Revised Section 704(b) regulations clarify partnership allocations of creditable foreign tax expenditures

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February 2016

Overview

Treasury and the IRS issued revised Section 704(b) regulations on February 3, 2016. The new rules address certain situations involving partnerships’ allocations of creditable foreign tax expenditures (CFTEs), expanding and clarifying regulations first issued in 2006 and revised in 2012. The basic purpose of those regulations is to ensure that partnerships allocate foreign taxes among partners in the same manner as they allocate the income to which those taxes relate.

The specific modifications in the revised Section 704(b) regulations are important not only for their direct effect on certain taxpayers, but also for what they indicate about ongoing efforts by Treasury and the IRS to prevent taxpayers from gaining tax benefits by splitting foreign taxes from the associated foreign income.

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Craig Gerson

Principal, M&A Tax, PwC US

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