IRS publishes corrections to foreign tax credit regs


The IRS recently released two sets of correcting amendments (T.D. 9959 (correction) and T.D. 9959 (correction)), making changes to the final foreign tax credit regulations that were released on Dec. 28, 2021 (T.D. 9959). For more background on the December 2021 final foreign tax credit regulations, please see our prior story, “Final FTC regs address broad range of issues.


The first set of correcting amendments revises the regulations under Sections 245A, 338, 367, 861, 901, 904, 905, 951A and 960. In addition to routine clarifying and corrective amendments, the revisions also provide several clarifications and revisions to the cost recovery requirement under the regulations. For example, corrected Treas. Reg. Sec. 1.901-2 provides that the cost recovery requirement requires a foreign tax deduction disallowance to be consistent with “any” principle underlying the deduction disallowances required under the U.S. law, including the principles of limiting base erosion or profit shifting and public policy concerns. This is in contrast with the original version which referred to “a” principle underlying the disallowances required under the Code. Several of the corrections underscore the IRS’ prior comments indicating that the cost recovery requirement is intended to be a principle-based approach and arguably removes some ambiguities and inconsistencies contained in the original regulations.


The second set of correcting amendments lists 13 revisions to the preamble of the foreign tax credit regulations.


Taxpayers should immediately evaluate the corrections to determine how their foreign tax credit determinations may be impacted by the changes. Treasury has indicated that additional guidance regarding the creditability and treatment of foreign levies may be forthcoming later this year. Taxpayers should continue to monitor these developments.  



Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.


More tax hot topics