Bloomberg Bloomberg
Comprehensive Tax Research. Practitioner to Practitioner. ®

Internal Revenue Code, § 960. Deemed Paid Credit For Subpart F Inclusions (post-2017)

I.R.C. § 960(a) In General
For purposes of subpart A of this part, if there is included in the gross income of a domestic corporation any item of income under section 951(a)(1) with respect to any controlled foreign corporation with respect to which such domestic corporation is a United States shareholder, such domestic corporation shall be deemed to have paid so much of such foreign corporation's foreign income taxes as are properly attributable to such item of income.
I.R.C. § 960(b) Special Rules For Distributions From Previously Taxed Earnings And Profits
For purposes of subpart A of this part—
I.R.C. § 960(b)(1) In General
If any portion of a distribution from a controlled foreign corporation to a domestic corporation which is a United States shareholder with respect to such controlled foreign corporation is excluded from gross income under section 959(a), such domestic corporation shall be deemed to have paid so much of such foreign corporation's foreign income taxes as—
I.R.C. § 960(b)(1)(A)
are properly attributable to such portion, and
I.R.C. § 960(b)(1)(B)
have not been deemed to have to been paid by such domestic corporation under this section for the taxable year or any prior taxable year.
I.R.C. § 960(b)(2) Tiered Controlled Foreign Corporations
If section 959(b) applies to any portion of a distribution from a controlled foreign corporation to another controlled foreign corporation, such controlled foreign corporation shall be deemed to have paid so much of such other controlled foreign corporation's foreign income taxes as—
I.R.C. § 960(b)(2)(A)
are properly attributable to such portion, and
I.R.C. § 960(b)(2)(B)
have not been deemed to have been paid by a domestic corporation under this section for the taxable year or any prior taxable year.
I.R.C. § 960(c) Special Rules For Foreign Tax Credit In Year Of Receipt Of Previously Taxed Earnings And Profits
I.R.C. § 960(c)(1) Increase In Section 904 Limitation
In the case of any taxpayer who—
I.R.C. § 960(c)(1)(A)
either (i) chose to have the benefits of subpart A of this part for a taxable year beginning after September 30, 1993, in which he was required under section 951(a) to include any amount in his gross income, or (ii) did not pay or accrue for such taxable year any income, war profits, or excess profits taxes to any foreign country or to any possession of the United States,
I.R.C. § 960(c)(1)(B)
chooses to have the benefits of subpart A of this part for any taxable year in which he receives 1 or more distributions or amounts which are excludable from gross income under section 959(a) and which are attributable to amounts included in his gross income for taxable years referred to in subparagraph (A), and
I.R.C. § 960(c)(1)(C)
for the taxable year in which such distributions or amounts are received, pays, or is deemed to have paid, or accrues income, war profits, or excess profits taxes to a foreign country or to any possession of the United States with respect to such distributions or amounts,
the limitation under section 904 for the taxable year in which such distributions or amounts are received shall be increased by the lesser of the amount of such taxes paid, or deemed paid, or accrued with respect to such distributions or amounts or the amount in the excess limitation account as of the beginning of such taxable year.
I.R.C. § 960(c)(2) Excess Limitation Account
I.R.C. § 960(c)(2)(A) Establishment Of Account
Each taxpayer meeting the requirements of paragraph (1)(A) shall establish an excess limitation account. The opening balance of such account shall be zero.
I.R.C. § 960(c)(2)(B) Increases In Account
For each taxable year beginning after September 30, 1993, the taxpayer shall increase the amount in the excess limitation account by the excess (if any) of—
I.R.C. § 960(c)(2)(B)(i)
the amount by which the limitation under section 904(a) for such taxable year was increased by reason of the total amount of the inclusions in gross income under section 951(a) for such taxable year, over
I.R.C. § 960(c)(2)(B)(ii)
the amount of any income, war profits, and excess profits taxes paid, or deemed paid, or accrued to any foreign country or possession of the United States which were allowable as a credit under section 901 for such taxable year and which would not have been allowable but for the inclusions in gross income described in clause (i).
Proper reductions in the amount added to the account under the preceding sentence for any taxable year shall be made for any increase in the credit allowable under section 901 for such taxable year by reason of a carryback if such increase would not have been allowable but for the inclusions in gross income described in clause (i).
I.R.C. § 960(c)(2)(C) Decreases In Account
For each taxable year beginning after September 30, 1993, for which the limitation under section 904 was increased under paragraph (1), the taxpayer shall reduce the amount in the excess limitation account by the amount of such increase.
