The Tax Cuts and Jobs Act (TCJA) (Pub. L. No. 115-97) made several significant changes to the foreign tax credit (FTC) rules and related expense allocation and apportionment rules for purposes of determining the foreign tax credit limitation under §904. Learn about the latest impacts with our Foreign Tax Credit Proposed Regulations Roadmap.
The TCJA’s changes include:
- Repealing the fair market value method of asset valuation for purposes of allocating and apportioning interest expense under 864(e)(2)
- Adding 904(b)(4), which provides rules for the treatment of §245A dividends
- Adding two new foreign tax credit limitation categories to 904(d)(1)
- Substantially amending the deemed-paid FTC under 960
- Repealing the indirect FTC under 902, which previously allowed an indirect FTC to domestic corporations that owned 10% or more of the voting stock in certain foreign corporations
Treasury and the IRS have released several sets of FTC regulations that address the changes made by the TCJA to the FTC regime. T.D. 9882, issued in December 2019, and T.D. 9866, issued in June 2019, generally finalize the first set of proposed regulations issued in December 2018 (REG-105600-18). T.D. 9922, issued in September 2020 (the 2020 final regulations), generally finalizes the second set of proposed FTC regulations issued in December 2019 (REG-105495-19). The final FTC regulations are discussed in a separate roadmap.
Finally, in September 2020, Treasury and the IRS issued REG-101657-20, a third set of proposed FTC regulations. Perhaps most significantly, the 2020 proposed FTC regulations amend the definition of a creditable foreign income tax. The 2020 proposed FTC regulations also address a number of other issues, including amending certain sourcing and allocation and apportionment rules. This roadmap highlights key takeaways from the 2020 proposed FTC regulations.
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