§960 — Deemed paid credit for subpart F inclusions
9 cases·2 followed·7 cited—22% support
Statute Text — 26 U.S.C. §960
For purposes of subpart A of this part, if there is included in the gross income of a domestic corporation any item of income under section 951(a)(1) with respect to any controlled foreign corporation with respect to which such domestic corporation is a United States shareholder, such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as are properly attributable to such item of income.
For purposes of subpart A of this part—
If any portion of a distribution from a controlled foreign corporation to a domestic corporation which is a United States shareholder with respect to such controlled foreign corporation is excluded from gross income under section 959(a), such domestic corporation shall be deemed to have paid so much of such foreign corporation’s foreign income taxes as—
are properly attributable to such portion, and
have not been deemed to have to
1
1 So in original.
been paid by such domestic corporation under this section for the taxable year or any prior taxable year.
If section 959(b) applies to any portion of a distribution from a controlled foreign corporation to another controlled foreign corporation, such controlled foreign corporation shall be deemed to have paid so much of such other controlled foreign corporation’s foreign income taxes as—
are properly attributable to such portion, and
have not been deemed to have been paid by a domestic corporation under this section for the taxable year or any prior taxable year.
In the case of any taxpayer who—
either (i) chose to have the benefits of subpart A of this part for a taxable year beginning after
September 30, 1993
, in which he was required under section 951(a) to include any amount in his gross income, or (ii) did not pay or accrue for such taxable year any income, war profits, or excess profits taxes to any foreign country or to any possession of the United States,
chooses to have the benefits of subpart A of this part for any taxable year in which he receives 1 or more distributions or amounts which are excludable from gross income under section 959(a) and which are attributable to amounts included in his gross income for taxable years referred to in subparagraph (A), and
for the taxable year in which such distributions or amounts are received, pays, or is deemed to have paid, or accrues income, war profits, or excess profits taxes to a foreign country or to any possession of the United States with respect to such distributions or amounts,
the limitation under section 904 for the taxable year in which such distributions or amounts are received shall be increased by the lesser of the amount of such taxes paid, or deemed paid, or accrued with respect to such distributions or amounts or the amount in the excess limitation account as of the beginning of such taxable year.
Each taxpayer meeting the requirements of paragraph (1)(A) shall establish an excess limitation account. The opening balance of such account shall be zero.
For each taxable year beginning after
September 30, 1993
, the taxpayer shall increase the amount in the excess limitation account by the excess (if any) of—
the amount by which the limitation under section 904(a) for such taxable year was increased by reason of the total amount of the inclusions in gross income under section 951(a) for such taxable year, over
the amount of any income, war profits, and excess profits taxes paid, or deemed paid, or accrued to any foreign country or possession of the United States which were allowable as a credit under section 901 for such taxable year and which would not have been allowable but for the inclusions in gross income described in clause (i).
Proper reductions in the amount added to the account under the preceding sentence for any taxable year shall be made for any increase in the credit allowable under section 901 for such taxable year by reason of a carryback if such increase would not have been allowable but for the inclusions in gross income described in clause (i).
For each taxable year beginning after September 30, 1993, for which the limitation under section 904 was increased under paragraph (1), the taxpayer shall reduce the amount in the excess limitation account by the amount of such increase.
If the taxpayer receives a distribution or amount in a taxable year beginning after September 30, 1993, which is excluded from gross income under section 959(a) and is attributable to any amount included in gross income under section 951(a) for a taxable year beginning before October 1, 1993, the limitation under section 904 for the taxable year in which such amount or distribution is received shall be increased by the amount determined under this subsection as in effect on the day before the date of the enactment of the Revenue Reconcilation 22 So in original. Probably should be “Reconciliation”. Act of 1993.
In the case of any taxpayer who—
chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951(a) to include in his gross income an amount in respect of a controlled foreign corporation, and
does not choose to have the benefits of subpart A of this part for the taxable year in which he receives a distribution or amount which is excluded from gross income under section 959(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A),
no deduction shall be allowed under section 164 for the taxable year in which such distribution or amount is received for any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States on or with respect to such distribution or amount.
If an increase in the limitation under this subsection exceeds the tax imposed by this chapter for such year, the amount of such excess shall be deemed an overpayment of tax for such year.
For purposes of subpart A of this part, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 90 percent of the product of—
such domestic corporation’s inclusion percentage, multiplied by
the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations.
For purposes of paragraph (1), the term “inclusion percentage” means, with respect to any domestic corporation, the ratio (expressed as a percentage) of—
such corporation’s net CFC tested income (as defined in section 951A(b)), divided by
the aggregate amount described in section 951A(b)(1)(A) with respect to such corporation.
For purposes of paragraph (1), the term “tested foreign income taxes” means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to the tested income of such foreign corporation taken into account by such domestic corporation under section 951A.
No credit shall be allowed under section 901 for 10 percent of any foreign income taxes paid or accrued (or deemed paid under subsection (b)(1)) with respect to any amount excluded from gross income under section 959(a) by reason of an inclusion in gross income under section 951A(a).
