Internal , Treasury § 1.905–3T

taxpayer, as principal, and by sureties the last payment of foreign first, satisfactory to and approved by the to the extent thereof. See § 1.905– Commissioner. See also 6 U.S.C. 15. 3T(d)(3) relating to the method of ad- justment of a foreign corporation’s [T.D. 6500, 25 FR 11910, Nov. 26, 1960, as amended by T.D. 7292, 38 FR 33300, Dec. 3, pools of earnings and profits and for- 1973; 38 FR 34802, Dec. 19, 1973; T.D. 7456, 42 eign taxes. FR 1214, Jan. 6, 1977; T.D. 8210, 53 FR 23613, (4) Allocation of refunds of foreign . June 23, 1988; T.D. 8412, 57 FR 20653, May 14, Refunds of foreign tax shall be allo- 1992; T.D. 8759, 63 FR 3813, Jan. 27, 1998] cated to the same separate category as foreign taxes to which the refunded § 1.905–3T Adjustments to the pools of taxes relate. Refunds are related to for- foreign taxes and earnings and eign taxes of a separate category if the profits when the allowable foreign changes (temporary). foreign tax that was refunded was im- posed with respect to that separate (a) Foreign tax redeterminations subject category. See section 904(d) and § 1.904– to sections 985 through 989 of the Internal 6 concerning the allocation of taxes to Revenue Code. This section applies to a separate categories of income. Earn- foreign tax redetermination that oc- ings and profits of a foreign corpora- curs in a taxpayer’s taxable year begin- tion in the separate category to which ning after December 31, 1986 with re- the refund relates shall be increased to spect to— reflect the foreign tax refund. (1) Tax that is paid or accrued by or (5) Basis of foreign currency refunded. on behalf of a taxpayer (including taxes A recipient of a refund of foreign tax paid or accrued prior to January 1, shall detemine its basis in the currency 1987), or refunded under the following rules. (2) Tax that is deemed paid or ac- (i) If the functional currency of the crued by a taxpayer under section 902 qualified business unit (as defined in or section 960 with respect to earnings section 989 and the regulations there- and profits of a foreign corporation ac- under, hereinafter ‘‘QBU’’) that paid cumulated in taxable years of the for- the tax and received the refund is the eign corporation beginning after De- cember 31, 1986. United States dollar or the person re- (b) Currency translation rules—(1) Ac- ceiving the refund is not a QBU, then crual of foreign tax. Accrued and unpaid the recipient’s basis in the foreign cur- foreign tax liabilities denominated in rency refunded shall be the dollar value foreign currency, as determined under of the refund determined, under para- foreign law, shall be translated into graph (b)(2) of this section, on the date dollars at the exchange rate as of the the foreign tax was paid. last day of the taxable year of the tax- (ii) If the functional currency of the payer. QBU receiving the refund is not the (2) Payments of foreign tax. Foreign United States dollar and is different tax liabilities denominated in foreign from the currency in which the foreign currency shall be translated into dol- tax was paid, then the recipient’s basis lars at the rate of exchange for the in the foreign currency refunded shall date of the payment of the foreign tax. be equal to the functional currency Tax withheld in foreign currency shall value of the non-functional refunded be translated into dollars at the rate translated into functional currency at for the date on which the tax is with- the exchange rate between the func- held. Estimated tax paid in foreign cur- tional currency and the non-functional rency shall be translated into dollars currency, determined under paragraph at the rate for the date on which the (b)(2) of this section, on the date the estimated tax payment is made. foreign tax was paid. (3) Refunds of foreign tax. A refund of (iii) If the functional currency of the foreign tax shall be translated into dol- QBU receiving the refund is the cur- lars using the exchange rate for the rency in which the refund was made, date of the payment of the foreign then the recipient’s basis in the cur- taxes. If a refund of foreign tax relates rency received shall be the amount of to foreign taxes paid on more than one the functional currency received. date, then the refund shall be deemed For purposes of determining exchange to be derived from, and shall reduce, gain or loss on the initial payment of