I.R.C. § 960(c)(3) Distributions Of Income Previously Taxed In Years Beginning Before October 1, 1993
If the taxpayer receives a distribution or amount in a taxable year beginning after September 30, 1993, which is excluded from gross income under section 959(a) and is attributable to any amount included in gross income under section 951(a) for a taxable year beginning before October 1, 1993, the limitation under section 904 for the taxable year in which such amount or distribution is received shall be increased by the amount determined under this subsection as in effect on the day before the date of the enactment of the Revenue Reconcilation Act of 1993.
I.R.C. § 960(c)(4) Cases In Which Taxes Not To Be Allowed As Deduction
In the case of any taxpayer who—
I.R.C. § 960(c)(4)(A)
chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951(a) to include in his gross income an amount in respect of a controlled foreign corporation, and
I.R.C. § 960(c)(4)(B)
does not choose to have the benefits of subpart A of this part for the taxable year in which he receives a distribution or amount which is excluded from gross income under section 959(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A),
no deduction shall be allowed under section 164 for the taxable year in which such distribution or amount is received for any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States on or with respect to such distribution or amount.
I.R.C. § 960(c)(5) Insufficient Taxable Income
If an increase in the limitation under this subsection exceeds the tax imposed by this chapter for such year, the amount of such excess shall be deemed an overpayment of tax for such year.
I.R.C. § 960(d) Deemed Paid Credit For Taxes Properly Attributable To Tested Income
I.R.C. § 960(d)(1) In General
For purposes of subpart A of this part, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 80 percent of the product of—
I.R.C. § 960(d)(1)(A)
such domestic corporation's inclusion percentage, multiplied by
I.R.C. § 960(d)(1)(B)
the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations.
I.R.C. § 960(d)(2) Inclusion Percentage
For purposes of paragraph (1), the term “inclusion percentage” means, with respect to any domestic corporation, the ratio (expressed as a percentage) of—
I.R.C. § 960(d)(2)(A)
such corporation's global intangible low-taxed income (as defined in section 951A(b)), divided by
I.R.C. § 960(d)(2)(B)
the aggregate amount described in section 951A(c)(1)(A) with respect to such corporation.
I.R.C. § 960(d)(3) Tested Foreign Income Taxes
For purposes of paragraph (1), the term “tested foreign income taxes” means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to the tested income of such foreign corporation taken into account by such domestic corporation under section 951A.
I.R.C. § 960(e) Foreign Income Taxes
The term “foreign income taxes” means any income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States.
I.R.C. § 960(f) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
(Added by Pub. L. 87-834, 12(a), Oct. 16, 1962, 76 Stat. 1020, and amended Pub. L. 94-455, title X, 1031(b)(1), 1033(b)(2), 1037(a), Oct. 4, 1976, 90 Stat. 1622, 1628, 1633; Pub. L. 99-514, title XII, 1202(b), Oct. 22, 1986, 100 Stat. 2530; Pub. L. 103-66, title XIII, Sec. 13233(b)(1), Aug. 10, 1993, 107 Stat. 312; Pub. L. 105-34, title XI, Sec. 1113(b), Aug. 5, 1997, 111 Stat 788; Pub. L. 111-226, Sec. 214(a), Aug. 10, 2010, 124 Stat. 2389; Pub. L. 115-97, title I, Secs. 14201(b)(1), 14301(b), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017 - Sec. 960. Pub. L. 115-97, Sec. 14301(b)(1), amended Sec. 960 by amending the material preceding subsec. (b), by striking subsec. (c), and by redesignating subsec. (b) as subsec. (c). Before being amended, the material preceding subsec. (b) read as follows:
“Sec. 960. Special Rules For Foreign Tax Credit
“(a) Taxes Paid By A Foreign Corporation
“(1) Deemed Paid Credit.—For purposes of subpart A of this part, if there is included under section 951(a) in the gross income of a domestic corporation any amount attributable to earnings and profits of a foreign corporation which is a member of a qualified group (as defined in section 902(b)) with respect to the domestic corporation, then, except to the extent provided in regulations, section 902 shall be applied as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B)).
“(2) Taxes Previously Deemed Paid By Domestic Corporation.—If a domestic corporation receives a distribution from a foreign corporation, any portion of which is excluded from gross income under section 959, the income, war profits, and excess profits taxes paid or deemed paid by such foreign corporation to any foreign country or to any possession of the United States in connection with the earnings and profits of such foreign corporation from which such distribution is made shall not be taken into account for purposes of section 902, to the extent such taxes were deemed paid by a domestic corporation under paragraph (1) for any prior taxable year.
