Subpart A—Foreign Tax Credit
Amendments
1986—
1976—
1975—
1966—
Subpart Referred to in Other Sections
This subpart is referred to in
§901. Taxes of foreign countries and of possessions of United States
(a) Allowance of credit
If the taxpayer chooses to have the benefits of this subpart, the tax imposed by this chapter shall, subject to the limitation of section 904, be credited with the amounts provided in the applicable paragraph of subsection (b) plus, in the case of a corporation, the taxes deemed to have been paid under sections 902 and 960. Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against any tax treated as a tax not imposed by this chapter under section 26(b).
(b) Amount allowed
Subject to the limitation of section 904, the following amounts shall be allowed as the credit under subsection (a):
(1) Citizens and domestic corporations
In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and
(2) Resident of the United States or Puerto Rico
In the case of a resident of the United States and in the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any possession of the United States; and
(3) Alien resident of the United States or Puerto Rico
In the case of an alien resident of the United States and in the case of an alien individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any foreign country; and
(4) Nonresident alien individuals and foreign corporations
In the case of any nonresident alien individual not described in section 876 and in the case of any foreign corporation, the amount determined pursuant to section 906; and
(5) Partnerships and estates
In the case of any individual described in paragraph (1), (2), (3), or (4), who is a member of a partnership or a beneficiary of an estate or trust, the amount of his proportionate share of the taxes (described in such paragraph) of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country or to any possession of the United States, as the case may be.
(c) Similar credit required for certain alien residents
Whenever the President finds that—
(1) a foreign country, in imposing income, war profits, and excess profits taxes, does not allow to citizens of the United States residing in such foreign country a credit for any such taxes paid or accrued to the United States or any foreign country, as the case may be, similar to the credit allowed under subsection (b)(3),
(2) such foreign country, when requested by the United States to do so, has not acted to provide such a similar credit to citizens of the United States residing in such foreign country, and
(3) it is in the public interest to allow the credit under subsection (b)(3) to citizens or subjects of such foreign country only if it allows such a similar credit to citizens of the United States residing in such foreign country,
the President shall proclaim that, for taxable years beginning while the proclamation remains in effect, the credit under subsection (b)(3) shall be allowed to citizens or subjects of such foreign country only if such foreign country, in imposing income, war profits, and excess profits taxes, allows to citizens of the United States residing in such foreign country such a similar credit.
(d) Treatment of dividends from a DISC or former DISC
For purposes of this subpart, dividends from a DISC or former DISC (as defined in section 992(a)) shall be treated as dividends from a foreign corporation to the extent such dividends are treated under part I as income from sources without the United States.
(e) Foreign taxes on mineral income
(1) Reduction in amount allowed
Notwithstanding subsection (b), the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or possession of the United States with respect to foreign mineral income from sources within such country or possession which would (but for this paragraph) be allowed under such subsection shall be reduced by the amount (if any) by which—
(A) the amount of such taxes (or, if smaller, the amount of the tax which would be computed under this chapter with respect to such income determined without the deduction allowed under section 613), exceeds
(B) the amount of the tax computed under this chapter with respect to such income.
(2) Foreign mineral income defined
For purposes of paragraph (1), the term "foreign mineral income" means income derived from the extraction of minerals from mines, wells, or other natural deposits, the processing of such minerals into their primary products, and the transportation, distribution, or sale of such minerals or primary products. Such term includes, but is not limited to—
(A) dividends received from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section 902, to the extent such dividends are attributable to foreign mineral income, and
(B) that portion of the taxpayer's distributive share of the income of partnerships attributable to foreign mineral income.
(f) Certain payments for oil or gas not considered as taxes
Notwithstanding subsection (b) and sections 902 and 960, the amount of any income, or profits, and excess profits taxes paid or accrued during the taxable year to any foreign country in connection with the purchase and sale of oil or gas extracted in such country is not to be considered as tax for purposes of section 275(a) and this section if—
(1) the taxpayer has no economic interest in the oil or gas to which section 611(a) applies, and
(2) either such purchase or sale is at a price which differs from the fair market value for such oil or gas at the time of such purchase or sale.
(g) Certain taxes paid with respect to distributions from possessions corporations
(1) In general
For purposes of this chapter, any tax of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation—
(A) to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, and
(B)(i) if a dividends received deduction is allowable with respect to such distribution under part VIII of subchapter B, or
(ii) to the extent that such distribution is received in connection with a liquidation or other transaction with respect to which gain or loss is not recognized,
shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued.
(2) Possessions corporation
For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election under section 936 applied to such corporation, during which section 931 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976) applied to such corporation, or during which section 957(c) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such corporation.
(h) Taxes paid with respect to foreign trade income
No credit shall be allowed under this section for any income, war profits, and excess profits taxes paid or accrued with respect to the foreign trade income (within the meaning of section 923(b)) of a FSC, other than section 923(a)(2) non-exempt income (within the meaning of section 927(d)(6)).
(i) Taxes used to provide subsidies
Any income, war profits, or excess profits tax shall not be treated as a tax for purposes of this title to the extent—
(1) the amount of such tax is used (directly or indirectly) by the country imposing such tax to provide a subsidy by any means to the taxpayer, a related person (within the meaning of section 482), or any party to the transaction or to a related transaction, and
(2) such subsidy is determined (directly or indirectly) by reference to the amount of such tax, or the base used to compute the amount of such tax.
(j) Denial of foreign tax credit, etc., with respect to certain foreign countries
(1) In general
Notwithstanding any other provision of this part—
(A) no credit shall be allowed under subsection (a) for any income, war profits, or excess profits taxes paid or accrued (or deemed paid under section 902 or 960) to any country if such taxes are with respect to income attributable to a period during which this subsection applies to such country, and
(B) subsections (a), (b), and (c) of section 904 and sections 902 and 960 shall be applied separately with respect to income attributable to such a period from sources within such country.
(2) Countries to which subsection applies
(A) In general
This subsection shall apply to any foreign country—
(i) the government of which the United States does not recognize, unless such government is otherwise eligible to purchase defense articles or services under the Arms Export Control Act,
(ii) with respect to which the United States has severed diplomatic relations,
(iii) with respect to which the United States has not severed diplomatic relations but does not conduct such relations, or
(iv) which the Secretary of State has, pursuant to section 6(j) of the Export Administration Act of 1979, as amended, designated as a foreign country which repeatedly provides support for acts of international terrorisms.
(B) Period for which subsection applies
This subsection shall apply to any foreign country described in subparagraph (A) during the period—
(i) beginning on the later of—
(I) January 1, 1987, or
(II) 6 months after such country becomes a country described in subparagraph (A), and
(ii) ending on the date the Secretary of State certifies to the Secretary of the Treasury that such country is no longer described in subparagraph (A).
(3) Taxes allowed as a deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection.
(4) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations which treat income paid through 1 or more entities as derived from a foreign country to which this subsection applies if such income was, without regard to such entities, derived from such country.
(k) Cross reference
(1) For deductions of income, war profits, and excess profits taxes paid to a foreign country or a possession of the United States, see sections 164 and 275.
(2) For right of each partner to make election under this section, see section 703(b).
(3) For right of estate or trust to the credit for taxes imposed by foreign countries and possessions of the United States under this section, see section 642(a).
(4) For reduction of credit for failure of a United States person to furnish certain information with respect to a foreign corporation controlled by him, see section 6038.
(Aug. 16, 1954, ch. 736,
References in Text
The date of the enactment of the Tax Reform Act of 1976, referred to in subsec. (g)(2), is the date of enactment of
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (g)(2), is the date of enactment of
The Arms Export Control Act, referred to in subsec. (j)(2)(A)(i), is
Section 6(j) of the Export Administration Act of 1979, referred to in subsec. (j)(2)(A)(iv), is classified to
Amendments
1993—Subsec. (j)(2)(C).
"(i)
"(I) beginning on January 1, 1988, and
"(II) ending on the date the Secretary of State certifies to the Secretary of the Treasury that South Africa meets the requirements of section 311(a) of the Comprehensive Anti-Apartheid Act of 1986 (as in effect on the date of the enactment of this subparagraph).
"(ii)
1988—Subsec. (g)(2).
Subsec. (j)(3).
1987—Subsec. (j)(1).
Subsec. (j)(2)(C).
1986—Subsec. (h).
Subsec. (i).
Subsec. (i)(3).
Subsec. (j).
Subsec. (k).
1984—Subsec. (a).
Subsecs. (h), (i).
1982—Subsec. (a).
1978—Subsec. (g)(1).
Subsec. (g)(2).
1976—Subsec. (a).
Subsec. (b).
Subsec. (d).
Subsecs. (g), (h).
1975—Subsecs. (f), (g).
1974—Subsec. (a).
1971—Subsec. (d).
1969—Subsec. (a).
Subsecs. (e), (f).
1966—Subsec. (a).
Subsec. (b)(3).
Subsec. (b)(4), (5).
Subsecs. (c) to (e).
1964—Subsec. (d)(1).
1962—Subsec. (a).
Subsec. (d)(4).
1960—Subsec. (a).
Subsec. (b).