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foreign tax in a non-functional cur- be made to the taxpayer’s United rency, see section 988. For purposes of States tax liability in the taxable year determining subsequent exchange gain during which the foreign tax redeter- or loss on the disposition of non-func- mination occurs. tional currency the basis of which is (2) Foreign taxes deemed paid under determined under this rule, see section sections 902 or 960—(i) Redetermination of 988. the United States tax liability not re- (c) Foreign tax redetermination. For quired. Subject to the special rule of purposes of this section, the term ‘‘for- paragraph (d)(4), a redetermination of eign tax redetermination’’ means a United States tax liability is not re- change in the foreign tax liability/ that quired to account for the effect of a re- may affect a United States taxpayer’s determination of foreign tax paid or . A foreign tax rede- accrued by a foreign corporation on the termination includes— foreign taxes deemed paid by a United (1) A refund of foreign taxes; States corporation under sections 902 (2) A difference between the dollar or 960. Instead, adjustments shall be value of the accrued foreign tax and made, and notification of such adjust- the dollar value of the foreign tax actu- ments shall be filed, as required by ally paid attributable to differences in paragraphs (d) (2) and (3) of this sec- the units of foreign currency paid and tion. the units of foreign currency accrued; (ii) Adjustments to pools. In the case of or a foreign tax redetermination that af- (3) A difference between the dollar fects the amount of foreign taxes value of the accrued foreign tax and deemed paid by a United States cor- the dollar value of the foreign tax actu- poration for a taxable year— ally paid attributable to fluctuations in the value of the foreign currency rel- (A) If the foreign tax redetermination ative to the dollar between the date of occurs more than 90 days before the accrual and the date of payment. due date (determined with extensions) (d) Redetermination of United States of the United States taxpayer’s United tax liability—(1) Foreign taxes paid di- States income for such tax- rectly by a United States person. If a for- able year and before the taxpayer actu- eign tax redetermination occurs with ally files that return, then that United respect to foreign tax paid or accrued States taxpayer shall adjust the for- by or on behalf of a United States tax- eign tax credit to be claimed on that payer, then a redetermination of the return for such taxable year to account United States tax liability is required for the effect of the foreign tax redeter- for the taxable year for which the for- mination (including the impact of the eign tax was claimed as a credit. See foreign tax redetermination on the § 1.905–4T(b) which requires notification earnings and profits of the foreign cor- to the of a poration); foreign tax redetermination in situa- (B) If a foreign tax redetermination tions in which a redetermination of occurs after the filing of the United United States liability is required. States tax return for such taxable However, a redetermination of United year, than appropriate upward or States tax liability is not required (and downward adjustments shall be made a taxpayer need not notify the Service) at the time of the foreign tax redeter- if the foreign tax redetermination is mination to the pool of foreign taxes described in paragraph (c)(3) (that is, it and the pool of earnings and profits of is caused solely by a foreign currency the foreign corporation as provided in fluctuation), and the amount of the paragraph (d)(3) to reflect the effect of foreign tax redetermination with re- the foreign tax redetermination in cal- spect to the foreign country is less culating foreign taxes deemed paid than the lesser of ten thousand dollars with respect to distributions and inclu- or two percent of the total dollar sions (and the amount of such distribu- amount of the foreign tax initially ac- tions and inclusions) that are includ- crued with respect to that foreign ible in taxable years subsequent to the country for the taxable year. In such taxable year for which such tax return case, an appropriate adjustment shall is filed; and

