes as an itemized deduction on Schedule A instead of claiming a credit.

5. When to File

Form 1117 is an event-based form rather than a routine annual tax return. It must be submitted whenever the IRS demands security before granting approval for accrued foreign tax credits.

Typically, the IRS notifies the taxpayer during tax return processing or an audit examination that a surety bond is necessary. The taxpayer must execute and submit Form 1117 within the specific timeline established in the IRS demand letter.

6. Where and How to File

Form 1117 cannot be e-filed through standard electronic tax filing software. Because it is a legal surety bond requiring physical signatures and official corporate seals, it must be prepared on paper.

The completed Form 1117 must be signed by the principal (taxpayer) and an authorized representative of a Treasury-approved surety company. Mail the physical bond directly to the IRS office or District Director that issued the bond request, using certified mail with return receipt requested.

7. Step-by-Step Instructions to Fill the Form

Form 1117 is a single-page legal agreement containing specific bond language. Below is a breakdown of the key sections required to complete the form:

Form Section	Section Title	Description & Filing Instructions
Header Block	Tax Year Details	Specify the calendar year or fiscal tax year corresponding to the Form 1116 or Form 1118 filing.
Principal & Surety Block	Party Identification	Enter the legal names and physical addresses of the taxpayer (Principal) and the insurance company (Surety).
Penal Sum Line	Bond Amount	Enter the exact dollar amount bound to the U.S. government, as specified by the IRS District Director.
Condition Section	Statutory Obligation	Confirms the principal’s duty under Section 905(c) to pay any redetermined U.S. tax deficiency plus interest.
Execution Block	Signatures & Seals	Requires dated witness signatures, principal signatures, and authorized surety agent signatures with official seals.
IRS Approval Block	District Director Sign-off	Reserved for the official IRS District Director approval signature and acceptance date.

8. Required Documents/Information Needed Before Filling

Before executing Form 1117, you must gather specific tax filings and underwriting documentation:

• The official IRS written demand letter specifying the required bond amount (penal sum).
• A copy of the filed Form 1116 (for individuals) or Form 1118 (for corporations) showing accrued foreign taxes.
• An underwriting agreement and power of attorney from a U.S. Treasury-approved (“T-Listed”) surety company.
• Employer Identification Number (EIN) or Social Security Number (SSN) for the taxpayer.

9. Common Mistakes to Avoid

Errors on surety bond forms can result in rejection by the IRS and the disallowance of accrued foreign tax credits. Common mistakes to avoid include:

• Using a Non-Approved Surety: Contracting with a surety company that is not included on U.S. Treasury Circular 570 (T-Listed).
• Incorrect Penal Sum: Entering a bond dollar amount that differs from the amount specified by the IRS District Director.
• Filing Without an IRS Request: Submitting Form 1117 voluntarily when the IRS has not formally requested a surety bond.
• Missing Corporate Seals or Signatures: Submitting the form without required witness signatures, principal signatures, or official surety seals.

10. Penalties for Non-Filing or Errors

Failing to submit Form 1117 when requested by the IRS results in the immediate disallowance of the claimed Foreign Tax Credit for accrued taxes. This increases your U.S. tax liability for the year in question.

If foreign taxes are redetermined and you fail to pay the resulting U.S. tax deficiency, the IRS will make a claim against the surety bond. The surety company will pay the full penal sum to the government and subsequently seek reimbursement from you, along with interest and collection costs.

11. Related Forms or Schedules

Form 1117 is associated with several federal foreign tax credit forms:

• Form 1116: Foreign Tax Credit (Individual, Estate, or Trust).
• Form 1118: Foreign Tax Credit – Corporations.
• Form 1116 (Schedule C): Foreign Tax Redeterminations for Individuals.
• Form 1118 (Schedule L): Foreign Tax Redeterminations for Corporations.
• Form 1040: U.S. Individual Income Tax Return.
• Form 1120: U.S. Corporation Income Tax Return.

12. Frequently Asked Questions

What is a surety bond in the context of IRS Form 1117?

It is a three-party legal contract between the taxpayer, a surety company, and the IRS that guarantees the taxpayer will pay any U.S. tax owed if accrued foreign tax credits are adjusted.

Who determines the dollar amount on Form 1117?

The IRS District Director or examining official determines the required penal sum based on the accrued foreign tax credits claimed.

Can I get a bond from any insurance company?

No. The surety company must be listed on U.S. Treasury Circular 570, which lists companies qualified to write federal bonds.

What happens when I pay the foreign taxes I accrued?

Once you pay the accrued foreign taxes in full and prove the payment to the IRS, the surety bond obligation becomes null and void and can be released.

Does every expat claiming foreign tax credits need Form 1117?

No. Most taxpayers and expats do not file Form 1117 unless specifically instructed to do so by the IRS.

Is there a fee to get Form 1117?

The IRS form itself is free, but surety companies charge a premium fee to issue the underlying surety bond.

13. Conclusion – Key Takeaways

IRS Form 1117 is an Income Tax Surety Bond used to secure U.S. tax obligations when claiming foreign tax credits for accrued but unpaid foreign taxes. It is filed only upon explicit demand by the IRS District Director.

By securing a bond from a Treasury-approved surety and submitting Form 1117 promptly, taxpayers protect their accrued Foreign Tax Credits while ensuring full regulatory compliance with federal redetermination laws.