Effective Date of 1988 Amendment
Amendment by section 1012(j) of
Section 2003(c)(2) of
Effective Date of 1987 Amendment
Section 10231(c) of
Effective Date of 1986 Amendments
Amendment by section 112(b)(3) of
Section 1204(b) of
Amendment by section 1876(p)(2) of
Section 8041(c) of
Effective Date of 1984 Amendment
Amendment by section 474(r)(20) of
Amendment by section 612(e)(1) of
Amendment by section 713(c)(1)(C) of
Amendment by section 801(d)(1) of
Effective Date of 1982 Amendment
Amendment by section 201(d)(8)(A) of
Amendment by section 265(b)(2)(A)(iv) of
Effective Date of 1978 Amendment
Section 701(u)(1)(C) of
Effective Date of 1976 Amendment
Amendment by section 1031(b)(1) of
Amendment by section 1051(d)(1) of
Amendment by section 1901(b)(1)(H)(iii), (37)(A) of
Effective Date of 1975 Amendment
Amendment by
Effective Date of 1974 Amendment
Amendment by section 2001(g)(2)(C) of
Amendment by section 2002(g)(3) of
Amendment by section 2005(c)(5) of
Effective Date of 1971 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by section 301(b)(9) of
Section 506(c) of
Effective Date of 1966 Amendments
Amendment by section 106(a)(4), (5) of
Section 106(b)(4) of
Amendment by
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1962 Amendment
Amendment by section 12(b)(1) of
Effective Date of 1960 Amendment
Amendment by section 3(a) of
Effect of Amendment by Pub. L. 103–149 on Revenue Ruling 92–62
Amendment by section 4(b)(8)(A) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Cross References
Credit for foreign taxes, see
Foreign tax credit, applicable rules, see
Income from sources within possessions of the United States, foreign tax credit, see
Investment companies, foreign tax credit allowed to shareholder, see
Limitations, special rules relating to foreign tax credit, see
Nonresident aliens, foreign tax credit not allowed, see
Partners and partnerships, taxes paid or accrued to foreign countries and possessions of the United States, see
Tax on resident foreign corporations, foreign tax credit, see
Taxes of foreign countries and possessions of the United States, see
Section Referred to in Other Sections
This section is referred to in
§902. Deemed paid credit where domestic corporation owns 10 percent or more of voting stock of foreign corporation
(a) Taxes paid by foreign corporation treated as paid by domestic corporation
For purposes of this subpart, a domestic corporation which owns 10 percent or more of the voting stock of a foreign corporation from which it receives dividends in any taxable year shall be deemed to have paid the same proportion of such foreign corporation's post-1986 foreign income taxes as—
(1) the amount of such dividends (determined without regard to section 78), bears to
(2) such foreign corporation's post-1986 undistributed earnings.
(b) Deemed taxes increased in case of certain 2nd and 3rd tier foreign corporations
(1) 2nd tier
If the foreign corporation described in subsection (a) (hereinafter in this section referred to as the "1st tier corporation") owns 10 percent or more of the voting stock of a 2nd foreign corporation from which it receives dividends in any taxable year, the 1st tier corporation shall be deemed to have paid the same proportion of such 2nd foreign corporation's post-1986 foreign income taxes as would be determined under subsection (a) if such 1st tier corporation were a domestic corporation.
(2) 3rd tier
If such 1st tier corporation owns 10 percent or more of the voting stock of a 2nd foreign corporation which, in turn, owns 10 percent or more of the voting stock of a 3rd foreign corporation from which the 2nd corporation receives dividends in any taxable year, such 2nd foreign corporation shall be deemed to have paid the same proportion of such 3rd foreign corporation's post-1986 foreign income taxes as would be determined under subsection (a) if such 2nd foreign corporation were a domestic corporation.
(3) 5 percent stock requirement
For purposes of this subpart—
(A) For 2nd tier
Paragraph (1) shall not apply unless the percentage of voting stock owned by the domestic corporation in the 1st tier corporation and the percentage of voting stock owned by the 1st tier corporation in the 2nd foreign corporation when multiplied together equal at least 5 percent.
(B) For 3rd tier
Paragraph (2) shall not apply unless the percentage arrived at for purposes of applying paragraph (1) when multiplied by the percentage of voting stock owned by the 2nd foreign corporation in the 3rd foreign corporation is equal to at least 5 percent.
(c) Definitions and special rules
For purposes of this section—
(1) Post-1986 undistributed earnings
The term "post-1986 undistributed earnings" means the amount of the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986) accumulated in taxable years beginning after December 31, 1986—
(A) as of the close of the taxable year of the foreign corporation in which the dividend is distributed, and
(B) without diminution by reason of dividends distributed during such taxable year.
(2) Post-1986 foreign income taxes
The term "post-1986 foreign income taxes" means the sum of—
(A) the foreign income taxes with respect to the taxable year of the foreign corporation in which the dividend is distributed, and
(B) the foreign income taxes with respect to prior taxable years beginning after December 31, 1986, to the extent such foreign taxes were not deemed paid with respect to dividends distributed by the foreign corporation in prior taxable years.
(3) Special rule where domestic corporation acquires 10 percent of foreign corporation after December 31, 1986
(A) In general
If the 1st day on which the ownership requirements of subparagraph (B) are met with respect to any foreign corporation is in a taxable year of such corporation beginning after December 31, 1986, the post-1986 undistributed earnings and the post-1986 foreign income taxes of such foreign corporation shall be determined by taking into account only periods beginning on and after the 1st day of the 1st taxable year in which such ownership requirements are met.
(B) Ownership requirements
The ownership requirements of this subparagraph are met with respect to any foreign corporation if—
(i) 10 percent or more of the voting stock of such foreign corporation is owned by a domestic corporation,
(ii) the requirements of subsection (b)(3)(A) are met with respect to such foreign corporation and 10 percent or more of the voting stock of such foreign corporation is owned by another foreign corporation described in clause (i), or
(iii) the requirements of subsection (b)(3)(B) are met with respect to such foreign corporation and 10 percent or more of the voting stock of such foreign corporation is owned by another foreign corporation described in clause (ii).
(4) Foreign income taxes
(A) In general
The term "foreign income taxes" means any income, war profits, or excess profits taxes paid by the foreign corporation to any foreign country or possession of the United States.
(B) Treatment of deemed taxes
Except for purposes of determining the amount of the post-1986 foreign income taxes of a 3rd foreign corporation referred to in subsection (b)(2), the term "foreign income taxes" includes any such taxes deemed to be paid by the foreign corporation under this section.
(5) Accounting periods
In the case of a foreign corporation the income, war profits, and excess profits taxes of which are determined on the basis of an accounting period of less than 1 year, the word "year" as used in this subsection shall be construed to mean such accounting period.
(6) Treatment of distributions from earnings before 1987
(A) In general
In the case of any dividend paid by a foreign corporation out of accumulated profits (as defined in this section as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) for taxable years beginning before the 1st taxable year taken into account in determining the post-1986 undistributed earnings of such corporation—
(i) this section (as amended by the Tax Reform Act of 1986) shall not apply, but
(ii) this section (as in effect on the day before the date of the enactment of such Act) shall apply.
(B) Dividends paid first out of post-1986 earnings
Any dividend in a taxable year beginning after December 31, 1986, shall be treated as made out of post-1986 undistributed earnings to the extent thereof.
(7) Regulations
The Secretary shall provide such regulations as may be necessary or appropriate to carry out the provisions of this section and section 960, including provisions which provide for the separate application of this section and section 960 to reflect the separate application of section 904 to separate types of income and loss.
(d) Cross references
(1) For inclusion in gross income of an amount equal to taxes deemed paid under subsection (a), see section 78.
(2) For application of subsections (a) and (b) with respect to taxes deemed paid in a prior taxable year by a United States shareholder with respect to a controlled foreign corporation, see section 960.
(3) For reduction of credit with respect to dividends paid out of post-1986 undistributed earnings for years for which certain information is not furnished, see section 6038.
(Aug. 16, 1954, ch. 736,
References in Text
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (c)(6)(A), is the date of enactment of
The Tax Reform Act of 1986, referred to in subsec. (c)(6)(A)(i), is
Amendments
1988—Subsec. (c)(1).
Subsec. (c)(7).
1986—
1976—
1975—Subsec. (d).
1971—Subsec. (b).
Subsec. (c)(1)(A).
Subsec. (c)(1)(B).
1962—Subsec. (a).
Subsec. (b).
"(1) for purposes of applying subsection (a)(1), the amount of such dividends bears to the amount of the accumulated profits (as defined in subsection (c)(1)(A)) of such other foreign corporation from which such dividends were paid in excess of such income, war profits, and excess profits taxes, or
"(2) for purposes of applying subsection (a)(2), the amount of such dividends bears to the amount of the accumulated profits (as defined in subsection (c)(1)(B)) of such other foreign corporation from which such dividends were paid"
for "from which such dividends were paid, which the amount of such dividends bears to the amount of such accumulated profits".
Subsec. (c).
Subsec. (d).
Subsec. (e).
1960—Subsec. (e).
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Section 1202(e) of
Effective Date of 1976 Amendment
Section 1033(c) of
"(1) in respect of any distribution received by a domestic corporation after December 31, 1977, and
"(2) in respect of any distribution received by a domestic corporation before January 1, 1978, in a taxable year of such corporation beginning after December 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1975.
For purposes of paragraph (2), a distribution made by a foreign corporation out of its profits which are attributable to a distribution received from a foreign corporation to which section 902(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1976, to the extent that such distribution was paid out of the accumulated profits of such foreign corporation for a taxable year beginning before January 1, 1976."
Effective Date of 1975 Amendment
Amendment by
Effective Date of 1971 Amendment
Section 3 of
Effective Date of 1962 Amendment
Section 9(e) of
"(1) in respect of any distribution received by a domestic corporation after December 31, 1964, and
"(2) in respect of any distribution received by a domestic corporation before January 1, 1965, in a taxable year of such corporation beginning after December 31, 1962, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1962.
For purposes of paragraph (2), a distribution made by a foreign corporation out of its profits which are attributable to a distribution received from a foreign subsidiary to which section 902(b) applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1963, to the extent that such distribution was paid out of the accumulated profits of such foreign subsidiary for a taxable year beginning before January 1, 1963."
