Academic journal article Journal of Accountancy

Determining Foreign Income Tax Credit

Academic journal article Journal of Accountancy

Determining Foreign Income Tax Credit

Article excerpt

The Internal Revenue Service has issued proposed regulations implementing the Tax Reform Act of 1986 amendments to Internal Revenue Code section 902.

A controversial provision in the proposed amendments reverses the Tax Court's decision in Vulcan Materials v. Commissioner (96 T.C. 410 [1991]) involving a foreign corporation subject to foreign tax only on the portion of earnings owned by shareholders not residing in the company's home country. The court said that only accumulated earnings subject to foreign tax should be taken into account when determining the ratio of the amount of a dividend on the accumulated earnings of a corporation when calculating the allocable paid foreign tax credits. However, the regulations require that all of the accumulated profits be taken into account.

The regulations also say the relevant time for determining whether the 10% ownership requirement is met to qualify for deemed paid foreign tax credits is the date the dividend is paid, rather than the period the underlying income was earned. …

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