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Title 26 — Internal Revenue CodeRelease 119-73

§909 Suspension of Taxes and Credits Until Related Income Taken Into Account

Title 26 › Subtitle 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 A— Foreign Tax Credit › § 909

Last updated Apr 6, 2026|Official source

Summary

When a foreign income tax gets separated from the income it relates to, you cannot claim that tax for U.S. tax purposes yet. This is called a foreign tax credit splitting event: a related person ends up reporting the income while you paid the tax. The tax stays suspended until the year you actually take the related income into account. The same suspension applies when the tax was paid by a foreign corporation that is at least 10 percent owned, blocking its use for foreign tax credits or earnings calculations until the income shows up. A related person here includes any entity you own at least 10 percent of, anyone who owns at least 10 percent of you, and certain other related parties. Once the related income is reported, the suspended tax counts as paid in that year. The IRS can issue rules with exceptions and guidance for hybrid instruments. These rules were enacted in 2010.

Full Legal Text

Title 26, §909

Internal Revenue Code — Source: USLM XML via OLRC

(a)If there is a foreign tax credit splitting event with respect to a foreign income tax paid or accrued by the taxpayer, such tax shall not be taken into account for purposes of this title before the taxable year in which the related income is taken into account under this chapter by the taxpayer.
(b)If there is a foreign tax credit splitting event with respect to a foreign income tax paid or accrued by a specified 10-percent owned foreign corporation (as defined in section 245A(b) without regard to paragraph (2) thereof), such tax shall not be taken into account—
(1)for purposes of section 960, or
(2)for purposes of determining earnings and profits under section 964(a),
(c)For purposes of this section—
(1)
(2)In the case of any foreign income tax not taken into account by reason of subsection (a) or (b), except as otherwise provided by the Secretary, such tax shall be so taken into account in the taxable year referred to in such subsection (other than for purposes of section 986(a)) as a foreign income tax paid or accrued in such taxable year.
(d)For purposes of this section—
(1)There is a foreign tax credit splitting event with respect to a foreign income tax if the related income is (or will be) taken into account under this chapter by a covered person.
(2)The term “foreign income tax” means any income, war profits, or excess profits tax paid or accrued to any foreign country or to any possession of the United States.
(3)The term “related income” means, with respect to any portion of any foreign income tax, the income (or, as appropriate, earnings and profits) to which such portion of foreign income tax relates.
(4)The term “covered person” means, with respect to any person who pays or accrues a foreign income tax (hereafter in this paragraph referred to as the “payor”)—
(A)any entity in which the payor holds, directly or indirectly, at least a 10 percent ownership interest (determined by vote or value),
(B)any person which holds, directly or indirectly, at least a 10 percent ownership interest (determined by vote or value) in the payor,
(C)any person which bears a relationship to the payor described in section 267(b) or 707(b), and
(D)any other person specified by the Secretary for purposes of this paragraph.
(e)The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this section, including regulations or other guidance which provides—
(1)appropriate exceptions from the provisions of this section, and
(2)for the proper application of this section with respect to hybrid instruments.

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2017—Subsec. (b). Pub. L. 115–97, § 14301(c)(29)(A), (C), (D), substituted “specified 10-percent owned foreign corporations” for “section 902 corporations” in heading, “specified 10-percent owned foreign corporation (as defined in section 245A(b) without regard to paragraph (2) thereof)” for “section 902 corporation” in introductory provisions, and “by such specified 10-percent owned foreign corporation or a domestic corporation which is a United States shareholder with respect to such specified 10-percent owned foreign corporation.” for “by such section 902 corporation or a domestic corporation which meets the ownership requirements of subsection (a) or (b) of section 902 with respect to such section 902 corporation.” in concluding provisions. Subsec. (b)(1). Pub. L. 115–97, § 14301(c)(29)(B), struck out “902 or” after “for purposes of section”. Subsec. (d)(5). Pub. L. 115–97, § 14301(c)(30), struck out par. (5). Text read as follows: “The term ‘section 902 corporation’ means any foreign corporation with respect to which one or more domestic corporations meets the ownership requirements of subsection (a) or (b) of section 902.”

Statutory Notes and Related Subsidiaries

Effective Date

of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under section 78 of this title.

Effective Date

Pub. L. 111–226, title II, § 211(c), Aug. 10, 2010, 124 Stat. 2395, provided that: “The

Amendments

made by this section [enacting this section] shall apply to—“(1) foreign income taxes (as defined in section 909(d) of the Internal Revenue Code of 1986, as added by this section) paid or accrued in taxable years beginning after December 31, 2010; and “(2) foreign income taxes (as so defined) paid or accrued by a [former] section 902 corporation (as so defined) in taxable years beginning on or before such date (and not deemed paid under section 902(a) or 960 of such Code on or before such date), but only for purposes of applying section 902 and 960 with respect to periods after such date. section 909(b)(2) of the Internal Revenue Code of 1986, as added by this section, shall not apply to foreign income taxes described in paragraph (2).”

Reference

Citations & Metadata

Citation

26 U.S.C. § 909

Title 26 — Internal Revenue Code

Last Updated

Apr 6, 2026

Release point: 119-73