An IRS practice unit published September 1 reviews the rules with respect to the foreign tax credit for businesses, including key concepts, eligible taxpayers, and qualifying taxes – updating the content to reflect changes enacted by the 2017 Tax Cuts and Jobs Act. IRS practice units are internal training materials developed for agency employees.
For tax years beginning after 2017, there are six categories of income for which a separate foreign tax credit limitation must be calculated, the guidance notes. These include global intangible low-taxed income (GILTI), foreign branch income, passive income, income from certain sanctioned countries, certain income resourced by treaty, and general category income. The 2017 tax law added the baskets for foreign branch income and GILTI income.
In addition, for post-2017 tax years, indirect or deemed paid foreign tax credits are based on foreign income taxes paid by controlled foreign corporations and deemed paid by a US domestic corporation that has a subpart F or GILTI inclusion and meets the US shareholder ownership threshold. The 2017 tax law also extended the gross-up concept for deemed paid foreign tax credits under Internal Revenue Code Section 78 to GILTI inclusions.
Other changes to foreign tax credit rules enacted by the 2017 tax law include the repeal of the IRC 902 deemed paid foreign tax credit for tax years beginning after 2017, although the law retained deemed-paid foreign tax credits for subpart F inclusions and extended it to GILTI inclusions.
The IRS anticipates issuing additional practice units with more detailed guidance on these and other specific changes to the foreign tax credit rules under the 2017 tax law.
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