Treasury and the IRS issued, on December 6, 2016, temporary and proposed regulations under Section 901(m). Section 901(m) disallows a foreign tax credit after certain transactions where foreign taxes paid or accrued are considered attributable to a difference in the basis of assets for US and foreign tax purposes. The Regulations set forth the limited guidance provided in 2014 through two notices, and also provide extensive guidance with respect to the scope and application of the statute through new proposed rules.
US taxpayers and Section 902 corporations that are subject to Section 901(m) because of a prior ‘covered asset acquisition’ (CAA) as defined in the statute will want to consider the impact of the temporary regulations on their calculations under Section 901(m). Taxpayers may also consider whether they would benefit from an election to retroactively apply the proposed regulations. Further, since the proposed regulations would expand the types of transactions treated as CAAs, US taxpayers and Section 902 corporations should consider the potential application of the temporary and proposed regulations prior to undertaking future transactions involving the assets of a foreign business operation.