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(C) If the foreign tax redetermination justifying the overaccrual of foreign occurs within 90 days of the due date tax. If the United States corporation (determined with extensions) of the fails to attach the required notice, to United States tax return and before the provide the necessary information, or taxpayer actually files its tax return, to make the required adjustments, then the taxpayer may elect either to then it must provide notification of the adjust the foreign tax credit to be foreign tax redetermination under claimed on that return in the manner § 1.905–4T. The Service may, in its dis- described in subparagraph (A) of this cretion, make a redetermination of paragraph (d)(2)(ii) or adjust the pools United States tax liability, and subject of foreign taxes and earnings and prof- the taxpayer to the interest provisions its to reflect the effect of the foreign of section 6601 and the penalty provi- tax redetermination in the manner de- sions of section 6689 and the regula- scribed in paragraph (d)(2)(ii)(B), pro- tions thereunder. vided that consistent elections are (iv) Examples. The following examples made by the taxpayer and all other illustrate the application of paragraph members of the affiliated group, as de- (d)(2) (ii) and (iii) of this section. In fined in section 1504(a), of which the each case, the exceptions of paragraph taxpayer is a member, with respect to (d)(4) do not apply. all foreign tax redeterminations occur- Example 1. Controlled foreign corporation S ring on or before any date within the 90 is a wholly-owned subsidiary of domestic day period. corporation P. P is a fiscal year taxpayer (iii) Reporting requirements. If an ad- whose taxable year ends on June 30. P does justment to the appropriate pool of for- not request an extension for filing its United eign taxes and earnings and profits is States tax return for the taxable year ending June 30, 1988 and files its return on its Sep- required under paragraphs (d)(2)(ii) (B) tember 15, 1988 due date. S is a calendar year or (C), the United States corporation taxpayer. In 1987, S earned 100u of subpart F shall attach a notice of such adjust- income and accrued foreign taxes with re- ment to its return for the year with or spect to that income of 20u. At the time of within which ends the foreign corpora- accrual, the exchange rate was $1:4u. S paid tion’s taxable year during which the the 20u of accrued tax with respect to its in- foreign tax redetermination occurs. come on June 15, 1988, when the exchange rate was $1:2u. P includes the 100u in gross The United States corporation shall income under section 951(a) and claims a provide: its name and identifying num- credit under section 960. P must use the ber; the foreign corporation’s name, ad- amount of taxes actually paid by S (20u=$10) dress, and identifying number (if any); in determining foreign taxes deemed paid by the amount of any refunds of foreign P. Pursuant to paragraph (d)(2)(ii)(A), P is taxes and the exchange rate as of the required to compute foreign taxes deemed time of the original payment of the re- paid taking into account the foreign tax re- determination that occurred on June 15, funded foreign taxes; the amounts of which was more than 90 days before the due unrefunded foreign taxes when paid and date of P’s tax return (September 15, 1988) when accrued in foreign currency, the and before P actually filed its return. exchange rates for the accrual and pay- Example 2. The facts are the same as in Ex- ment dates of unrefunded foreign taxes, ample 1, except that S paid its tax liability and the dollar amounts of unrefunded on October 16, 1988. P filed its United States foreign taxes paid and accrued; the cur- return for 1987 on September 15, rent balances of the pools of earnings 1987, before the foreign tax redetermination. P properly computed its section 960 credit on and profits and foreign taxes before and its 1987 return with respect to its 100u sub- after the foreign tax redetermination; part F inclusion on the basis of the amount and such other information as the of accrued foreign tax. Subject to the special Service may require. If a taxpayer may rule of paragraph (d)(3)(iv), P is required, be required to redetermine its United pursuant to the provisions of paragraph States tax liability under paragraph (d)(2)(ii)(B), to make the appropriate adjust- (d)(4)(ii) of § 1.905–3T (relating to for- ments to the relevant pool of foreign taxes eign tax adjustments of two percent or and pool of earnings and profits for purposes of calculating foreign taxes deemed paid in more), the notice shall specifically subsequent taxable years. identify foreign tax adjustments de- Example 3. Controlled foreign corporation S scribed in such paragraph and shall in- is a wholly-owned subsidiary of domestic clude a complete factual description corporation, P. P is a fiscal year (June 30)

