Internal Revenue Code:Sec. 960. Special rules for foreign tax credit

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Contents


Location in Internal Revenue Code


     TITLE 26 - INTERNAL REVENUE CODE
      Subtitle A - Income Taxes
       CHAPTER 1 - NORMAL TAXES AND SURTAXES
        Subchapter N - Tax Based on Income From Sources Within or Without
              the United States
          PART III - INCOME FROM SOURCES WITHOUT THE UNITED STATES
           Subpart F - Controlled Foreign Corporations
         

Statute

    Sec. 960. Special rules for foreign tax credit
 
    (a) Taxes paid by a foreign corporation
      (1) Deemed paid credit
        For purposes of subpart A of this part, if there is included
      under section 951(a) in the gross income of a domestic
      corporation any amount attributable to earnings and profits of a
      foreign corporation which is a member of a qualified group (as
      defined in section 902(b)) with respect to the domestic
      corporation, then, except to the extent provided in regulations,
      section 902 shall be applied as if the amount so included were a
      dividend paid by such foreign corporation (determined by applying
      section 902(c) in accordance with section 904(d)(3)(B)).
      (2) Taxes previously deemed paid by domestic corporation
        If a domestic corporation receives a distribution from a
      foreign corporation, any portion of which is excluded from gross
      income under section 959, the income, war profits, and excess
      profits taxes paid or deemed paid by such foreign corporation to
      any foreign country or to any possession of the United States in
      connection with the earnings and profits of such foreign
      corporation from which such distribution is made shall not be
      taken into account for purposes of section 902, to the extent
      such taxes were deemed paid by a domestic corporation under
      paragraph (1) for any prior taxable year.
      (3) Taxes paid by foreign corporation and not previously deemed
          paid by domestic corporation
        Any portion of a distribution from a foreign corporation
      received by a domestic corporation which is excluded from gross
      income under section 959(a) shall be treated by the domestic
      corporation as a dividend, solely for purposes of taking into
      account under section 902 any income, war profits, or excess
      profits taxes paid to any foreign country or to any possession of
      the United States, on or with respect to the accumulated profits
      of such foreign corporation from which such distribution is made,
      which were not deemed paid by the domestic corporation under
      paragraph (1) for any prior taxable year.
    (b) Special rules for foreign tax credit in year of receipt of
        previously taxed earnings and profits
      (1) Increase in section 904 limitation
        In the case of any taxpayer who -
          (A) 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,
          (B) 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
          (C) 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.
      (2) Excess limitation account
        (A) Establishment of account
          Each taxpayer meeting the requirements of paragraph (1)(A)
        shall establish an excess limitation account.  The opening
        balance of such account shall be zero.
        (B) Increases in account
          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 -
            (i) 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
            (ii) 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).
        (C) Decreases in account
          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.
      (3) Distributions of income previously taxed in years beginning
          before October 1, 1993
        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 (FOOTNOTE
      1) Act of 1993.
       (FOOTNOTE 1) So in original.  Probably should be
    ''Reconciliation''.
      (4) Cases in which taxes not to be allowed as deduction
        In the case of any taxpayer who -
          (A) 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
          (B) 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.
      (5) Insufficient taxable income
        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.
 

Sources

    (Added Pub. L. 87-834, Sec. 12(a), Oct. 16, 1962, 76 Stat. 1020;
    amended Pub. L. 94-455, title X, Sec. 1031(b)(1), 1033(b)(2),
    1037(a), Oct. 4, 1976, 90 Stat. 1622, 1628, 1633; Pub. L. 99-514,
    title XII, Sec. 1202(b), Oct. 22, 1986, 100 Stat. 2530; Pub. L.
    103-66, title XIII, Sec. 13233(b)(1), Aug. 10, 1993, 107 Stat. 502;
    Pub. L. 105-34, title XI, Sec. 1113(b), Aug. 5, 1997, 111 Stat.
    971.)
 

References in Text

                             REFERENCES IN TEXT
      The date of the enactment of the Revenue Reconciliation Act of
    1993, referred to in subsec. (b)(3), is the date of enactment of
    Pub. L. 103-66, which was approved Aug. 10, 1993.
 

