Section 898© Transition Rule for Allocating Foreign Taxes and Section 960(d)(4) Foreign Tax Credit Disallowance
Key claim: Proposed Treasury/IRS regulations would set transition rules for allocating foreign taxes of foreign corporations after repeal of the one-month deferral election and disallow foreign tax credits on certain distributions of previously taxed earnings and profits.
Abstract
(Proposed Rule · Treasury Department, Internal Revenue Service) This document contains proposed regulations that relate to allocating foreign taxes of foreign corporations affected by the repeal of the one-month deferral election and to the disallowance of foreign tax credits on certain distributions of previously taxed earnings and profits. The proposed regulations would affect taxpayers that operate in foreign countries through certain foreign corporations and taxpayers that claim the foreign tax credit.
Why this matters
These proposed regulations affect how U.S. shareholders of controlled foreign corporations compute foreign tax credits during the transition away from the one-month deferral election, and they narrow credit availability on distributions of previously taxed E&P. The rules shift compliance burdens and potential tax liability onto multinational corporate taxpayers with CFC structures, while preserving Treasury revenue by preventing double-benefit foreign tax credit claims.