Effective Date of 1960 Amendment
Amendment by
Increase in Earnings and Profits of Foreign Corporations Under Section 1023(e)(3)(C) of Pub. L. 99–514
Section 1012(b)(3) of
Section Referred to in Other Sections
This section is referred to in
§903. Credit for taxes in lieu of income, etc., taxes
For purposes of this part and of sections 164(a) and 275(a), the term "income, war profits, and excess profits taxes" shall include a tax paid in lieu of a tax on income, war profits, or excess profits otherwise generally imposed by any foreign country or by any possession of the United States.
(Aug. 16, 1954, ch. 736,
Amendments
1988—
1964—
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1964 Amendment
Amendment by
§904. Limitation on credit
(a) Limitation
The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable income from sources without the United States (but not in excess of the taxpayer's entire taxable income) bears to his entire taxable income for the same taxable year.
(b) Taxable income for purpose of computing limitation
(1) Personal exemptions
For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b).
(2) Capital gains
For purposes of this section—
(A) In general
Taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets only to the extent of foreign source capital gain net income.
(B) Special rules where capital gain rate differential
In the case of any taxable year for which there is a capital gain rate differential—
(i) in lieu of applying subparagraph (A), the taxable income from sources outside the United States shall include gain from the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by the rate differential portion of foreign source net capital gain,
(ii) the entire taxable income shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by the rate differential portion of net capital gain, and
(iii) for purposes of determining taxable income from sources outside the United States, any net capital loss (and any amount which is a short-term capital loss under section 1212(a)) from sources outside the United States to the extent taken into account in determining capital gain net income for the taxable year shall be reduced by an amount equal to the rate differential portion of the excess of net capital gain from sources within the United States over net capital gain.
(3) Definitions
For purposes of this subsection—
(A) Foreign source capital gain net income
The term "foreign source capital gain net income" means the lesser of—
(i) capital gain net income from sources without the United States, or
(ii) capital gain net income.
(B) Foreign source net capital gain
The term "foreign source net capital gain" means the lesser of—
(i) net capital gain from sources without the United States, or
(ii) net capital gain.
(C) Section 1231 gains
The term "gain from the sale or exchange of capital assets" includes any gain so treated under section 1231.
(D) Capital gain rate differential
There is a capital gain rate differential for any taxable year if—
(i) in the case of a taxpayer other than a corporation, subsection (h) of section 1 applies to such taxable year, or
(ii) in the case of a corporation, any rate of tax imposed by section 11, 511, or 831(a) or (b) (whichever applies) exceeds the alternative rate of tax under section 1201(a) (determined without regard to the last sentence of section 11(b)(1)).
(E) Rate differential portion
(i) In general
The rate differential portion of foreign source net capital gain, net capital gain, or the excess of net capital gain from sources within the United States over net capital gain, as the case may be, is the same proportion of such amount as—
(I) the excess of the highest applicable tax rate over the alternative tax rate, bears to
(II) the highest applicable tax rate.
(ii) Highest applicable tax rate
For purposes of clause (i), the term "highest applicable tax rate" means—
(I) in the case of a taxpayer other than a corporation, the highest rate of tax set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies), or
(II) in the case of a corporation, the highest rate of tax specified in section 11(b).
(iii) Alternative tax rate
For purposes of clause (i), the term "alternative tax rate" means—
(I) in the case of a taxpayer other than a corporation, the alternative rate of tax determined under section 1(h), or
(II) in the case of a corporation, the alternative rate of tax under section 1201(a).
(4) Coordination with section 936
For purposes of subsection (a), in the case of a corporation, the taxable income shall not include any portion thereof taken into account for purposes of the credit (if any) allowed by section 936 (without regard to subsections (a)(4) and (i) thereof).
(c) Carryback and carryover of excess tax paid
Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year for which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries or possessions of the United States in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year exceeds the sum of the taxes paid or accrued to foreign countries or possessions of the United States for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States.
(d) Separate application of section with respect to certain categories of income
(1) In general
The provisions of subsections (a), (b), and (c) and sections 902, 907, and 960 shall be applied separately with respect to each of the following items of income:
(A) passive income,
(B) high withholding tax interest,
(C) financial services income,
(D) shipping income,
(E) in the case of a corporation, dividends from each noncontrolled section 902 corporation,
(F) dividends from a DISC or former DISC (as defined in section 992(a)) to the extent such dividends are treated as income from sources without the United States,
(G) taxable income attributable to foreign trade income (within the meaning of section 923(b)),
(H) distributions from a FSC (or a former FSC) out of earnings and profits attributable to foreign trade income (within the meaning of section 923(b)) or interest or carrying charges (as defined in section 927(d)(1)) derived from a transaction which results in foreign trade income (as defined in section 923(b)), and
(I) income other than income described in any of the preceding subparagraphs.
(2) Definitions and special rules
For purposes of this subsection—
(A) Passive income
(i) In general
Except as otherwise provided in this subparagraph, the term "passive income" means any income received or accrued by any person which is of a kind which would be foreign personal holding company income (as defined in section 954(c)).
(ii) Certain amounts included
Except as provided in clause (iii), the term "passive income" includes any amount includible in gross income under section 551 or, except as provided in subparagraph (E)(iii) or paragraph (3)(I), section 1293 (relating to certain passive foreign investment companies).
(iii) Exceptions
The term "passive income" shall not include—
(I) any income described in a subparagraph of paragraph (1) other than subparagraph (A),
(II) any export financing interest, and
(III) any high-taxed income.
(iv) Clarification of application of section 864(d)(6)
In determining whether any income is of a kind which would be foreign personal holding company income, the rules of section 864(d)(6) shall apply only in the case of income of a controlled foreign corporation.
(B) High withholding tax interest
(i) In general
Except as otherwise provided in this subparagraph, the term "high withholding tax interest" means any interest if—
(I) such interest is subject to a withholding tax of a foreign country or possession of the United States (or other tax determined on a gross basis), and
(II) the rate of such tax applicable to such interest is at least 5 percent.
(ii) Exception for export financing
The term "high withholding tax interest" shall not include any export financing interest.
(iii) Regulations
The Secretary may by regulations provide that—
(I) amounts (not otherwise high withholding tax interest) shall be treated as high withholding tax interest where necessary to prevent avoidance of the purposes of this subparagraph, and
(II) a tax shall not be treated as a withholding tax or other tax imposed on a gross basis if such tax is in the nature of a prepayment of a tax imposed on a net basis.
(C) Financial services income
(i) In general
Except as otherwise provided in this subparagraph, the term "financial services income" means any income which is received or accrued by any person predominantly engaged in the active conduct of a banking, insurance, financing, or similar business, and which is—
(I) described in clause (ii),
(II) passive income (determined without regard to subclause (I) of subparagraph (A)(iii)), or
(III) export financing interest which (but for subparagraph (B)(ii)) would be high withholding tax interest.
(ii) General description of financial services income
Income is described in this clause if such income is—
(I) derived in the active conduct of a banking, financing, or similar business,
(II) derived from the investment by an insurance company of its unearned premiums or reserves ordinary and necessary for the proper conduct of its insurance business, or
(III) of a kind which would be insurance income as defined in section 953(a) determined without regard to those provisions of paragraph (1)(A) of such section which limit insurance income to income from countries other than the country in which the corporation was created or organized.
(iii) Exceptions
The term "financial services income" does not include—
(I) any high withholding tax interest,
(II) any dividend from a noncontrolled section 902 corporation, and
(III) any export financing interest not described in clause (i)(III).
(D) Shipping income
The term "shipping income" means any income received or accrued by any person which is of a kind which would be foreign base company shipping income (as defined in section 954(f)). Such term does not include any dividend from a noncontrolled section 902 corporation and does not include any financial services income.
(E) Noncontrolled section 902 corporation
(i) In general
The term "noncontrolled section 902 corporation" means any foreign corporation with respect to which the taxpayer meets the stock ownership requirements of section 902(a) (or, for purposes of applying paragraph (3), the requirements of section 902(b)). A controlled foreign corporation shall not be treated as a noncontrolled section 902 corporation with respect to any distribution out of its earnings and profits for periods during which it was a controlled foreign corporation and except as provided in regulations, the taxpayer was a United States shareholder in such corporation.
(ii) Special rule for taxes on high-withholding tax interest
If a foreign corporation is a noncontrolled section 902 corporation with respect to the taxpayer, taxes on high withholding tax interest (to the extent imposed at a rate in excess of 5 percent) shall not be treated as foreign taxes for purposes of determining the amount of foreign taxes deemed paid by the taxpayer under section 902.
(iii) Treatment of inclusions under section 1293
If any foreign corporation is a non-controlled section 902 corporation with respect to the taxpayer, any inclusion under section 1293 with respect to such corporation shall be treated as a dividend from such corporation.
(F) High-taxed income
The term "high-taxed income" means any income which (but for this subparagraph) would be passive income if the sum of—
(i) the foreign income taxes paid or accrued by the taxpayer with respect to such income, and
(ii) the foreign income taxes deemed paid by the taxpayer with respect to such income under section 902 or 960,
exceeds the highest rate of tax specified in section 1 or 11 (whichever applies) multiplied by the amount of such income (determined with regard to section 78). For purposes of the preceding sentence, the term "foreign income taxes" means any income, war profits, or excess profits tax imposed by any foreign country or possession of the United States.
(G) Export financing interest
For purposes of this paragraph, the term "export financing interest" means any interest derived from financing the sale (or other disposition) for use or consumption outside the United States of any property—
(i) which is manufactured, produced, grown, or extracted in the United States by the taxpayer or a related person, and
(ii) not more than 50 percent of the fair market value of which is attributable to products imported into the United States.
For purposes of clause (ii), the fair market value of any property imported into the United States shall be its appraised value, as determined by the Secretary under section 402 of the Tariff Act of 1930 (
(H) Related person
For purposes of this paragraph, the term "related person" has the meaning given such term by section 954(d)(3), except that such section shall be applied by substituting "the person with respect to whom the determination is being made" for "controlled foreign corporation" each place it appears.
