March 24, 2020

IRS Issues Final Regulations on Foreign Tax Credit Limitation on Covered Asset Acquisitions

By Douglas Nakajima, International Tax Co-Leader & Mark Chaves, Partner, International Tax Co-Leader

Related Services International Tax, Tax & Business, Tax Advisory Services, Advisory

IRS Issues Final Regulations on Foreign Tax Credit Limitation on Covered Asset Acquisitions International Tax

The IRS has released final regulations (T.D. 9895) limiting the use of foreign tax credits where the income giving rise to the foreign taxes was never subjected to U.S. tax.

Generally, Section 901(m) disallows foreign tax credits after certain transactions where foreign taxes paid or accrued are considered attributable to a difference in the basis of assets for U.S. and foreign tax purposes (known as “Covered Asset Acquisitions”). In these transactions, a company can reduce its U.S. taxable income by claiming additional write-offs resulting from differences in the U.S. tax basis of acquired assets, as compared to greater amounts of taxable income reported for foreign tax purposes.

The final regulations confirmed the IRS guidance on the scope and application of Section 901(m) foreign tax credit disallowance set forth in the temporary and proposed regulations issued in December 2016.

If you have any questions concerning the application of the Section 901(m) regulations, please contact a member of the Marcum International Tax Services team.