The US IRS in Chief Counsel Memorandum 201444039 released October 31 concluded that foreign tax redeterminations with respect to a controlled foreign corporation’s (CFC) pre-1987 accumulated profits, regardless of when made, are accounted for by adjusting the CFCs’s pre-1987 accumulated profits and pre-1987 foreign income taxes for the year or years affected, and not by adjusting the corporation’s post-1986 undistributed earnings and post-1986 foreign income taxes pools.
The case concerned how to account for contested foreign taxes paid by a third tier subsidiary acquired by its US parent in 2009. The contested taxes related to the subsidiary’s 1994–2009 tax years and were paid during 2008–2011. The US parent argued that under section 905 regulations, contested taxes paid more than two years after the year to which the taxes relate must be taken into account in the year they were paid. The IRS rejected that argument, stating that the section 905 regulations do not apply to section 902 computations. See, Chief Counsel Memorandum 201444039.