(I) Transitional rule
For purposes of paragraph (1)—
(i) taxes paid or accrued in a taxable year beginning before January 1, 1987, with respect to income which was described in subparagraph (A) of paragraph (1) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) shall be treated as taxes paid or accrued with respect to income described in subparagraph (A) of paragraph (1) (as in effect after such date),
(ii) taxes paid or accrued in a taxable year beginning before January 1, 1987, with respect to income which was described in subparagraph (E) of paragraph (1) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) shall be treated as taxes paid or accrued with respect to income described in subparagraph (I) of paragraph (1) (as in effect after such date) except that—
(I) such taxes shall be treated as paid or accrued with respect to shipping income to the extent the taxpayer establishes to the satisfaction of the Secretary that such taxes were paid or accrued with respect to such income,
(II) in the case of a person described in subparagraph (C)(i), such taxes shall be treated as paid or accrued with respect to financial services income to the extent the taxpayer establishes to the satisfaction of the Secretary that such taxes were paid or accrued with respect to such income, and
(III) such taxes shall be treated as paid or accrued with respect to high withholding tax interest to the extent the taxpayer establishes to the satisfaction of the Secretary that such taxes were paid or accrued with respect to such income, and
(iii) taxes paid or accrued in a taxable year beginning before January 1, 1987, with respect to income described in any other subparagraph of paragraph (1) (as so in effect before such date) shall be treated as taxes paid or accrued with respect to income described in the corresponding subparagraph of paragraph (1) (as so in effect after such date).
(3) Look-thru in case of controlled foreign corporations
(A) In general
Except as otherwise provided in this paragraph, dividends, interest, rents, and royalties received or accrued by the taxpayer from a controlled foreign corporation in which the taxpayer is a United States shareholder shall not be treated as income in a separate category.
(B) Subpart F inclusions
Any amount included in gross income under section 951(a)(1)(A) shall be treated as income in a separate category to the extent the amount so included is attributable to income in such category.
(C) Interest, rents, and royalties
Any interest, rent, or royalty which is received or accrued from a controlled foreign corporation in which the taxpayer is a United States shareholder shall be treated as income in a separate category to the extent it is properly allocable (under regulations prescribed by the Secretary) to income of the controlled foreign corporation in such category.
(D) Dividends
Any dividend paid out of the earnings and profits of any controlled foreign corporation in which the taxpayer is a United States shareholder shall be treated as income in a separate category in proportion to the ratio of—
(i) the portion of the earnings and profits attributable to income in such category, to
(ii) the total amount of earnings and profits.
(E) Look-thru applies only where subpart F applies
If a controlled foreign corporation meets the requirements of section 954(b)(3)(A) (relating to de minimis rule) for any taxable year, for purposes of this paragraph, none of its foreign base company income (as defined in section 954(a) without regard to section 954(b)(5)) and none of its gross insurance income (as defined in section 954(b)(3)(C)) for such taxable year shall be treated as income in a separate category, except that this sentence shall not apply to any income which (without regard to this sentence) would be treated as financial services income. Solely for purposes of applying subparagraph (D), passive income of a controlled foreign corporation shall not be treated as income in a separate category if the requirements of section 954(b)(4) are met with respect to such income.
(F) Separate category
For purposes of this paragraph—
(i) In general
Except as provided in clause (ii), the term "separate category" means any category of income described in subparagraph (A), (B), (C), (D), or (E) of paragraph (1).
(ii) Coordination with high-taxed income provisions
(I) In determining whether any income of a controlled foreign corporation is in a separate category, subclause (III) of paragraph (2)(A)(iii) shall not apply.
(II) Any income of the taxpayer which is treated as income in a separate category under this paragraph shall be so treated notwithstanding any provision of paragraph (2); except that the determination of whether any amount is high-taxed income shall be made after the application of this paragraph.
(G) Dividend
For purposes of this paragraph, the term "dividend" includes any amount included in gross income in section 951(a)(1)(B). Any amount included in gross income under section 78 to the extent attributable to amounts included in gross income in section 951(a)(1)(A) shall not be treated as a dividend but shall be treated as included in gross income under section 951(a)(1)(A).
(H) Exception for certain high withholding tax interest
This paragraph shall not apply to any amount which—
(i) without regard to this paragraph, is high withholding tax interest (including any amount treated as high withholding tax interest under paragraph (2)(B)(iii)), and
(ii) would (but for this subparagraph) be treated as financial services income under this paragraph.
The amount to which this paragraph does not apply by reason of the preceding sentence shall not exceed the interest or equivalent income of the controlled foreign corporation taken into account in determining financial services income without regard to this subparagraph.
(I) Look-thru applies to passive foreign investment company inclusion
If—
(i) a passive foreign investment company is a controlled foreign corporation, and
(ii) the taxpayer is a United States shareholder in such controlled foreign corporation,
any amount included in gross income under section 1293 shall be treated as income in a separate category to the extent such amount is attributable to income in such category.
(4) Controlled foreign corporation; United States shareholder
For purposes of this subsection—
(A) Controlled foreign corporation
The term "controlled foreign corporation" has the meaning given such term by section 957 (taking into account section 953(c)).
(B) United States shareholder
The term "United States shareholder" has the meaning given such term by section 951(b) (taking into account section 953(c)).
(5) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate for the purposes of this subsection, including regulations—
(A) for the application of paragraph (3) and subsection (f)(5) in the case of income paid (or loans made) through 1 or more entities or between 2 or more chains of entities,
(B) preventing the manipulation of the character of income the effect of which is to avoid the purposes of this subsection, and
(C) providing that rules similar to the rules of paragraph (3)(C) shall apply to interest, rents, and royalties received or accrued from entities which would be controlled foreign corporations if they were foreign corporations.
[(e) Repealed. Pub. L. 101–508, title XI, §11801(a)(31), Nov. 5, 1990, 104 Stat. 1388–521 ]
(f) Recapture of overall foreign loss
(1) General rule
For purposes of this subpart and section 936, in the case of any taxpayer who sustains an overall foreign loss for any taxable year, that portion of the taxpayer's taxable income from sources without the United States for each succeeding taxable year which is equal to the lesser of—
(A) the amount of such loss (to the extent not used under this paragraph in prior taxable years), or
(B) 50 percent (or such larger percent as the taxpayer may choose) of the taxpayer's taxable income from sources without the United States for such succeeding taxable year,
shall be treated as income from sources within the United States (and not as income from sources without the United States).
(2) Overall foreign loss defined
For purposes of this subsection, the term "overall foreign loss" means the amount by which the gross income for the taxable year from sources without the United States (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) for such year is exceeded by the sum of the deductions properly apportioned or allocated thereto, except that there shall not be taken into account—
(A) any net operating loss deduction allowable for such year under section 172(a), and
(B) any—
(i) foreign expropriation loss for such year, as defined in section 172(h),1 or
(ii) loss for such year which arises from fire, storm, shipwreck, or other casualty, or from theft,
to the extent such loss is not compensated for by insurance or otherwise.
(3) Dispositions
(A) In general
For purposes of this chapter, if property which has been used predominantly without the United States in a trade or business is disposed of during any taxable year—
(i) the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)), shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer's adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year, and
(ii) paragraph (1) shall be applied with respect to such income by substituting "100 percent" for "50 percent".
In determining for purposes of this subparagraph whether the predominant use of any property has been without the United States, there shall be taken into account use during the 3-year period ending on the date of the disposition (or, if shorter, the period during which the property has been used in the trade or business).
(B) Disposition defined and special rules
(i) For purposes of this subsection, the term "disposition" includes a sale, exchange, distribution, or gift of property whether or not gain or loss is recognized on the transfer.
(ii) Any taxable income recognized solely by reason of subparagraph (A) shall have the same characterization it would have had if the taxpayer had sold or exchanged the property.
(iii) The Secretary shall prescribe such regulations as he may deem necessary to provide for adjustments to the basis of property to reflect taxable income recognized solely by reason of subparagraph (A).
(C) Exceptions
Notwithstanding subparagraph (B), the term "disposition" does not include—
(i) a disposition of property which is not a material factor in the realization of income by the taxpayer, or
(ii) a disposition of property to a domestic corporation in a distribution or transfer described in section 381(a).
(4) Accumulation distributions of foreign trust
For purposes of this chapter, in the case of amounts of income from sources without the United States which are treated under section 666 (without regard to subsections (b) and (c) thereof if the taxpayer chose to take a deduction with respect to the amounts described in such subsections under section 667(d)(1)(B)) as having been distributed by a foreign trust in a preceding taxable year, that portion of such amounts equal to the amount of any overall foreign loss sustained by the beneficiary in a year prior to the taxable year of the beneficiary in which such distribution is received from the trust shall be treated as income from sources within the United States (and not income from sources without the United States) to the extent that such loss was not used under this subsection in prior taxable years, or in the current taxable year, against other income of the beneficiary.
(5) Treatment of separate limitation losses
(A) In general
The amount of the separate limitation losses for any taxable year shall reduce income from sources within the United States for such taxable year only to the extent the aggregate amount of such losses exceeds the aggregate amount of the separate limitation incomes for such taxable year.
(B) Allocation of losses
The separate limitation losses for any taxable year (to the extent such losses do not exceed the separate limitation incomes for such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis.
(C) Recharacterization of subsequent income
If—
(i) a separate limitation loss from any income category (hereinafter in this subparagraph referred to as "the loss category") was allocated to income from any other category under subparagraph (B), and
(ii) the loss category has income for a subsequent taxable year,
such income (to the extent it does not exceed the aggregate separate limitation losses from the loss category not previously recharacterized under this subparagraph) shall be recharacterized as income from such other category in proportion to the prior reductions under subparagraph (B) in such other category not previously taken into account under this subparagraph. Nothing in the preceding sentence shall be construed as recharacterizing any tax.
