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Response to Foreign Tax Credit Regulations

Private Clients - 25 Feb 2019

The recent Trump tax reforms introduced new categories of foreign income for foreign tax relief purposes. In particular a new category was introduced for income derived from a foreign business activity. For many of our clients with interests in partnerships, check-the-box entities or even with straight forward self-employment activities the introduction of the new basket may mean that excess foreign tax credits accumulated in the pre-2018 ‘general limitation’ basket will no longer be available for use against future taxes arising on business profits. In some cases, this may result in a cash flow disadvantage with a need to accelerate payment of foreign taxes to ensure sufficient credits are available in the new basket. In the worst cases, the introduction of the new basket may give rise to unavoidable double taxation. 

In December the US Treasury published proposed regulations addressing this issue and providing an opportunity to reclassify excess credits from the pre-2018 general basket to the new basket. Whilst this suggestion is welcomed it is our view that the analysis required has been underestimated by the Treasury and would be unreasonably burdensome for US Citizen taxpayers living overseas. In many cases taxpayers will simply not have the historical records available to take advantage of the proposal. Frank Hirth have responded to the Treasury’s request for comment raising concerns about the proposal in its current form and arguing for a more reasonable approach to the foreign tax credit reallocation method.


Letters to the IRS:

Frank Hirth’s letter to the IRS on proposed Proposed Regulation 105600-18

Frank Hirth presses for broader transitional rules on excess foreign taxes

Frank Hirth’s letter to the IRS on proposed GILTI regulations


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Matthew Pannell

Matthew Pannell

Associate Director

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