The IRS on Tuesday officially released final regulations (T.D. 9882) providing guidance on determining foreign tax credits (the regulations were previously posted to the IRS website). The regulations include changes necessitated by the law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97. The IRS also issued proposed regulations (REG-105495-19) that deal with various foreign tax credit issues, including apportionment of research-and-development costs and foreign tax redeterminations under Sec. 905.
The Sec. 901 foreign tax credit allows U.S. taxpayers to offset their taxes by the amount of foreign income taxes paid or accrued. The TCJA made significant changes to the Code with respect to the foreign tax credit rules and related rules for allocating and apportioning expenses for purposes of determining the foreign tax credit limitation. Included in the changes made by the TCJA are the repeal of the fair market value method of asset valuation for purposes of allocating and apportioning interest expense under Sec. 864(e)(2); the addition of new Sec. 904(b)(4), which provides for alternative adjustments; the addition of two new foreign tax credit limitation categories in Sec. 904(d); the amending of Secs. 960(a) through (c); the addition of new Secs. 960(d) through (f); and the repeal of Sec. 902, the deemed paid credit for taxes paid by a foreign corporation. The TCJA also added Sec. 951A, which requires a U.S. shareholder of a controlled foreign corporation to include certain amounts in income (a global intangible low-taxed income (GILTI) inclusion).
T.D. 9882 finalizes regulations that were proposed in 2018 (REG-105600-18), as well as regulations proposed in 2012 (77 Fed. Reg. 37837) and portions of regulations that were proposed in 2007 (72 Fed. Reg. 62805). The 389-page final regulations retain the basic approach and structure of the 2018 proposed regulations, with some revisions.
The new proposed regulations provide guidance on the allocation and apportionment of deductions and creditable foreign taxes; the definition of financial services income; foreign tax redeterminations; the availability of foreign tax credits under the Sec. 965 transition tax; and the application of the foreign tax credit limitation to consolidated groups.
— Alistair M. Nevius, J.D., (Alistair.Nevius@aicpa-cima.com) is The Tax Adviser’s editor-in-chief.