The term “foreign income taxes” means any income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States.
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
Treasury Regulations
- Treas. Reg. §Treas. Reg. §1.960-1 Overview, definitions, and computational rules for determining foreign income taxes deemed paid under section 960(a), (b), and (d)
- Treas. Reg. §Treas. Reg. §1.960-1(a) Overview—(1) Scope of §§ 1.
- Treas. Reg. §Treas. Reg. §1.960-1(b) Definitions.
- Treas. Reg. §Treas. Reg. §1.960-1(c) Computational rules—(1) In general.
- Treas. Reg. §Treas. Reg. §1.960-1(d) Computing income in a section 904 category and an income group within a section 904 category—(1) Scope.
- Treas. Reg. §Treas. Reg. §1.960-1(e) No deemed paid credit for current year taxes related to residual income group.
- Treas. Reg. §Treas. Reg. §1.960-1(f) Example.
- Treas. Reg. §Treas. Reg. §1.960-1(i) Items of foreign base company income treated as a single item of income under § 1.
- Treas. Reg. §Treas. Reg. §1.960-1(v) Income subject to section 901(j) described in section 952(a)(5).
- Treas. Reg. §Treas. Reg. §1.960-2 Foreign income taxes deemed paid under sections 960(a) and (d)
- Treas. Reg. §Treas. Reg. §1.960-2(a) Scope.
- Treas. Reg. §Treas. Reg. §1.960-2(b) Foreign income taxes deemed paid under section 960(a)—(1) In general.
- Treas. Reg. §Treas. Reg. §1.960-2(c) Foreign income taxes deemed paid under section 960(d)—(1) In general.
- Treas. Reg. §Treas. Reg. §1.960-2(i) Example 1: Directly owned controlled foreign corporation—(A) Facts.
- Treas. Reg. §Treas. Reg. §1.960-3 Foreign income taxes deemed paid under section 960(b)
- Treas. Reg. §Treas. Reg. §1.960-3(a) Scope.
- Treas. Reg. §Treas. Reg. §1.960-3(b) Foreign income taxes deemed paid under section 960(b)—(1) Foreign income taxes deemed paid by a domestic corporation with respect to a section 959(a) distribution.
- Treas. Reg. §Treas. Reg. §1.960-3(c) Accounting for previously taxed earnings and profits—(1) Establishment of annual PTEP account.
- Treas. Reg. §Treas. Reg. §1.960-3(d) PTEP group taxes—(1) In general.
- Treas. Reg. §Treas. Reg. §1.960-3(e) Examples.
- Treas. Reg. §Treas. Reg. §1.960-3(i) §1.960-3(i)
- Treas. Reg. §Treas. Reg. §1.960-3(v) §1.960-3(v)
- Treas. Reg. §Treas. Reg. §1.960-3(x) Earnings and profits described in section 959(c)(2) by reason of section 951(a)(1)(A) not otherwise described in paragraph (c)(2)(vi) through (ix) of this section (“section 951(a)(1)(A) PTEP”).
- Treas. Reg. §Treas. Reg. §1.960-4 Additional foreign tax credit in year of receipt of previously taxed earnings and profits
- Treas. Reg. §Treas. Reg. §1.960-4(a) Increase in section 904(a) limitation for the taxable year of exclusion—(1) In general.
9 Citing Cases
5 Section 960 applies only to domestic corporations (not to a domestic partnership like EW LLC or to foreign corporations like the upper tier CFC partners), a point confirmed by section 962, which gives a United States shareholder who is an individual the opportunity to elect to be taxed a domestic corporation.
This was an interesting choice because, as counsel for the Commissioner acknowledged at the hearing, section 960 applies primarily in the context of subpart F inclusions, which are not distributions (or deemed distributions).
§ 960; AptarGroup Inc., 158 T.C. at 112. For almost as long as the foreign tax credit has been part of the U.S. tax system, Congress has expressed concern that the foreign tax credit might be misused to reduce U.S. tax due on U.S.-source income. See Dirk J.J. Suringa, The Foreign Tax Credit Limitation Under Section 904 (Section 904 Portfolio
The extent to which a taxpayer is entitled to a foreign tax credit is determined by applying U.S. tax law; thus, the source of income depends on how U.S. tax law categorizes such income. United States v. Goodyear Tire & Rubber Co., 493 U.S. 132 (1989); Phillips Petroleum Co. v. Commissioner, 104 T.C. 256, 295 (1995). The Code limits the amou
liated group of corporations making a consolidated return can use the foreign tax credit in computing the consolidated tax liability of the group. See sec. 1.1502 — 4(a). Such credit is determined under the principles of sections 901 through 905 and section 960. Sec. 1.1502-4(c). For purposes of computing the group’s overall limitation under section 904(a), the aggregate of the separate taxable incomes of the members of the group from sources outside of the United States is used to determine the