“(3) Taxes Paid By Foreign Corporation And Not Previously Deemed Paid By Domestic Corporation.—Any portion of a distribution from a foreign corporation received by a domestic corporation which is excluded from gross income under section 959(a) shall be treated by the domestic corporation as a dividend, solely for purposes of taking into account under section 902 any income, war profits, or excess profits taxes paid to any foreign country or to any possession of the United States, on or with respect to the accumulated profits of such foreign corporation from which such distribution is made, which were not deemed paid by the domestic corporation under paragraph (1) for any prior taxable year.”
Before being struck, subsec. (c) read as follows:
“(c) Limitation With Respect To Section 956 Inclusions
“(1) In General.—If there is included under section 951(a)(1)(B) in the gross income of a domestic corporation any amount attributable to the earnings and profits of a foreign corporation which is a member of a qualified group (as defined in section 902(b)) with respect to the domestic corporation, the amount of any foreign income taxes deemed to have been paid during the taxable year by such domestic corporation under section 902 by reason of subsection (a) with respect to such inclusion in gross income shall not exceed the amount of the foreign income taxes which would have been deemed to have been paid during the taxable year by such domestic corporation if cash in an amount equal to the amount of such inclusion in gross income were distributed as a series of distributions (determined without regard to any foreign taxes which would be imposed on an actual distribution) through the chain of ownership which begins with such foreign corporation and ends with such domestic corporation.
“(2) Authority To Prevent Abuse.—The Secretary shall issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection, including regulations or other guidance which prevent the inappropriate use of the foreign corporation's foreign income taxes not deemed paid by reason of paragraph (1).”
Subsec. (d). Pub. L. 115-97, Sec. 14201(b)(1), added subsec. (d).
Subsec. (e)-(f). Pub. L. 115-97, Sec. 14301(b)(2), added subsecs. (e) and (f).
2010--Subsec. (c). Pub. L. 111-226, Sec. 214(a), added subsec. (c).
1997--Subsec. (a)(1). Pub. L. 105-34, amended paragraph (1) of subsection (a). Prior to amendment it read as follows:
“(1) General rule
“For purposes of subpart A of this part, if there is included, under section 951(a), in the gross income of a domestic corporation any amount attributable to earnings and profits--
“(A) of a foreign corporation (hereafter in this subsection referred to as the “first foreign corporation”) at least 10 percent of the voting stock of which is owned by such domestic corporation, or
“(B) of a second foreign corporation (hereinafter in this subsection referred to as the “second foreign corporation”) at least 10 percent of the voting stock of which is owned by the first foreign corporation, or
“(C) of a third foreign corporation (hereinafter in this subsection referred to as the “third foreign corporation”) at least 10 percent of the voting stock of which is owned by the second foreign corporation, then, except to the extent provided in regulations, such domestic corporation shall be deemed to have paid a portion of such foreign corporation's post-1986 foreign income taxes determined under section 902 in the same manner as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B)). This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earnings and profits of the second foreign corporation or of the third foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(A) is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(B) is satisfied”.
1993—Subsec. (b)(3)-(5). Pub. L. 103-66, Sec. 13233(b)(1), amended subsec. (b) by redesignating pars. (3) and (4) as pars. (4) and (5), respectively, by striking pars. (1) and (2); and by adding new pars. (1)-(3). Before being struck, pars. (1) and (2) read as follows:
“(1) Increase in section 904 limitation.—In the case of any taxpayer who--
“(A) either (i) chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951(a) to include in his gross income an amount in respect of a controlled foreign corporation, or (ii) did not pay or accrue for such taxable year any income, war profits, or excess profits taxes to any foreign country or to any possession of the United States, and
“(B) chooses to have the benefits of subpart A of this part for the taxable year in which he receives a distribution or amount which is excluded from gross income under section 959(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A), and
“(C) for the taxable year in which such distribution or amount is received, pays, or is deemed to have paid, or accrues income, war profits, or excess profits taxes to a foreign country or to any possession of the United States with respect to such distribution or amount,
“the limitation under section 904 for the taxable year in which such distribution or amount is received shall be increased as provided in paragraph (2), but such increase shall not exceed the amount of such taxes paid, or deemed paid, or accrued with respect to such distribution or amount.
“(2) Amount of increase.—The amount of increase of the limitation under section 904(a) for the taxable year in which the distribution or amount referred to in paragraph (1)(B) is received shall be an amount equal to--
“(A) the amount by which the limitation under section 904(a) for the taxable year referred to in paragraph (1)(A) was increased by reason of the inclusion in gross income under section 951(a) of the amount in respect of the controlled foreign corporation, reduced by
“(B) the amount of any income, war profits, and excess profits taxes paid, or deemed paid, or accrued to any foreign country or possession of the United States which were allowable as a credit under section 901 for the taxable year referred to in paragraph (1)(A) and which would not have been allowable but for the inclusion in gross income of the amount described in subparagraph (A).”