Miscellaneous

                                 AMENDMENTS
      1997 - Subsec. (a)(1). Pub. L. 105-34 amended heading and text of
    par. (1) generally.  Prior to amendment, text read as follows:
    ''For purposes of subpart A of this part, if there is included,
    under section 951(a), in the gross income of a domestic corporation
    any amount attributable to earnings and profits -
        ''(A) of a foreign corporation (hereafter in this subsection
      referred to as the 'first foreign corporation') at least 10
      percent of the voting stock of which is owned by such domestic
      corporation, or
        ''(B) of a second foreign corporation (hereinafter in this
      subsection referred to as the 'second foreign corporation') at
      least 10 percent of the voting stock of which is owned by the
      first foreign corporation, or
        ''(C) of a third foreign corporation (hereinafter in this
      subsection referred to as the 'third foreign corporation') at
      least 10 percent of the voting stock of which is owned by the
      second foreign corporation,
    then, except to the extent provided in regulations, such domestic
    corporation shall be deemed to have paid a portion of such foreign
    corporation's post-1986 foreign income taxes determined under
    section 902 in the same manner as if the amount so included were a
    dividend paid by such foreign corporation (determined by applying
    section 902(c) in accordance with section 904(d)(3)(B)). This
    paragraph shall not apply with respect to any amount included in
    the gross income of such domestic corporation attributable to
    earnings and profits of the second foreign corporation or of the
    third foreign corporation unless, in the case of the second foreign
    corporation, the percentage-of-voting-stock requirement of section
    902(b)(3)(A) is satisfied, and in the case of the third foreign
    corporation, the percentage-of-voting-stock requirement of section
    902(b)(3)(B) is satisfied.''
      1993 - Subsec. (b). Pub. L. 103-66 added pars. (1) to (3),
    redesignated former pars. (3) and (4) as (4) and (5), respectively,
    and struck out former par. (1) relating to increase in section 904
    limitation and former par. (2) relating to the amount of increase.
      1986 - Subsec. (a)(1). Pub. L. 99-514 substituted ''then, except
    to the extent provided in regulations, such domestic corporation
    shall be deemed to have paid a portion of such foreign
    corporation's post-1986 foreign income taxes determined under
    section 902 in the same manner as if the amount so included were a
    dividend paid by such foreign corporation (determined by applying
    section 902(c) in accordance with section 904(d)(3)(B))'' for
    ''then, under regulations prescribed by the Secretary, such
    domestic corporation shall be deemed to have paid the same
    proportion of the total income, war profits, and excess profits
    taxes paid (or deemed paid) by such foreign corporation to a
    foreign country or possession of the United States for the taxable
    year on or with respect to the earnings and profits of such foreign
    corporation which the amount of earnings and profits of such
    foreign corporation so included in gross income of the domestic
    corporation bears to the entire amount of the earnings and profits
    of such corporation for such taxable year''.
      1976 - Subsec. (a)(1). Pub. L. 94-455, Sec. 1033(b)(2), 1037(a),
    substituted ''bears to the entire amount of the earnings and
    profits of such foreign corporation for such taxable year'' for
    ''bears to-'' after ''gross income of the domestic corporation'',
    struck out subpars. (C) and (D) relating to corporations which are
    and are not less developed country corporations, inserted in
    subpar. (A) ''(hereafter in this subsection referred to as the
    'first foreign corporation')'' after ''foreign corporation'',
    substituted in subpar. (B) ''of a second foreign corporation
    (hereinafter in this subsection referred to as the 'second foreign
    corporation') at least 10 percent of the voting stock of which is
    owned by the first foreign corporation, or'' for ''of a foreign
    corporation at least 50 percent of the voting stock of which is
    owned by a foreign corporation at least 10 percent of the voting
    stock of which in turn owned by such domestic corporation'' after
    ''(B)'', added subpar. (C), and inserted at end ''This paragraph
    shall not apply with respect to any amount included in the gross
    income of such domestic corporation attributable to earning and
    profits of the second foreign corporation or of the third foreign
    corporation unless, in the case of the second foreign corporation,
    the percentage-of-voting-stock requirement of section 902(b)(3)(A)
    is satisfied, and in the case of the third foreign corporation, the
    percentage-of-voting-stock requirement of section 902(b)(3)(B) is
    satisfied.''
      Subsec. (b). Pub. L. 94-455, Sec. 1031(b)(1), struck out
    ''applicable'' in par. (1) after ''amount, the'', in par. (2) after
    ''increase of the'', and in subpar. (A) of par. (2) after ''by
    which the''.
                      EFFECTIVE DATE OF 1997 AMENDMENT
      Amendment by Pub. L. 105-34 applicable, with special rule, to
    taxes of foreign corporations for taxable years of such
    corporations beginning after Aug. 5, 1997, see section 1113(c) of
    Pub. L. 105-34, set out as a note under section 902 of this title.
                      EFFECTIVE DATE OF 1993 AMENDMENT
      Section 13233(b)(2) of Pub. L. 103-66 provided that: ''The
    amendment made by paragraph (1) (amending this section) shall apply
    to taxable years beginning after September 30, 1993.''
                      EFFECTIVE DATE OF 1986 AMENDMENT
      Amendment by Pub. L. 99-514 applicable to distributions by
    foreign corporations out of, and to inclusions under section 951(a)
    of this title attributable to, earnings and profits for taxable
    years beginning after Dec. 31, 1986, see section 1202(e) of Pub. L.
    99-514, set out as a note under section 902 of this title.
                      EFFECTIVE DATE OF 1976 AMENDMENT
      Amendment by section 1031(b)(1) of Pub. L. 94-455 applicable to
    taxable years beginning after Dec. 31, 1975, see section 1031(c) of
    Pub. L. 94-455, set out as a note under section 904 of this title.
      Amendment by section 1033(b)(2) of Pub. L. 94-455 applicable in
    respect of any distribution received by a domestic corporation
    after Dec. 31, 1977, and in respect of any distribution received by
    a domestic corporation before Jan. 1, 1978, in a taxable year of
    such corporation beginning after Dec. 31, 1975, but only to the
    extent that such distribution is made out of the accumulated
    profits of a foreign corporation for a taxable year beginning after
    Dec. 31, 1975, see section 1033(c) of Pub. L. 94-455, set out as a
    note under section 902 of this title.
      Section 1037(b) of Pub. L. 94-455, as amended by Pub. L. 99-514,
    Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
    amendment made by this section (amending this section) shall apply
    with respect to earnings and profits of a foreign corporation,
    included, under section 951(a) of the Internal Revenue Code of 1986
    (formerly I.R.C. 1954), in the gross income of a domestic
    corporation in taxable years beginning after December 31, 1976.''
 

References

                   SECTION REFERRED TO IN OTHER SECTIONS
      This section is referred to in sections 78, 245, 535, 545, 865,
    901, 902, 904, 905, 907, 908, 958, 959, 962, 1293, 6038 of this
    title.
 

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