26 U.S.C. § 901 : US Code - Section 901: Taxes of foreign countries and of possessions of United States

Search 26 U.S.C. § 901 : US Code - Section 901: Taxes of foreign countries and of possessions of United States

(a) Allowance of credit
If the taxpayer chooses to have the benefits of this subpart, the
tax imposed by this chapter shall, subject to the limitation of
section 904, be credited with the amounts provided in the
applicable paragraph of subsection (b) plus, in the case of a
corporation, the taxes deemed to have been paid under sections 902
and 960. Such choice for any taxable year may be made or changed at
any time before the expiration of the period prescribed for making
a claim for credit or refund of the tax imposed by this chapter for
such taxable year. The credit shall not be allowed against any tax
treated as a tax not imposed by this chapter under section 26(b).
(b) Amount allowed
Subject to the limitation of section 904, the following amounts
shall be allowed as the credit under subsection (a):
(1) Citizens and domestic corporations
In the case of a citizen of the United States and of a domestic
corporation, the amount of any income, war profits, and excess
profits taxes paid or accrued during the taxable year to any
foreign country or to any possession of the United States; and
(2) Resident of the United States or Puerto Rico
In the case of a resident of the United States and in the case
of an individual who is a bona fide resident of Puerto Rico
during the entire taxable year, the amount of any such taxes paid
or accrued during the taxable year to any possession of the
United States; and
(3) Alien resident of the United States or Puerto Rico
In the case of an alien resident of the United States and in
the case of an alien individual who is a bona fide resident of
Puerto Rico during the entire taxable year, the amount of any
such taxes paid or accrued during the taxable year to any foreign
country; and
(4) Nonresident alien individuals and foreign corporations
In the case of any nonresident alien individual not described
in section 876 and in the case of any foreign corporation, the
amount determined pursuant to section 906; and
(5) Partnerships and estates
In the case of any person described in paragraph (1), (2), (3),
or (4), who is a member of a partnership or a beneficiary of an
estate or trust, the amount of his proportionate share of the
taxes (described in such paragraph) of the partnership or the
estate or trust paid or accrued during the taxable year to a
foreign country or to any possession of the United States, as the
case may be. Under rules or regulations prescribed by the
Secretary, in the case of any foreign trust of which the settlor
or another person would be treated as owner of any portion of the
trust under subpart E but for section 672(f), the allocable
amount of any income, war profits, and excess profits taxes
imposed by any foreign country or possession of the United States
on the settlor or such other person in respect of trust income.
(c) Similar credit required for certain alien residents
Whenever the President finds that -
(1) a foreign country, in imposing income, war profits, and
excess profits taxes, does not allow to citizens of the United
States residing in such foreign country a credit for any such
taxes paid or accrued to the United States or any foreign
country, as the case may be, similar to the credit allowed under
subsection (b)(3),
(2) such foreign country, when requested by the United States
to do so, has not acted to provide such a similar credit to
citizens of the United States residing in such foreign country,
and
(3) it is in the public interest to allow the credit under
subsection (b)(3) to citizens or subjects of such foreign country
only if it allows such a similar credit to citizens of the United
States residing in such foreign country,
the President shall proclaim that, for taxable years beginning
while the proclamation remains in effect, the credit under
subsection (b)(3) shall be allowed to citizens or subjects of such
foreign country only if such foreign country, in imposing income,
war profits, and excess profits taxes, allows to citizens of the
United States residing in such foreign country such a similar
credit.
(d) Treatment of dividends from a DISC or former DISC
For purposes of this subpart, dividends from a DISC or former
DISC (as defined in section 992(a)) shall be treated as dividends
from a foreign corporation to the extent such dividends are treated
under part I as income from sources without the United States.
