Regs. Issued on 10/50 Foreign Corporations and Surrogate Corporations

The IRS has released final regulations on the application of separate foreign tax credit limitations to dividends received from noncontrolled Sec. 902 corporations (i.e., 10/50 corporations) (T.D. 9452). A 10/50 corporation is a foreign corporation in which a U.S. corporation owns at least 10%, but not more than 50%, of the foreign corporation’s stock.

The American Jobs Creation Act of 2004, P.L. 108-357 (AJCA), modified the treatment of such dividends effective for tax years beginning after December 31, 2002, and the Gulf Opportunity Zone Act of 2005, P.L. 109-135, allowed taxpayers to elect to defer the effective date of the AJCA amendments until tax years beginning after December 31, 2004. The new final regulations provide guidance needed to comply with these changes. They generally finalize temporary regulations issued in 2006 (T.D. 9260), with some modifications based on comments received.

The IRS also released temporary regulations on determining when a foreign corporation will be treated as a surrogate foreign corporation (T.D. 9453). These temporary regulations replace expired temporary regulations that were issued in 2006 (T.D. 9265). The temporary regulations address stock held by a partnership, indirect acquisitions of properties, acquisitions by multiple foreign corporations, acquisitions of multiple domestic corporations (or partnerships), the Sec. 7874 “by reason of” standard and substantial business activities condition, publicly traded foreign partnerships, options, economically equivalent interests, and insolvent entities, among other topics.