(D) Special rules for losses from sources in the United States
Any loss from sources in the United States for any taxable year (to the extent such loss does not exceed the separate limitation incomes from such year) shall be allocated among (and operate to reduce) such incomes on a proportionate basis. This subparagraph shall be applied after subparagraph (B).
(E) Definitions
For purposes of this paragraph—
(i) Income category
The term "income category" means each separate category of income described in subsection (d)(1).
(ii) Separate limitation income
The term "separate limitation income" means, with respect to any income category, the taxable income from sources outside the United States, separately computed for such category.
(iii) Separate limitation loss
The term "separate limitation loss" means, with respect to any income category, the loss from such category determined under the principles of section 907(c)(4)(B).
(F) Dispositions
If any separate limitation loss for any taxable year is allocated against any separate limitation income for such taxable year, except to the extent provided in regulations, rules similar to the rules of paragraph (3) shall apply to any disposition of property if gain from such disposition would be in the income category with respect to which there was such separate limitation loss.
(g) Source rules in case of United States-owned foreign corporations
(1) In general
The following amounts which are derived from a United States-owned foreign corporation and which would be treated as derived from sources outside the United States without regard to this subsection shall, for purposes of this section, be treated as derived from sources within the United States to the extent provided in this subsection:
(A) Any amount included in gross income under—
(i) section 951(a) (relating to amounts included in gross income of United States shareholders),
(ii) section 551 (relating to foreign personal holding company income taxed to United States shareholders), or
(iii) section 1293 (relating to current taxation of income from qualified funds).
(B) Interest.
(C) Dividends.
(2) Subpart F and foreign personal holding or passive foreign investment company inclusions
Any amount described in subparagraph (A) of paragraph (1) shall be treated as derived from sources within the United States to the extent such amount is attributable to income of the United States-owned foreign corporation from sources within the United States.
(3) Certain interest allocable to United States source income
Any interest which—
(A) is paid or accrued by a United States-owned foreign corporation during any taxable year,
(B) is paid or accrued to a United States shareholder (as defined in section 951(b)) or a related person (within the meaning of section 267(b)) to such a shareholder, and
(C) is properly allocable (under regulations prescribed by the Secretary) to income of such foreign corporation for the taxable year from sources within the United States,
shall be treated as derived from sources within the United States.
(4) Dividends
(A) In general
The United States source ratio of any dividend paid or accrued by a United States-owned foreign corporation shall be treated as derived from sources within the United States.
(B) United States source ratio
For purposes of subparagraph (A), the term "United States source ratio" means, with respect to any dividend paid out of the earnings and profits for any taxable year, a fraction—
(i) the numerator of which is the portion of the earnings and profits for such taxable year from sources within the United States, and
(ii) the denominator of which is the total amount of earnings and profits for such taxable year.
(5) Exception where United States-owned foreign corporation has small amount of United States source income
Paragraph (3) shall not apply to interest paid or accrued during any taxable year (and paragraph (4) shall not apply to any dividends paid out of the earnings and profits for such taxable year) if—
(A) the United States-owned foreign corporation has earnings and profits for such taxable year, and
(B) less than 10 percent of such earnings and profits is attributable to sources within the United States.
For purposes of the preceding sentence, earnings and profits shall be determined without any reduction for interest described in paragraph (3) (determined without regard to subparagraph (C) thereof).
(6) United States-owned foreign corporation
For purposes of this subsection, the term "United States-owned foreign corporation" means any foreign corporation if 50 percent or more of—
(A) the total combined voting power of all classes of stock of such corporation entitled to vote, or
(B) the total value of the stock of such corporation,
is held directly (or indirectly through applying paragraphs (2) and (3) of section 958(a) and paragraph (4) of section 318(a)) by United States persons (as defined in section 7701(a)(30)).
(7) Dividend
For purposes of this subsection, the term "dividend" includes any gain treated as ordinary income under section 1246 or as a dividend under section 1248.
(8) Coordination with subsection (f)
This subsection shall be applied before subsection (f).
(9) Treatment of certain domestic corporations
For purposes of this subsection—
(A) in the case of interest treated as not from sources within the United States under section 861(a)(1)(A), the corporation paying such interest shall be treated as a United States-owned foreign corporation, and
(B) in the case of any dividend treated as not from sources within the United States under section 861(a)(2)(A), the corporation paying such dividend shall be treated as a United States-owned foreign corporation.
(10) Coordination with treaties
(A) In general
If—
(i) any amount derived from a United States-owned foreign corporation would be treated as derived from sources within the United States under this subsection by reason of an item of income of such United States-owned foreign corporation,
(ii) under a treaty obligation of the United States (applied without regard to this subsection and by treating any amount included in gross income under section 951(a)(1) as a dividend), such amount would be treated as arising from sources outside the United States, and
(iii) the taxpayer chooses the benefits of this paragraph,
this subsection shall not apply to such amount to the extent attributable to such item of income (but subsections (a), (b), and (c) of this section and sections 902, 907, and 960 shall be applied separately with respect to such amount to the extent so attributable).
(B) Special rule
Amounts included in gross income under section 951(a)(1) shall be treated as a dividend under subparagraph (A)(ii) only if dividends paid by each corporation (the stock in which is taken into account in determining whether the shareholder is a United States shareholder in the United States-owned foreign corporation), if paid to the United States shareholder, would be treated under a treaty obligation of the United States as arising from sources outside the United States (applied without regard to this subsection).
(11) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate for purposes of this subsection, including—
(A) regulations for the application of this subsection in the case of interest or dividend payments through 1 or more entities, and
(B) regulations providing that this subsection shall apply to interest paid or accrued to any person (whether or not a United States shareholder).
(h) Coordination with nonrefundable personal credits
In the case of an individual, for purposes of subsection (a), the tax against which the credit is taken is such tax reduced by the sum of the credits allowable under subpart A of part IV of subchapter A of this chapter.
(i) Limitation on use of deconsolidation to avoid foreign tax credit limitations
If 2 or more domestic corporations would be members of the same affiliated group if—
(1) section 1504(b) were applied without regard to the exceptions contained therein, and
(2) the constructive ownership rules of section 1563(e) applied for purposes of section 1504(a),
the Secretary may by regulations provide for resourcing the income of any of such corporations or for modifications to the consolidated return regulations to the extent that such resourcing or modifications are necessary to prevent the avoidance of the provisions of this subpart.
(j) Cross reference
(1) For increase of limitation under subsection (a) for taxes paid with respect to amounts received which were included in the gross income of the taxpayer for a prior taxable year as a United States shareholder with respect to a controlled foreign corporation, see section 960(b).
(2) For modification of limitation under subsection (a) for purposes of determining the amount of credit which can be taken against the alternative minimum tax, see section 59(a).
(Aug. 16, 1954, ch. 736,
References in Text
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (d)(2)(I), is the date of the enactment of
Section 172(h), referred to in subsec. (f)(2)(B)(i), was repealed by
Amendments
1993—Subsec. (b)(4).
Subsec. (d)(2)(A)(iii)(II) to (IV).
1990—Subsec. (b)(3)(D)(i).
Subsec. (b)(3)(E)(iii)(I).
Subsec. (e).
1989—Subsec. (d)(1)(H).
Subsecs. (i), (j).
1988—Subsec. (b)(2).
Subsec. (b)(3)(D).
Subsec. (b)(3)(D)(ii).
Subsec. (b)(3)(E).
Subsec. (d)(1)(E).
Subsec. (d)(2)(A)(ii).
Subsec. (d)(2)(A)(iv).
Subsec. (d)(2)(B)(iii).
Subsec. (d)(2(C).
Subsec. (d)(2)(D).
Subsec. (d)(2)(E)(i).
Subsec. (d)(2)(E)(iii).
Subsec. (d)(2)(I)(ii).
"(I) the taxpayer establishes to the satisfaction of the Secretary that such taxes were paid or accrued with respect to shipping income, or
"(II) in the case of an entity meeting the requirements of subparagraph (C)(ii), the taxpayer establishes to the satisfaction of the Secretary that such taxes were paid or accrued with respect to financial services income, and".
Subsec. (d)(3)(E).
Subsec. (d)(3)(F).
Subsec. (d)(3)(H).
Subsec. (d)(3)(I).
Subsec. (f)(5)(F).
Subsec. (g)(9)(A).
Subsec. (g)(10), (11).
1986—Subsec. (a).
Subsec. (b)(3)(C).
"(i) in the case of an individual, is sold or exchanged outside of the country (or possession) of the individual's residence,
"(ii) in the case of a corporation, is stock in a second corporation sold or exchanged other than in a country (or possession) in which such second corporation derived more than 50 percent of its gross income for the 3-year period ending with the close of such second corporation's taxable year immediately preceding the year during which the sale or exchange occurred, or
"(iii) in the case of any taxpayer, is personal property (other than stock in a corporation) sold or exchanged other than in a country (or possession) in which such property is used in a trade or business of the taxpayer or in which such taxpayer derived more than 50 percent of its gross income for the 3-year period ending with the close of its taxable year immediately preceding the year during which the sale or exchange occurred,
unless such gain is subject to an income, war profits, or excess profits tax of a foreign country or possession of the United States, and the rate of tax applicable to such gain is 10 percent or more of the gain from the sale or exchange (computed under this chapter)."
Subsec. (b)(3)(D).
Subsec. (b)(3)(E), (F).
Subsec. (d).
Subsec. (d)(1).
Subsec. (d)(1)(D).
Subsec. (d)(2).
