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

Summary

Do not count a foreign income tax for U.S. tax benefits until the income tied to that tax is actually taxed by the person who must report the income. If a foreign company that is at least 10 percent owned is involved, the tax also cannot be used for section 960 or for figuring earnings and profits under section 964(a) until the income is taken into account by that foreign company or by a U.S. shareholder of that company. For partnerships, the rule works at the partner level. S corporations and trusts follow a similar rule unless the Treasury says otherwise. Any foreign tax put off this way is treated as paid or accrued in the later year when the related income is taxed (except for the rule in section 986(a)). The Treasury can issue rules, exceptions, and special guidance, including for hybrid instruments. Definitions (short): a "foreign tax credit splitting event" is when the related income will be taxed by a covered person; "foreign income tax" means an income, war profits, or excess profits tax paid to a foreign country or U.S. possession; "related income" is the income or earnings tied to that tax; a "covered person" is an entity that owns at least 10% of the taxpayer or is at least 10% owned by the taxpayer, a person related under sections 267(b) or 707(b), or others the Treasury names.