(e) Foreign taxes on mineral income
(1) Reduction in amount allowed
Notwithstanding subsection (b), the amount of any income, war
profits, and excess profits taxes paid or accrued during the
taxable year to any foreign country or possession of the United
States with respect to foreign mineral income from sources within
such country or possession which would (but for this paragraph)
be allowed under such subsection shall be reduced by the amount
(if any) by which -
(A) the amount of such taxes (or, if smaller, the amount of
the tax which would be computed under this chapter with respect
to such income determined without the deduction allowed under
section 613), exceeds
(B) the amount of the tax computed under this chapter with
respect to such income.
(2) Foreign mineral income defined
For purposes of paragraph (1), the term "foreign mineral
income" means income derived from the extraction of minerals from
mines, wells, or other natural deposits, the processing of such
minerals into their primary products, and the transportation,
distribution, or sale of such minerals or primary products. Such
term includes, but is not limited to -
(A) dividends received from a foreign corporation in respect
of which taxes are deemed paid by the taxpayer under section
902, to the extent such dividends are attributable to foreign
mineral income, and
(B) that portion of the taxpayer's distributive share of the
income of partnerships attributable to foreign mineral income.
(f) Certain payments for oil or gas not considered as taxes
Notwithstanding subsection (b) and sections 902 and 960, the
amount of any income, or profits, and excess profits taxes paid or
accrued during the taxable year to any foreign country in
connection with the purchase and sale of oil or gas extracted in
such country is not to be considered as tax for purposes of section
275(a) and this section if -
(1) the taxpayer has no economic interest in the oil or gas to
which section 611(a) applies, and
(2) either such purchase or sale is at a price which differs
from the fair market value for such oil or gas at the time of
such purchase or sale.
(g) Certain taxes paid with respect to distributions from
possessions corporations
(1) In general
For purposes of this chapter, any tax of a foreign country or
possession of the United States which is paid or accrued with
respect to any distribution from a corporation -
(A) to the extent that such distribution is attributable to
periods during which such corporation is a possessions
corporation, and
(B)(i) if a dividends received deduction is allowable with
respect to such distribution under part VIII of subchapter B,
or
(ii) to the extent that such distribution is received in
connection with a liquidation or other transaction with respect
to which gain or loss is not recognized,
shall not be treated as income, war profits, or excess profits
taxes paid or accrued to a foreign country or possession of the
United States, and no deduction shall be allowed under this title
with respect to any amount so paid or accrued.
(2) Possessions corporation
For purposes of paragraph (1), a corporation shall be treated
as a possessions corporation for any period during which an
election under section 936 applied to such corporation, during
which section 931 (as in effect on the day before the date of the
enactment of the Tax Reform Act of 1976) applied to such
corporation, or during which section 957(c) (as in effect on the
day before the date of the enactment of the Tax Reform Act of
1986) applied to such corporation.
(h) Taxes paid with respect to foreign trade income
No credit shall be allowed under this section for any income, war
profits, and excess profits taxes paid or accrued with respect to
the foreign trade income (within the meaning of section 923(b))
(!1) of a FSC, other than section 923(a)(2) (!1) non-exempt income
(within the meaning of section 927(d)(6)).(!1)
(i) Taxes used to provide subsidies
Any income, war profits, or excess profits tax shall not be
treated as a tax for purposes of this title to the extent -
(1) the amount of such tax is used (directly or indirectly) by
the country imposing such tax to provide a subsidy by any means
to the taxpayer, a related person (within the meaning of section
482), or any party to the transaction or to a related
transaction, and
(2) such subsidy is determined (directly or indirectly) by
reference to the amount of such tax, or the base used to compute
the amount of such tax.
(j) Denial of foreign tax credit, etc., with respect to certain
foreign countries
(1) In general
Notwithstanding any other provision of this part -
(A) no credit shall be allowed under subsection (a) for any
income, war profits, or excess profits taxes paid or accrued
(or deemed paid under section 902 or 960) to any country if
such taxes are with respect to income attributable to a period
during which this subsection applies to such country, and
(B) subsections (a), (b), and (c) of section 904 and sections
902 and 960 shall be applied separately with respect to income
attributable to such a period from sources within such country.