"(A) derived from any transaction which is directly related to the active conduct by the taxpayer of a trade or business in a foreign country or a possession of the United States,
"(B) derived in the conduct by the taxpayer of a banking, financing, or similar business,
"(C) received from a corporation in which the taxpayer (or one or more includible corporations in an affiliated group, as defined in section 1504, of which the taxpayer is a member) owns, directly or indirectly, at least 10 percent of the voting stock, or
"(D) received on obligations acquired as a result of the disposition of a trade or business actively conducted by the taxpayer in a foreign country or possession of the United States or as a result of the disposition of stock or obligations of a corporation in which the taxpayer owned at least 10 percent of the voting stock.
For purposes of subparagraph (C), stock owned, directly or indirectly, by or for a foreign corporation, shall be considered as being proportionately owned by its shareholders. For purposes of this subsection, interest (after the operation of section 904(d)(3)) received from a designated payor corporation described in section 904(d)(3)(E)(iii) by a taxpayer which owns directly or indirectly less than 10 percent of the voting stock of such designated payor corporation shall be treated as interest described in subparagraph (A) to the extent such interest would have been so treated had such taxpayer received it from other than a designated payor corporation."
Subsec. (d)(3).
Subsec. (d)(3)(C).
Subsec. (d)(3)(E).
"(iv) any other corporation formed or availed of for purposes of avoiding the provisions of this paragraph.
For purposes of this paragraph, the rules of paragraph (9) of subsection (g) shall apply."
Subsec. (d)(3)(I).
Subsec. (d)(3)(J).
Subsec. (d)(4), (5).
Subsec. (f)(5).
Subsec. (g)(1)(A)(iii).
Subsec. (g)(2).
Subsec. (g)(9), (10).
Subsec. (i)(2).
1984—Subsec. (d).
Subsec. (d)(1)(B) to (E).
Subsec. (d)(3).
Subsec. (g).
Subsecs. (h), (i).
1983—Subsec. (g).
1982—Subsec. (f)(4) to (6).
1980—Subsec. (b)(3)(F).
1978—Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (f)(2)(A).
Subsec. (f)(4).
Subsec. (f)(5).
Subsec. (h).
1977—Subsec. (a).
1976—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsec. (e).
Subsec. (f).
Subsec. (g).
Subsec. (h).
1971—Subsec. (f).
Subsec. (f)(1).
Subsec. (f)(3).
Subsec. (f)(5).
1969—Subsec. (b)(1).
Subsec. (b)(2).
1966—Subsec. (f)(2).
1964—Subsec. (g)(2).
1962—Subsec. (f).
Subsec. (g).
1960—Subsec. (a).
Subsec. (b).
Subsec. (c).
Subsec. (d).
Subsecs. (e), (f).
1958—Subsec. (c).
Effective Date of 1993 Amendment
Amendment by section 13227(d) of
Section 13235(c) of
Effective Date of 1990 Amendment
Amendment by section 11101(d)(5) of
Effective Date of 1989 Amendment
Section 7402(b) of
Amendment by section 7811(i)(1) of
Effective Date of 1988 Amendment
Section 1012(bb)(4)(B) of
Amendment by sections 1003(b)(2) and 1012(a)(1)(A), (2)–(4), (6)–(11), (c), (p)(11), (29), (q)(12) of
Amendment by section 2004(l) of
Effective Date of 1986 Amendment
Amendment by section 104(b)(13) of
Amendment by section 701(e)(4)(H) of
Section 1201(e) of
"(1)
"[(2) Repealed.
"(3)
"(A)
"(B)
[Section 7404(b), (c) of
["(b)
["(c)
["(1)
["(2)
["(A)
["(B)
Section 1203(b) of
Amendment by section 1211(b)(3) of
Amendment by section 1235(f)(4) of
Section 1810(a)(1)(B) of
"(i) only income received or accrued by such corporation after such date shall be taken into account under section 904(g) of the Internal Revenue Code of 1954 [now 1986]; except that
"(ii) paragraph (5) of such section 904(g) shall be applied by taking into account all income received or accrued by such corporation during such taxable year."
Section 1810(b)(4)(B) of
"(i) The amendment made by subparagraph (A) [amending this section] insofar as it adds the last sentence to subparagraph (E) of section 905(d)(3) [904(d)(3)] shall take effect on March 28, 1985. In the case of any taxable year ending after such date of any corporation treated as a designated payor corporation by reason of the amendment made by subparagraph (A)—
"(I) only income received or accrued by such corporation after such date shall be taken into account under section 904(d)(3) of the Internal Revenue Code of 1954 [now 1986]; except that
"(II) subparagraph (C) of such section 904(d)(3) shall be applied by taking into account all income received or accrued by such corporation during such taxable year.
"(ii) The amendment made by subparagraph (A) insofar as it adds clause (iv) to subparagraph (E) of section 904(d)(3) shall take effect on December 31, 1985. For purposes of such amendment, the rule of the second sentence of clause (i) shall be applied by taking into account December 31, 1985, in lieu of March 28, 1985."
Amendment by sections 1810(b)(1)–(3) and 1876(d)(2) of
Effective Date of 1984 Amendment
Section 121(b) of
"(1)
"(A) only income received or accrued by such foreign corporation after such date of enactment shall be taken into account under section 904(g) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as added by subsection (a)); except that
"(B) paragraph (5) of such section 904(g) (relating to exception where small amount of United States source income) shall be applied by taking into account all income received or accrued by such foreign corporation during such taxable year.
"(2)
"(A)
"(i) such interest shall not be taken into account under section 904(g) of the Internal Revenue Code of 1986 (as added by subsection (a)), except that
"(ii) such interest shall be taken into account for purposes of applying paragraph (5) of such section 904(g) (relating to exception where small amount of United States source income).
"(B)
"(i) the aggregate amount of interest received or accrued during any taxable year by an applicable CFC on United States affiliate obligations held by such applicable CFC, multiplied by,
"(ii) a fraction (not in excess of 1)—
"(I) the numerator of which is the sum of the aggregate principal amount of United States affiliate obligations held by the applicable CFC on March 31, 1984, but not in excess of the applicable limit, and
"(II) the denominator of which is the average daily principal amount of United States affiliate obligations held by such applicable CFC during the taxable year.
Proper adjustments shall be made to the numerator described in clause (ii)(I) for original issue discount accruing after March 31, 1984, on CFC obligations and United States affiliate obligations.
"(C)
"(i) the excess of (I) the aggregate principal amount of CFC obligations which are outstanding on March 31, 1984, but only with respect to obligations issued before March 8, 1984, or issued after March 7, 1984, by the applicable CFC pursuant to a binding commitment in effect on March 7, 1984, over (II) the average daily outstanding principal amount during the taxable year of the CFC obligations described in subclause (I), and
"(ii) the portion of the equity of such applicable CFC allocable to the excess described in clause (i) (determined on the basis of the debt-equity ratio of such applicable CFC on March 31, 1984).
"(D)
"(i) which was in existence on March 31, 1984, and
"(ii) the principal purpose of which on such date consisted of the issuing of CFC obligations (or short-term borrowing from nonaffiliated persons) and lending the proceeds of such obligations (or such borrowing) to affiliates.
"(E)
"(i)
"(ii)
"(iii)
"(I) at least 50 percent of the gross income from all sources of such corporation for the 3-year period ending with the close of its last taxable year ending on or before March 31, 1984, was effectively connected with the conduct of a trade or business within the United States, and
"(II) at least 50 percent of the gross income from all sources of such corporation for the 3-year period ending with the close of its taxable year preceding the payment of such interest was effectively connected with the conduct of a trade or business within the United States.
"(F)
"(G)
"(i) the requirements of clause (i) of section 163(f)(2)(B) of the Internal Revenue Code of 1986 are met with respect to such obligation, and
"(ii) in the case of an obligation issued after December 31, 1982, the requirements of clause (ii) of such section 163(f)(2)(B) are met with respect to such obligation.
"(H)
"(I)
"(i) the equity of the applicable CFC on March 31, 1984, and
"(ii) the aggregate principal amount of CFC obligations outstanding on March 31, 1984, which were issued by an applicable CFC—
"(I) before March 8, 1984, or
"(II) after March 7, 1984, pursuant to a binding commitment in effect on March 7, 1984.
"(3)
"(4)
"(5)
"(6)
"(A) which is a subsidiary of a domestic corporation which has been engaged in manufacturing for more than 50 years, and
"(B) which issued certificates with respect to obligations on—
"(i) September 24, 1979, denominated in French francs,
"(ii) September 10, 1981, denominated in Swiss francs,
"(iii) July 14, 1982, denominated in Swiss francs, and
"(iv) December 1, 1982, denominated in United States dollars,
with a total principal amount of less than 200,000,000 United States dollars.[,]
then paragraph (5) shall not apply to the proceeds from relending such obligations or related capital before January 1, 1986."
Section 122(b) of
"(1)
"(2)
"(A)
"(B)
"(3)
Amendment by section 474(r)(21) of
Amendment by section 801(d)(2) of
Effective Date of 1983 Amendment
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by section 403(c)(4) of
Amendment by section 421(e)(6) of
Amendment by section 701(a)(8)(C) of
Section 701(q)(3)(B) of
Section 701(u)(2)(D) of
Section 701(u)(3)(B) of
Section 701(u)(4)(C) of
"(i) to overall foreign losses sustained in taxable years beginning after December 31, 1975, and
"(ii) to foreign oil related losses sustained in taxable years ending after December 31, 1975."