1986--Subsec. (a)(1). Pub. L. 99-514 substituted “then, except to the extent provided in regulations, such domestic corporation shall be deemed to have paid a portion of such foreign corporation's post-1986 foreign income taxes determined under section 902 in the same manner as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B))” for “then, under regulations prescribed by the Secretary, such domestic corporation shall be deemed to have paid the same proportion of the total income, war profits, and excess profits taxes paid (or deemed paid) by such foreign corporation to a foreign country or possession of the United States for the taxable year on or with respect to the earnings and profits of such foreign corporation which the amount of earnings and profits of such foreign corporation so included in gross income of the domestic corporation bears to the entire amount of the earnings and profits of such corporation for such taxable year”.
1976--Subsec. (a)(1). Pub. L. 94-455, 1033(b)(2), 1037(a), substituted “bears to the entire amount of the earnings and profits of such foreign corporation for such taxable year” for “bears to-” after “gross income of the domestic corporation”, struck out subpars. (C) and (D) relating to corporations which are and are not less developed country corporations, inserted in subpar. (A) “(hereafter in this subsection referred to as the ‘first foreign corporation’)" after “foreign corporation”, substituted in subpar. (B) “of a second foreign corporation (hereinafter in this subsection referred to as the ‘second foreign corporation’) at least 10 percent of the voting stock of which is owned by the first foreign corporation, or” for “of a foreign corporation at least 50 percent of the voting stock of which is owned by a foreign corporation at least 10 percent of the voting stock of which in turn owned by such domestic corporation" after “(B)”, added subpar. (C), and inserted at end “This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earning and profits of the second foreign corporation or of the third foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(A) is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(B) is satisfied.”
Subsec. (b). Pub. L. 94-455, 1031(b)(1), struck out “applicable" in par. (1) after “amount, the”, in par. (2) after “increase of the”, and in subpar. (A) of par. (2) after “by which the”.
Section 1113(c)(1) of Pub. L. 105-34 provided that:
“The amendments made by this section shall apply to taxes of foreign corporations for taxable years of such corporations beginning after the date of enactment of this Act”.
Section 1113(c)(2) provided the following exception:
“In the case of any chain of foreign corporations described in clauses (i) and (ii) of section 902(b)(2)(B) of the Internal Revenue Code of 1986 (as amended by this section), no liquidation, reorganization, or similar transaction in a taxable year beginning after the date of the enactment of this Act shall have the effect of permitting taxes to be taken into account under section 902 of the Internal Revenue Code of 1986 which could not have been taken into account under such section but for such transaction”.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by Section 14201(b)(1) and 14301(b) of Pub. L. 115-97, effective for taxable years of foreign corporations beginning after December 31, 2017, and for taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 2010 AMENDMENT
Amendment by Section 214(a) of Pub. L. 111-226 effective for acquisitions of United States property (as defined in section 956(c) of the Internal Revenue Code of 1986) after December 31, 2010.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Section 1113(b) of Pub. L. 105-34 applicable to taxes of foreign corporations for taxable years of such corporations beginning after the date of enactment [enacted: Aug. 5, 1997].
EFFECTIVE DATE OF 1993 AMENDMENT
Amendment by Pub. L. 103-66, Sec. 13233(b)(1), applicable for tax years beginning after September 30, 1993.
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by Pub. L. 99-514 applicable to distributions by foreign corporations out of, and to inclusions under section 951(a) of this title attributable to, earnings and profits for taxable years beginning after Dec. 31, 1986, see section 1202(e) of Pub. L. 99-514, set out as a note under section 902 of this title.
EFFECTIVE DATE OF 1976 AMENDMENT
Amendment by section 1031(b)(1) of Pub. L. 94-455 applicable to taxable years beginning after Dec. 31, 1975, see section 1031(c) of Pub. L. 94-455, set out as a note under section 904 of this title.
Amendment by section 1033(b)(2) of Pub. L. 94-455 applicable in respect of any distribution received by a domestic corporation after Dec. 31, 1977, and in respect of any distribution received by a domestic corporation before Jan. 1, 1978, in a taxable year of such corporation beginning after Dec. 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year beginning after Dec. 31, 1975, see section 1033(c) of Pub. L. 94-455, set out as a note under section 902 of this title.
Section 1037(b) of Pub. L. 94-455, as amended by Pub. L. 99-514, 2, Oct. 22, 1986, 100 Stat. 2095, provided that: “The amendment made by this section [amending this section] shall apply with respect to earnings and profits of a foreign corporation, included, under section 951(a) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954], in the gross income of a domestic corporation in taxable years beginning after December 31, 1976.”