(2) Countries to which subsection applies
(A) In general
This subsection shall apply to any foreign country -
(i) the government of which the United States does not
recognize, unless such government is otherwise eligible to
purchase defense articles or services under the Arms Export
Control Act,
(ii) with respect to which the United States has severed
diplomatic relations,
(iii) with respect to which the United States has not
severed diplomatic relations but does not conduct such
relations, or
(iv) which the Secretary of State has, pursuant to section
6(j) of the Export Administration Act of 1979, as amended,
designated as a foreign country which repeatedly provides
support for acts of international terrorisms.
(B) Period for which subsection applies
This subsection shall apply to any foreign country described
in subparagraph (A) during the period -
(i) beginning on the later of -
(I) January 1, 1987, or
(II) 6 months after such country becomes a country
described in subparagraph (A), and
(ii) ending on the date the Secretary of State certifies to
the Secretary of the Treasury that such country is no longer
described in subparagraph (A).
(3) Taxes allowed as a deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of this
subsection.
(4) Regulations
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of this
subsection, including regulations which treat income paid through
1 or more entities as derived from a foreign country to which
this subsection applies if such income was, without regard to
such entities, derived from such country.
(5) Waiver of denial
(A) In general
Paragraph (1) shall not apply with respect to taxes paid or
accrued to a country if the President -
(i) determines that a waiver of the application of such
paragraph is in the national interest of the United States
and will expand trade and investment opportunities for United
States companies in such country; and
(ii) reports such waiver under subparagraph (B).
(B) Report
Not less than 30 days before the date on which a waiver is
granted under this paragraph, the President shall report to
Congress -
(i) the intention to grant such waiver; and
(ii) the reason for the determination under subparagraph
(A)(i).
(k) Minimum holding period for certain taxes on dividends
(1) Withholding taxes
(A) In general
In no event shall a credit be allowed under subsection (a)
for any withholding tax on a dividend with respect to stock in
a corporation if -
(i) such stock is held by the recipient of the dividend for
15 days or less during the 31-day period beginning on the
date which is 15 days before the date on which such share
becomes ex-dividend with respect to such dividend, or
(ii) to the extent that the recipient of the dividend is
under an obligation (whether pursuant to a short sale or
otherwise) to make related payments with respect to positions
in substantially similar or related property.
(B) Withholding tax
For purposes of this paragraph, the term "withholding tax"
includes any tax determined on a gross basis; but does not
include any tax which is in the nature of a prepayment of a tax
imposed on a net basis.
(2) Deemed paid taxes
In the case of income, war profits, or excess profits taxes
deemed paid under section 853, 902, or 960 through a chain of
ownership of stock in 1 or more corporations, no credit shall be
allowed under subsection (a) for such taxes if -
(A) any stock of any corporation in such chain (the ownership
of which is required to obtain credit under subsection (a) for
such taxes) is held for less than the period described in
paragraph (1)(A)(i), or
(B) the corporation holding the stock is under an obligation
referred to in paragraph (1)(A)(ii).
(3) 45-day rule in the case of certain preference dividends
In the case of stock having preference in dividends and
dividends with respect to such stock which are attributable to a
period or periods aggregating in excess of 366 days, paragraph
(1)(A)(i) shall be applied -
(A) by substituting "45 days" for "15 days" each place it
appears, and
(B) by substituting "91-day period" for "31-day period".
(4) Exception for certain taxes paid by securities dealers
(A) In general
Paragraphs (1) and (2) shall not apply to any qualified tax
with respect to any security held in the active conduct in a
foreign country of a business as a securities dealer of any
person -
(i) who is registered as a securities broker or dealer
under section 15(a) of the Securities Exchange Act of 1934,
(ii) who is registered as a Government securities broker or
dealer under section 15C(a) of such Act, or
(iii) who is licensed or authorized in such foreign country
to conduct securities activities in such country and is
subject to bona fide regulation by a securities regulating
authority of such country.