Effective Date of 1977 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 503(b)(1) of
Section 1031(c) of
"(1)
"(2)
"(A) been engaged in the active conduct of the trade or business of the extraction of minerals (of a character with respect to which a deduction for depletion is allowable under section 613 of such Code) outside the United States or its possessions for less than 5 years preceding the date of enactment of this Act [Oct. 4, 1976],
"(B) had deductions properly apportioned or allocated to its gross income from such trade or business in excess of such gross income in at least 2 taxable years,
"(C) 80 percent of its gross receipts are from the sale of such minerals, and
"(D) made commitments for substantial expansion of such mineral extraction activities,
the amendments made by this section [amending this section and
"(3)
"(4)
Section 1032(c) of
"(1)
"(2)
"(3)
"(4)
"(5)
"(6)
"(A)
"(i) the taxpayer sustained a loss in a possession of the United States in a taxable year beginning after December 31, 1975, and before January 1, 1979,
"(ii) such loss is attributable to a trade or business engaged in by the taxpayer in such possession on January 1, 1976, and
"(iii) the taxpayer chooses to have the benefits of subpart A of part III of subchapter N apply for such taxable year and section 904(a)(1) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] (as in effect before the enactment of this Act [Oct. 4, 1976]) applies with respect to such taxable year.
"(B)
"(C)
"(i) for purposes of determining the liability for tax of the taxpayer for taxable years beginning after December 31, 1978, section 904(f) of the Internal Revenue Code of 1986 [subsec. (f) of this section] shall be applied with respect to the loss described in subparagraph (A)(i) under the principles of section 904(a)(1) of such Code (as in effect before the enactment of this Act [Oct. 4, 1976]); but
"(ii) in the case of any taxpayer and any possession, the aggregate amount to which such section 904(f) applies by reason of clause (i) shall not exceed the sum of the net incomes of all affiliated corporations from such possession for taxable years of such affiliated corporations beginning after December 31, 1975, and before January 1, 1979.
"(D)
"(E)
Section 1034(b) of
Amendment by section 1051(e) of
Amendment by section 1901(b)(10) of
Effective Date of 1971 Amendment
Amendment by
Effective Date of 1969 Amendment
Amendment by
Effective Date of 1966 Amendment
Section 106(c)(2) of
Effective Date of 1964 Amendment
Amendment by
Effective Date of 1962 Amendment
Section 10(b) of
Effective Date of 1960 Amendment
Section 4 of
Effective Date of 1958 Amendment
Section 42(c) of
Savings Provision
For provisions that nothing in amendment by section 11801(a)(31) of
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendments by sections 701(e)(4)(H) and 1201(a), (b), (d)(1)–(3) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Limitation on Carryback of Foreign Tax Credits to Taxable Years Beginning Before 1987
Section 1205 of
"(a)
"(1)
"(2)
"(A) the repeal of the zero bracket amount, and
"(B) the changes in the treatment of capital gains.
"(b)
Coordination With Treaty Obligations
Section 1810(a)(4) of
Separate Application of Section 904 In Case of Income Covered by Transitional Rules
Section 1810(a)(5) of
Section Referred to in Other Sections
This section is referred to in
1 See References in Text note below.
§905. Applicable rules
(a) Year in which credit taken
The credits provided in this subpart may, at the option of the taxpayer and irrespective of the method of accounting employed in keeping his books, be taken in the year in which the taxes of the foreign country or the possession of the United States accrued, subject, however, to the conditions prescribed in subsection (c). If the taxpayer elects to take such credits in the year in which the taxes of the foreign country or the possession of the United States accrued, the credits for all subsequent years shall be taken on the same basis, and no portion of any such taxes shall be allowed as a deduction in the same or any succeeding year.
(b) Proof of credits
The credits provided in this subpart shall be allowed only if the taxpayer establishes to the satisfaction of the Secretary—
(1) the total amount of income derived from sources without the United States, determined as provided in part I,
(2) the amount of income derived from each country, the tax paid or accrued to which is claimed as a credit under this subpart, such amount to be determined under regulations prescribed by the Secretary, and
(3) all other information necessary for the verification and computation of such credits.
(c) Adjustments on payment of accrued taxes
If accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part, the taxpayer shall notify the Secretary, who shall redetermine the amount of the tax for the year or years affected. The amount of tax due on such redetermination, if any, shall be paid by the taxpayer on notice and demand by the Secretary, or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer in accordance with subchapter B of
(Aug. 16, 1954, ch. 736,
Amendments
1982—Subsec. (c).
1980—Subsec. (c).
1976—Subsec. (b).
Subsec. (c).
1958—Subsec. (b).
Effective Date of 1982 Amendment
Section 343(b) of
Effective Date of 1980 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1901(a)(114) of
Effective Date of 1958 Amendment
Section 103(c) of
Section Referred to in Other Sections
This section is referred to in
§906. Nonresident alien individuals and foreign corporations
(a) Allowance of credit
A nonresident alien individual or a foreign corporation engaged in trade or business within the United States during the taxable year shall be allowed a credit under section 901 for the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year (or deemed, under section 902, paid or accrued during the taxable year) to any foreign country or possession of the United States with respect to income effectively connected with the conduct of a trade or business within the United States.
(b) Special rules
(1) For purposes of subsection (a) and for purposes of determining the deductions allowable under sections 873(a) and 882(c), in determining the amount of any tax paid or accrued to any foreign country or possession there shall not be taken into account any amount of tax to the extent the tax so paid or accrued is imposed with respect to income from sources within the United States which would not be taxed by such foreign country or possession but for the fact that—
(A) in the case of a nonresident alien individual, such individual is a citizen or resident of such foreign country or possession, or
(B) in the case of a foreign corporation, such corporation was created or organized under the law of such foreign country or possession or is domiciled for tax purposes in such country or possession.
(2) For purposes of subsection (a), in applying section 904 the taxpayer's taxable income shall be treated as consisting only of the taxable income effectively connected with the taxpayer's conduct of a trade or business within the United States.
(3) The credit allowed pursuant to subsection (a) shall not be allowed against any tax imposed by section 871(a) (relating to income of nonresident alien individual not connected with United States business) or 881 (relating to income of foreign corporations not connected with United States business).
(4) For purposes of sections 902(a) and 78, a foreign corporation choosing the benefits of this subpart which receives dividends shall, with respect to such dividends, be treated as a domestic corporation.
(5) No credit shall be allowed under this section for any income, war profits, and excess profits taxes paid or accrued with respect to the foreign trade income (within the meaning of section 923(b)) of a FSC.
(6) For purposes of section 902, any income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued) to any foreign country or possession of the United States with respect to income effectively connected with the conduct of a trade or business within the United States shall not be taken into account, and any accumulated profits attributable to such income shall not be taken into account.
(7) No credit shall be allowed under this section against the tax imposed by section 884.
(Added
Amendments
1988—Subsec. (b)(6), (7).
1986—Subsec. (b)(6).
1984—Subsec. (b)(5).
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1241(c) of
Amendment by section 1876(d)(3) of
Effective Date of 1984 Amendment
Amendment by
Effective Date
Section applicable with respect to taxable years beginning after Dec. 31, 1966, and, in applying
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Section Referred to in Other Sections
This section is referred to in
§907. Special rules in case of foreign oil and gas income
(a) Reduction in amount allowed as foreign tax under section 901
In applying section 901, the amount of any oil and gas extraction taxes paid or accrued (or deemed to have been paid) during the taxable year which would (but for this subsection) be taken into account for purposes of section 901 shall be reduced by the amount (if any) by which the amount of such taxes exceeds the product of—
(1) the amount of the foreign oil and gas extraction income for the taxable year,
(2) multiplied by—
(A) in the case of a corporation, the percentage which is equal to the highest rate of tax specified under section 11(b), or
(B) in the case of an individual, a fraction the numerator of which is the tax against which the credit under section 901(a) is taken and the denominator of which is the taxpayer's entire taxable income.
(b) Foreign taxes on foreign oil related income
For purposes of this subtitle, in the case of taxes paid or accrued to any foreign country with respect to foreign oil related income, the term "income, war profits, and excess profits taxes" shall not include any amount paid or accrued after December 31, 1982, to the extent that the Secretary determines that the foreign law imposing such amount of tax is structured, or in fact operates, so that the amount of tax imposed with respect to foreign oil related income will generally be materially greater, over a reasonable period of time, than the amount generally imposed on income that is neither foreign oil related income nor foreign oil and gas extraction income. In computing the amount not treated as tax under this subsection, such amount shall be treated as a deduction under the foreign law.
(c) Foreign income definitions and special rules
For purposes of this section—
(1) Foreign oil and gas extraction income
The term "foreign oil and gas extraction income" means the taxable income derived from sources without the United States and its possessions from—
(A) the extraction (by the taxpayer or any other person) of minerals from oil or gas wells, or
(B) the sale or exchange of assets used by the taxpayer in the trade or business described in subparagraph (A).
Such term does not include any dividend or interest income which is passive income (as defined in section 904(d)(2)(A)).
(2) Foreign oil related income
The term "foreign oil related income" means the taxable income derived from sources outside the United States and its possessions from—
(A) the processing of minerals extracted (by the taxpayer or by any other person) from oil or gas wells into their primary products,
(B) the transportation of such minerals or primary products,
(C) the distribution or sale of such minerals or primary products,
(D) the disposition of assets used by the taxpayer in the trade or business described in subparagraph (A), (B), or (C), or
(E) the performance of any other related service.
Such term does not include any dividend or interest income which is passive income (as defined in section 904(d)(2)(A)).
(3) Dividends, interest, partnership distribution, etc.
The term "foreign oil and gas extraction income" and the term "foreign oil related income" include—
(A) dividends and interest from a foreign corporation in respect of which taxes are deemed paid by the taxpayer under section 902,
(B) amounts with respect to which taxes are deemed paid under section 960(a), and
(C) the taxpayer's distributive share of the income of partnerships.1
to the extent such dividends, interest, amounts, or distributive share is attributable to foreign oil and gas extraction income, or to foreign oil related income, as the case may be; except that interest described in subparagraph (A) shall not be taken into account in computing foreign oil and gas extraction income but shall be taken into account in computing foreign oil-related income.
