Treasury Issues Final Regulations and Additional Proposed Foreign Tax Credit Regulations

Summary

On December 2, 2019, the Department of the Treasury and the Internal Revenue Service (collectively, Treasury) released for publication in the Federal Register final and temporary regulations (T.D. 9882) that provide guidance relating to the determination of the foreign tax credit under the Internal Revenue Code. The final regulations finalize the proposed regulations published on December 7, 2018. For a discussion of the 2018 proposed regulations, see our December 2018 tax alert. The final regulations also finalize proposed regulations on overall foreign losses that were published on June 25, 2012, and finalize certain portions of proposed regulations published on November 7, 2007, relating to a U.S. taxpayer’s obligation to notify the IRS of a foreign tax redetermination.
 
The final regulations provide additional guidance on various issues including, but not limited to, rules relating to:

  1. Allocating and apportioning expenses, including interest, along with the Section 250 deduction.
  2. Section 904(b)(4), the treatment of dividends for which a deduction is allowed under Section 245A.
  3. Foreign tax credit separate categories of income and transition rules accounting for the new separate categories.
  4. Items resourced under income tax treaties.
  5. Distributive shares of partnership income.
  6. The look-through rules under Section 904(d)(3).
  7. Allocating and apportioning foreign taxes.
  8. Separate limitation loss and overall foreign loss rules under Section 904(f).
  9. Overall foreign loss recapture on property dispositions.
  10. Foreign currency translations.
  11. Accounting for foreign tax redeterminations.
  12. Deemed paid taxes under Section 960.
  13. Assigning gross income to Section 904 categories and income groups.
  14. Updating the list of previously taxed earnings and profits groups in §1.960-3 to include ten previously taxed earnings and profits groups.

 
Also, on the same date, Treasury released for publication in the Federal Register additional proposed regulations (REG-105495-19) that provide guidance relating to the allocation and apportionment of research and experimentation, stewardship and interest deductions, along with creditable foreign taxes, the definition of financial services income, foreign tax redeterminations, availability of foreign tax credits under the Section 965 transition tax, and the application of the foreign tax credit limitation to consolidated groups.
 
For additional details and dates of applicability, see the final regulations and the proposed regulations.
 

BDO Insights

The final regulations largely follow the prior proposed regulations with certain modifications. The new proposed regulations provide helpful guidance in allocating and apportioning deductions. Please contact an International Tax Specialist if you would like more information regarding the content of this tax alert.