(B) Qualified tax
For purposes of subparagraph (A), the term "qualified tax"
means a tax paid to a foreign country (other than the foreign
country referred to in subparagraph (A)) if -
(i) the dividend to which such tax is attributable is
subject to taxation on a net basis by the country referred to
in subparagraph (A), and
(ii) such country allows a credit against its net basis tax
for the full amount of the tax paid to such other foreign
country.
(C) Regulations
The Secretary may prescribe such regulations as may be
appropriate to carry out this paragraph, including regulations
to prevent the abuse of the exception provided by this
paragraph and to treat other taxes as qualified taxes.
(5) Certain rules to apply
For purposes of this subsection, the rules of paragraphs (3)
and (4) of section 246(c) shall apply.
(6) Treatment of bona fide sales
If a person's holding period is reduced by reason of the
application of the rules of section 246(c)(4) to any contract for
the bona fide sale of stock, the determination of whether such
person's holding period meets the requirements of paragraph (2)
with respect to taxes deemed paid under section 902 or 960 shall
be made as of the date such contract is entered into.
(7) Taxes allowed as deduction, etc.
Sections 275 and 78 shall not apply to any tax which is not
allowable as a credit under subsection (a) by reason of this
subsection.
(l) Minimum holding period for withholding taxes on gain and income
other than dividends etc.
(1) In general
In no event shall a credit be allowed under subsection (a) for
any withholding tax (as defined in subsection (k)) on any item of
income or gain with respect to any property if -
(A) such property is held by the recipient of the item for 15
days or less during the 31-day period beginning on the date
which is 15 days before the date on which the right to receive
payment of such item arises, or
(B) to the extent that the recipient of the item is under an
obligation (whether pursuant to a short sale or otherwise) to
make related payments with respect to positions in
substantially similar or related property.
This paragraph shall not apply to any dividend to which
subsection (k) applies.
(2) Exception for taxes paid by dealers
(A) In general
Paragraph (1) shall not apply to any qualified tax with
respect to any property held in the active conduct in a foreign
country of a business as a dealer in such property.
(B) Qualified tax
For purposes of subparagraph (A), the term "qualified tax"
means a tax paid to a foreign country (other than the foreign
country referred to in subparagraph (A)) if -
(i) the item to which such tax is attributable is subject
to taxation on a net basis by the country referred to in
subparagraph (A), and
(ii) such country allows a credit against its net basis tax
for the full amount of the tax paid to such other foreign
country.
(C) Dealer
For purposes of subparagraph (A), the term "dealer" means -
(i) with respect to a security, any person to whom
paragraphs (1) and (2) of subsection (k) would not apply by
reason of paragraph (4) thereof, and
(ii) with respect to any other property, any person with
respect to whom such property is described in section
1221(a)(1).
(D) Regulations
The Secretary may prescribe such regulations as may be
appropriate to carry out this paragraph, including regulations
to prevent the abuse of the exception provided by this
paragraph and to treat other taxes as qualified taxes.
(3) Exceptions
The Secretary may by regulation provide that paragraph (1)
shall not apply to property where the Secretary determines that
the application of paragraph (1) to such property is not
necessary to carry out the purposes of this subsection.
(4) Certain rules to apply
Rules similar to the rules of paragraphs (5), (6), and (7) of
subsection (k) shall apply for purposes of this subsection.
(5) Determination of holding period
Holding periods shall be determined for purposes of this
subsection without regard to section 1235 or any similar rule.
(m) Cross reference
(1) For deductions of income, war profits, and excess profits
taxes paid to a foreign country or a possession of the United
States, see sections 164 and 275.
(2) For right of each partner to make election under this
section, see section 703(b).
(3) For right of estate or trust to the credit for taxes
imposed by foreign countries and possessions of the United
States under this section, see section 642(a).
(4) For reduction of credit for failure of a United States
person to furnish certain information with respect to a foreign
corporation or partnership controlled by him, see section 6038.