(4) Recapture of foreign oil and gas extraction losses by recharacterizing later extraction income
(A) In general
That portion of the income of the taxpayer for the taxable year which (but for this paragraph) would be treated as foreign oil and gas extraction income shall be treated as income (from sources without the United States) which is not foreign oil and gas extraction income to the extent of the excess of—
(i) the aggregate amount of foreign oil extraction losses for preceding taxable years beginning after December 31, 1982, over
(ii) so much of such aggregate amount as was recharacterized under this subparagraph for preceding taxable years beginning after December 31, 1982.
(B) Foreign oil extraction loss defined
(i) In general
For purposes of this paragraph, the term "foreign oil extraction loss" means the amount by which—
(I) the gross income for the taxable year from sources without the United States and its possessions (whether or not the taxpayer chooses the benefits of this subpart for such taxable year) taken into account in determining the foreign oil and gas extraction income for such year, is exceeded by
(II) the sum of the deductions properly apportioned or allocated thereto.
(ii) Net operating loss deduction not taken into account
For purposes of clause (i), the net operating loss deduction allowable for the taxable year under section 172(a) shall not be taken into account.
(iii) Expropriation and casualty losses not taken into account
For purposes of clause (i), there shall not be taken into account—
(I) any foreign expropriation loss (as defined in section 172(h)) 2 for the taxable year, or
(II) any loss for the taxable year which arises from fire, storm, shipwreck, or other casualty, or from theft,
to the extent such loss is not compensated for by insurance or otherwise.
(5) Oil and gas extraction taxes
The term "oil and gas extraction taxes" means any income, war profits, and excess profits tax paid or accrued (or deemed to have been paid under section 902 or 960) during the taxable year with respect to foreign oil and gas extraction income (determined without regard to paragraph (4)) or loss which would be taken into account for purposes of section 901 without regard to this section.
(d) Disregard of certain posted prices, etc.
For purposes of this chapter, in determining the amount of taxable income in the case of foreign oil and gas extraction income, if the oil or gas is disposed of, or is acquired other than from the government of a foreign country, at a posted price (or other pricing arrangement) which differs from the fair market value for such oil or gas, such fair market value shall be used in lieu of such posted price (or other pricing arrangement).
[(e) Repealed. Pub. L. 101–508, title XI, §11801(a)(32), Nov. 5, 1990, 104 Stat. 1388–521 ]
(f) Carryback and carryover of disallowed credits
(1) In general
If the amount of the oil and gas extraction taxes paid or accrued during any taxable year exceeds the limitation provided by subsection (a) for such taxable year (hereinafter in this subsection referred to as the "unused credit year"), such excess shall be deemed to be oil and gas extraction taxes paid or accrued in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable year, in that order and to the extent not deemed tax paid or accrued in a prior taxable year by reason of the limitation imposed by paragraph (2). Such amount deemed paid or accrued in any taxable year may be availed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have the benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions. For purposes of this subsection, the terms "second preceding taxable year", and "first preceding taxable year" do not include any taxable year ending before January 1, 1975.
(2) Limitation
The amount of the unused oil and gas extraction taxes which under paragraph (1) may be deemed paid or accrued in any preceding or succeeding taxable year shall not exceed the lesser of—
(A) the amount by which the limitation provided by subsection (a) for such taxable year exceeds the sum of—
(i) the oil and gas extraction taxes paid or accrued during such taxable year, plus
(ii) the amounts of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year; or
(B) the amount by which the limitation provided by section 904 for such taxable year exceeds the sum of—
(i) the taxes paid or accrued (or deemed to have been paid under section 902 or 960) to all foreign countries and possessions of the United States during such taxable year,
(ii) the amount of such taxes which were deemed paid or accrued in such taxable year under section 904(c) and which are attributable to taxable years preceding the unused credit year, plus
(iii) the amount of the oil and gas extraction taxes which by reason of this subsection are deemed paid or accrued in such taxable year and are attributable to taxable years preceding the unused credit year.
(3) Special rules
(A) In the case of any taxable year which is an unused credit year under this subsection and which is an unused credit year under section 904(c), the provisions of this subsection shall be applied before section 904(c).
(B) For purposes of determining the amount of taxes paid or accrued in any taxable year which may be deemed paid or accrued in a preceding or succeeding taxable year under section 904(c), any tax deemed paid or accrued in such preceding or succeeding taxable year under this subsection shall be considered to be tax paid or accrued in such preceding or succeeding taxable year.
(Added
References in Text
Section 172(h), referred to in subsec. (c)(4)(B)(iii)(I), was repealed by
Amendments
1993—Subsec. (c)(1), (2).
1990—Subsec. (e).
"(1)
"(2)
Subsec. (f)(3)(C).
1988—Subsec. (c)(3).
Subsec. (c)(3)(B) to (D).
1982—Subsec. (b).
Subsec. (c)(2).
Subsec. (c)(4).
Subsec. (e).
Subsec. (f)(1).
Subsec. (f)(2)(B).
Subsec. (f)(3)(A).
Subsec. (f)(3)(B).
1978—Subsec. (a)(2).
Subsec. (b).
1976—Subsec. (a).
Subsec. (b).
Subsec. (c)(5).
Subsec. (e)(1).
Subsec. (e)(2).
Subsec. (f).
Subsec. (g).
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1982 Amendment
Section 211(e) of
"(1)
"(2)
"(A)
"(B)
"(i) The term 'separate basket foreign loss' means any foreign loss attributable to activities taken into account (or not taken into account) in determining foreign oil related income (as defined in old section 907(c)(2)).
"(ii) An 'old' section is such section as in effect on the day before the date of the enactment of this Act [Sept. 3, 1982]."
Effective Date of 1978 Amendment
Amendment by section 301(b)(14) of
Section 701(u)(8)(D) of
"(i) The amendments made by this paragraph [amending this section and
"(ii) In the case of any taxable year ending after December 31, 1975, with respect to foreign oil related income (within the meaning of section 907(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]), the overall limitation provided by section 904(a)(2) of such Code shall apply and the per-country limitation provided by section 904(a)(1) of such Code shall not apply."
Effective Date of 1976 Amendment
Amendment by section 1031(b)(6)(A) of
Amendment by section 1032(b)(1) of
Section 1035(e) of
"(1) The amendment made by subsection (a) [amending this section] shall apply to taxable years ending after December 31, 1976.
"(2) The amendment made by subsection (b) [amending this section] shall apply to taxable years ending after December 31, 1974; except that the last sentence of section 907(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] shall only apply to taxable years ending after December 31, 1975.
"(3) The amendment made by subsection (c) [enacting provisions set out below] shall apply to taxable years beginning after June 29, 1976.
"(4) The amendments made by subsection (d) [amending this section] shall apply to taxes paid or accrued during taxable years ending after the date of the enactment of this Act [Oct. 4, 1976]."
Amendment by section 1052(c)(4) of
Effective Date
Section 601(d) of
"(1) the second sentence of section 907(b) shall apply to taxable years ending after December 31, 1975, and
"(2) the provisions of section 907(f) shall apply to losses sustained in taxable years ending after December 31, 1975."
Savings Provision
For provisions that nothing in amendment by
Tax Credit for Production-Sharing Contracts
Section 1035(c) of
"(1) For purposes of section 901 of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], there shall be treated as income, war profits, and excess profits taxes to be taken into account under section 907(a) of such Code amounts designated as income taxes of a foreign government by such government (which otherwise would not be treated as taxes for purposes of section 901 of such Code) with respect to production-sharing contracts for the extraction of foreign oil or gas.
"(2) The amounts specified in paragraph (1) shall not exceed the lessor of—
"(A) the product of the foreign oil and gas extraction income (as defined in section 907(c) of such Code) with respect to all such production-sharing contracts multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code, or
"(B) the excess of the total amount of foreign oil and gas extraction income (as so defined) for the taxable year multiplied by the sum of the normal tax rate and the surtax rate for the taxable year specified in section 11 of such Code over the amount of any income, war profits, and excess profits taxes paid or accrued (or deemed to have been paid) without regard to paragraph (1) during the taxable year with respect to foreign oil and gas extraction income.
"(3) The production-sharing contracts taken into account for purposes of paragraph (1) shall be those contracts which were entered into before April 8, 1976, for the sharing of foreign oil and gas production with a foreign government (or an entity owned by such government) with respect to which amounts claimed as taxes paid or accrued to such foreign government for taxable years beginning before June 30, 1976, will not be disallowed as taxes. A contract described in the preceding sentence shall be taken into account under paragraph (1) only with respect to amounts (A) paid or accrued to the foreign government before January 1, 1978, and (B) attributable to income earned before such date."
Section Referred to in Other Sections
This section is referred to in
1 So in original. The period probably should be a comma.
2 See References in Text note below.
§908. Reduction of credit for participation in or co-operation with an international boycott
(a) In general
If a person, or a member of a controlled group (within the meaning of section 993(a)(3)) which includes such person, participates in or cooperates with an international boycott during the taxable year (within the meaning of section 999(b)), the amount of the credit allowable under section 901 to such person, or under section 902 or 960 to United States shareholders of such person, for foreign taxes paid during the taxable year shall be reduced by an amount equal to the product of—
(1) the amount of the credit which, but for this section, would be allowed under section 901 for the taxable year, multiplied by
(2) the international boycott factor (determined under section 999).
(b) Application with sections 275(a)(4) and 78
Section 275(a)(4) and section 78 shall not apply to any amount of taxes denied credit under subsection (a).
(Added
Effective Date
Section 1066(a) of
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"(2)
Section Referred to in Other Sections
This section is referred to in