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Title 26 — Internal Revenue CodeRelease 119-73

§853 Foreign tax credit allowed to shareholders

Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter M— - Regulated Investment Companies and Real Estate Investment Trusts › Part PART I— - REGULATED INVESTMENT COMPANIES › § 853

Last updated Apr 6, 2026|Official source

Summary

A regulated investment company that has more than 50% of its asset value in stock or securities of foreign corporations and that meets the rules to be a regulated investment company can choose to pass foreign taxes through to its shareholders. If it makes that choice, the company cannot take a deduction or claim a foreign tax credit for those taxes. Instead, the company adds those taxes to the amount it deducts for dividends. Each shareholder must report and include their share of those foreign taxes in their income and treat that share as if they paid the foreign taxes. For foreign tax credit limits, shareholders must count their share of the taxes and the part of any dividend that comes from foreign countries or U.S. possessions as foreign-source income. The IRS will set the rules for making the election. The rule does not apply to taxes for which the company cannot take a credit under section 901(k) or 901(l). Definitions: regulated investment company — an investment fund that meets special tax rules; foreign corporation — a company organized outside the United States.

Full Legal Text

Title 26, §853

Internal Revenue Code — Source: USLM XML via OLRC

(a)A regulated investment company—
(1)more than 50 percent of the value (as defined in section 851(c)(4)) of whose total assets at the close of the taxable year consists of stock or securities in foreign corporations, and
(2)which meets the requirements of section 852(a) for the taxable year,
(b)If the election provided in subsection (a) is effective for a taxable year—
(1)the regulated investment company—
(A)shall not, with respect to such taxable year, be allowed a deduction under section 164(a) or a credit under section 901 for taxes to which subsection (a) is applicable, and
(B)shall be allowed as an addition to the dividends paid deduction for such taxable year the amount of such taxes;
(2)each shareholder of such investment company shall—
(A)include in gross income and treat as paid by him his proportionate share of such taxes, and
(B)treat as gross income from sources within the respective foreign countries and possessions of the United States, for purposes of applying subpart A of part III of subchapter N, the sum of his proportionate share of such taxes and the portion of any dividend paid by such investment company which represents income derived from sources within foreign countries or possessions of the United States.
(c)The amounts to be treated by the shareholder, for purposes of subsection (b)(2), as his proportionate share of—
(1)taxes paid to any foreign country or possession of the United States, and
(2)gross income derived from sources within any foreign country or possession of the United States,
(d)The election provided in subsection (a) shall be made in such manner as the Secretary may prescribe by regulations.
(e)This section shall not apply to any tax with respect to which the regulated investment company is not allowed a credit under section 901 by reason of subsection (k) or (l) of such section.
(f)(1)For treatment by shareholders of taxes paid to foreign countries and possessions of the United States, see section 164(a) and section 901.
(2)For definition of foreign corporation, see section 7701(a)(5).

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2010—Subsec. (c). Pub. L. 111–325, § 301(c)(1)(B), substituted “Statements” for “Notice” in heading. Pub. L. 111–325, § 301(c)(1)(A), which directed amendment by substituting “so reported by the company in a written statement furnished to such shareholder” for “so designated by the company in a written notice mailed to its shareholders not later than 60 days after the close of the taxable year”, was executed by making the substitution for “so designated by the company in a written notice mailed to its shareholders not later than 60 days after the close of its taxable year” in concluding provisions to reflect the probable intent of Congress. Subsec. (d). Pub. L. 111–325, § 301(c)(2), struck out “and notifying shareholders” after “election” in heading and “and the notice to shareholders required by subsection (c)” after “subsection (a)” in text. 2005—Subsec. (e). Pub. L. 109–135 amended heading and text of subsec. (e) generally. Prior to amendment, text read as follows: “This section shall not apply to any tax with respect to which the regulated investment company is not allowed a credit under section 901 by reason of section 901(k).” 1998—Subsec. (c). Pub. L. 105–206, § 6010(k)(2), struck out at end “Such notice shall also include the amount of such taxes which (without regard to the election under this section) would not be allowable as a credit under section 901(a) to the regulated investment company by reason of section 901(k).” Subsecs. (e), (f). Pub. L. 105–206, § 6010(k)(1), added subsec. (e) and redesignated former subsec. (e) as (f). 1997—Subsec. (c). Pub. L. 105–34 inserted at end “Such notice shall also include the amount of such taxes which (without regard to the election under this section) would not be allowable as a credit under section 901(a) to the regulated investment company by reason of section 901(k).” 1986—Subsec. (c). Pub. L. 99–514 substituted “60 days” for “45 days”. 1976—Subsec. (d). Pub. L. 94–455 struck out “or his delegate” after “Secretary”. 1964—Subsec. (c). Pub. L. 88–272 substituted “45 days” for “30 days”.

Statutory Notes and Related Subsidiaries

Effective Date

of 2010 AmendmentAmendment by Pub. L. 111–325 applicable to taxable years beginning after Dec. 22, 2010, see section 301(h) of Pub. L. 111–325, set out as a note under section 852 of this title.

Effective Date

of 2005 AmendmentAmendment by Pub. L. 109–135 effective as if included in the provision of the American Jobs Creation Act of 2004, Pub. L. 108–357, to which such amendment relates, see section 403(nn) of Pub. L. 109–135, set out as a note under section 26 of this title.

Effective Date

of 1998 AmendmentAmendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.

Effective Date

of 1997 Amendment Pub. L. 105–34, title X, § 1053(c), Aug. 5, 1997, 111 Stat. 943, provided that: “The

Amendments

made by this section [amending this section and section 901 of this title] shall apply to dividends paid or accrued more than 30 days after the date of the enactment of this Act [Aug. 5, 1997].”

Effective Date

of 1986 AmendmentAmendment by Pub. L. 99–514 applicable to taxable years beginning after Oct. 22, 1986, see section 655(b) of Pub. L. 99–514, set out as a note under section 852 of this title.

Effective Date

of 1964 AmendmentAmendment by Pub. L. 88–272 applicable to taxable years of regulated investment companies ending on or after Feb. 26, 1964, see section 229(c) of Pub. L. 88–272, set out as a note under section 852 of this title.

Reference

Citations & Metadata

Citation

26 U.S.C. § 853

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73