ABA Tax Section Comments on Various Issues Under Proposed FTC Regs

ABA Tax Section Comments on Various Issues Under Proposed FTC Regs

American Bar Association Section of Taxation

Eric Solomon of the American Bar Association Section of Taxation has submitted comments on proposed regulations (<a href="/lr/resolve//28mwk">REG-105600-18</a>) that provide guidance on the determination of the foreign tax credit, suggesting that some provisions be reconsidered and others clarified. Addressing carryover rules and other transition issues, tax section members suggest that taxpayers be allowed to reconstruct the allocation of some pre-2018 general basket losses to the foreign branch category using post-2017 rules even if taxpayers do not have excess foreign taxes in the pre-2017 general basket. Taxpayers should also be allowed to elect to determine their asset values for their first post-2017 year based solely on the year-end tax book value. The tax section also suggests that expenses allocated against global intangible low-taxed income basket income not be considered in determining GILTI basket income for purposes of applying <a href="/research/federal/usc26/904" resolve="/lr/resolve//cq8j">section 904</a>. Addressing proposed reg provisions regarding tax-exempt assets and income, the tax section has asked Treasury and the IRS to remove assets giving rise to the foreign derived intangible income deduction from the application of the exempt asset rules and to clarify the operation of a provision regarding the treatment of specified individual partners in some passthrough entities. Section members suggest changes to and clarification of the rules that address the expense allocation consequences of loans from partners to partnerships and the application of the modified gross income method. The tax section also seeks elimination of tested loss assets and income from the <a href="/research/federal/usc26/864#cq11-0000069" resolve="/lr/resolve//cq11#cq11-0000069">section 864(e)</a> expense allocation rules. The tax section has suggested a change to the definition of current-year taxes and that Treasury and the IRS reconsider the approach of prorating current-year taxes based on the foreign earnings on which they are imposed. To address taxes that may not accrue under the all-events standard until after the U.S. income tax return is filed, section members recommend that the regs allow estimates, which would then be adjusted using one of two suggested options. Additional comments seek reconsideration of other rules on current-year taxes and previously taxed earnings and profits. The tax section made 11 specific recommendations regarding foreign branch income, seeking changes, clarifications, and additional guidance as well as policy discussions in the final regs to facilitate interpretations of some rules by taxpayers, the IRS, and the courts. The tax section recommends that the final regs make some technical clarifications to the rules on disregarded payments and allow a deemed paid credit for foreign income taxes paid by a controlled foreign corporation in the case of an inclusion under <a href="/research/federal/usc26/951#cq5b-0000008" resolve="/lr/resolve//cq5b#cq5b-0000008">sections 951(a)(1)(B)</a> and <a href="/research/federal/usc26/956" resolve="/lr/resolve//cqrm">956</a>. Section members also suggested changes concerning other issues under the <a href="/research/federal/usc26/904" resolve="/lr/resolve//cq8j">section 904</a> regs and issues regarding <a href="/research/federal/usc26/965#cnmx-0000429" resolve="/lr/resolve//cnmx#cnmx-0000429">section 965(n)</a>.

Eric Solomon of the American Bar Association Section of Taxation has submitted comments on proposed regulations (REG-105600-18) that provide guidance on the determination of the foreign tax credit, suggesting that some provisions be reconsidered and others clarified.

Eric Solomon of the American Bar Association Section of Taxation has submitted comments on proposed regulations (REG-105600-18) that provide guidance on the determination of the foreign tax credit, suggesting that some provisions be reconsidered and others clarified. Addressing carryover rules and other transition issues, tax section members suggest that taxpayers be allowed to reconstruct the allocation of some pre-2018 general basket losses to the foreign branch category using post-2017 rules even if taxpayers do not have excess foreign taxes in the pre-2017 general basket. Taxpayers should also be allowed to elect to determine their asset values for their first post-2017 year based solely on the year-end tax book value. The tax section also suggests that expenses allocated against global intangible low-taxed income basket income not be considered in determining GILTI basket income for purposes of applying section 904. Addressing proposed reg provisions regarding tax-exempt assets and income, the tax section has asked Treasury and the IRS to remove assets giving rise to the foreign derived intangible income deduction from the application of the exempt asset rules and to clarify the operation of a provision regarding the treatment of specified individual partners in some passthrough entities. Section members suggest changes to and clarification of the rules that address the expense allocation consequences of loans from partners to partnerships and the application of the modified gross income method. The tax section also seeks elimination of tested loss assets and income from the section 864(e) expense allocation rules. The tax section has suggested a change to the definition of current-year taxes and that Treasury and the IRS reconsider the approach of prorating current-year taxes based on the foreign earnings on which they are imposed. To address taxes that may not accrue under the all-events standard until after the U.S. income tax return is filed, section members recommend that the regs allow estimates, which would then be adjusted using one of two suggested options. Additional comments seek reconsideration of other rules on current-year taxes and previously taxed earnings and profits. The tax section made 11 specific recommendations regarding foreign branch income, seeking changes, clarifications, and additional guidance as well as policy discussions in the final regs to facilitate interpretations of some rules by taxpayers, the IRS, and the courts. The tax section recommends that the final regs make some technical clarifications to the rules on disregarded payments and allow a deemed paid credit for foreign income taxes paid by a controlled foreign corporation in the case of an inclusion under sections 951(a)(1)(B) and 956. Section members also suggested changes concerning other issues under the section 904 regs and issues regarding section 965(n).

Sec. 78 Gross Up For Deemed Paid Foreign Tax Credit

Sec. 861 Income from sources within the United States

Sec. 904 Limitation on credit

Sec. 954 Foreign base company income

Sec. 960 Deemed paid credit for subpart F inclusions

Sec. 965 Treatment of deferred foreign income upon transition to participation exemption system of taxation

United States

Foreign tax credit

Global intangible low-taxed income (GILTI)

Tax Cuts and Jobs Act

Eric Solomon

DOC 2019-10385

2019 WTD 54-19

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Eric Solomon is a partner in the tax practice at Steptoe &amp; Johnson LLP.
</div>

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ABA Tax Section Comments on Various Issues Under Proposed FTC Regs