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Foreign Tax Credit Proposed Regulations Roadmap

The 2017 tax act (Pub. L. No. 115-97), commonly referred to as the Tax Cuts and Jobs Act (TCJA) made several significant changes to the foreign tax credit rules and related expense allocation and apportionment rules for purposes of determining the foreign tax credit limitation. Specifically, the TCJA repealed the fair market value method of asset valuation for purposes of allocating and apportioning interest expense under §864(e)(2); added §904(b)(4), which provides rules for the treatment of §245A dividends; added two new foreign tax credit limitation categories to §904(d)(1); amended §960(a) through §960(c) and added §960(d) through §960(f), with respect to foreign tax credits for deemed paid subpart F inclusions and inclusions of global intangible low-taxed income (GILTI); and repealed §902, which allowed a deemed paid foreign tax credit to domestic corporations that owned 10% or more of the voting stock in certain foreign corporations along with making several conforming changes.

On November 28, 2018, Treasury and the IRS proposed regulations (REG-1105600-18) (the 2018 proposed regulations) to address the changes to the code introduced by the TCJA under §861 through §865, §904, §954, and §960. The 2018 proposed regulations also updated the gross up rules under §78 and the application of the election not to use the net operating loss under §965(n). Treasury and the IRS also included regulatory changes relating to pre-2017 tax act statutory amendments.

Certain portions of the 2018 proposed regulations were finalized as part of T.D. 9866 published in the Federal Register on June 21, 2019. On December 2, 2019, Treasury and the IRS issued T.D. 9882 (final regulations), which finalizes the remaining portions of the 2018 final regulations (REG-1105600-18), following the basic approach and structure of the 2018 proposed regulations with certain revisions. The final regulations also finalize proposed regulations under §905(c) and §986(a) published in 1986.

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