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IRS Proposes Foreign Tax Credit Regs

irsThe Internal Revenue Service has issued proposes regulations on foreign tax credits for businesses and individuals for tax years starting with 2018. The regulations would implement changes made under the the 2017 Tax Cuts and Jobs Act.

Among significant provisions are dividends-received deduction for dividends from foreign subsidiaries and the addition of Global Intangible Low-Taxed Income rules, which subject certain foreign earnings that would have been deferred under previous law to current U.S. taxation.

The new law modified rules that allow U.S. taxpayers to offset taxes by the amount of foreign income taxes paid or accrued to reflect new international tax rules, including repeal of rules for computing deemed-paid foreign tax credits on dividends on the basis of foreign subsidiaries’ cumulative pools of earnings and foreign taxes.

There are also two separate foreign tax credit limitation categories for foreign branch income and amounts includible under the new Global Intangible Low-Taxed Income provisions. In addition, the TCJA modified how taxable income is calculated for foreign tax credit limitation by disregarding certain expenses related to income eligible for the dividends-received deduction and repealing the use of the fair market value method for allocating interest expense. 

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