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taxpayer, and S is a calendar year taxpayer. The allocation of the additional In 1987, S earned 100u of general limitation amount of foreign tax among separate manufacturing income that was not subpart categories shall be made in accordance F income. S accrued 40u in foreign tax with with § 1.904–6. respect to that income as of the end of its taxable year when the exchange rate was (iv) Refunds of foreign taxes of lower $1:4u. During 1987 and 1988, P received no dis- tier foreign corporations that cause defi- tributions (and had no section 951(a)(1) inclu- cits in foreign tax pools. If a lower tier sions) from S. S paid its taxes on March 15, foreign corporation receives a refund of 1988 when the exchange rate was $1:2u foreign tax after making a distribution (40u=$20). S received a refund of foreign tax to an upper tier foreign corporation of 20u on July 1, 1988. No section 905 (c) ad- and the refund would have the effect of justment is required on these facts. As of the reducing below zero the lower tier cor- end of 1988, S’s pool of general limitation ac- cumulated earnings and profits equals 80u poration’s pool of foreign taxes in any (100u¥20u), and its pool of foreign taxes im- separate category, then both the lower posed on general limitation income equals tier and upper tier corporations shall $10 (40u¥20u=20u, translated as of the date of adjust the appropriate pool of foreign payment ($1:2u), equals $10) taxes to reflect that refund. The upper (3) Adjustments to the pools of earnings tier foreign corporation shall adjust its and profits and foreign taxes—(i) In gen- pool of foreign taxes by the difference eral. If a foreign corporation is required between the United States dollar to adjust its earnings and profits and amount of foreign tax deemed paid by foreign taxes under § 1.905–3T(d)(2)(ii) the upper tier foreign corporation prior (B) or (C), then that adjustment shall to the refund and the United States be made in accordance with the provi- dollar amount of foreign tax recom- sions of this section. puted as if the refund occurred prior to (ii) Refunds of foreign taxes. A foreign the distribution. The upper tier foreign corporation shall reduce its pool of for- corporation shall not make any adjust- eign taxes in the appropriate separate ment to its earnings and profits be- category by the United States dollar cause foreign taxes deemed paid by the amount of a foreign tax refund trans- upper tier corporation are not included lated as provided in paragraph (b)(3). A in the upper tier corporation’s earnings foreign corporation shall increase its and profits. The lower tier foreign cor- pools of earnings and profits in the ap- poration shall adjust its pool of foreign propriate separate category by the taxes by the difference between the functional currency amount of the for- United States dollar amount of the re- eign tax refund. The allocation of the fund and the United States dollar refund to the appropriate separate cat- amount of the adjustment to the upper tier foreign corporation’s pool of for- egories shall be made in accordance eign taxes. The earnings and profits of with §§ 1.905–3T(b)(4) and 1.904–6. If a the lower tier foreign corporation shall foreign corporation receives a refund of be adjusted to reflect the full amount foreign tax in a currency other than its of the refund. The provisions of this functional currency, that refund shall paragraph (d)(3)(iv) do not apply to dis- be translated into its functional cur- tributions or inclusions to a United rency, for purposes of computing the States person. See § 1.905–3T(d)(4)(iv) increase to its pool of earnings and for rules relating to actual or deemed profits, at the exchange rate as of the distributions made to a United States date of the payment of the foreign tax. person. (iii) Additional assessments of foreign (v) Examples. The following examples tax. A foreign corporation shall in- illustrate the application of this para- crease its pool of foreign taxes in the graph (d)(3). appropriate separate category by the United States dollar amount of the ad- Example 1. Controlled foreign corporation ditional foreign tax paid or accrued (CFC) is a wholly-owned subsidiary of its do- translated as provided in paragraphs mestic parent, P. Both CFC and P are cal- (b) (1) and (2). A foreign corporation endar year taxpayers. CFC has a functional currency, the u, other than the dollar and shall decrease its earnings and profits maintains its pool of earnings and profits in in the appropriate separate category by that currency. At the end of year 1, CFC paid the functional currency amount of the 100u in taxes with respect to non-subpart F additional foreign tax paid or accrued. income when the exchange rate was $1:1u. In

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year 2, on a date that is after P filed its Situation (ii). The facts are the same as sit- United States tax return, CFC receives a re- uation (i), except that CFC2 makes a dis- fund of 50u of its year 1 taxes. CFC made no tribution of 50u in year 2 and receives a re- distributions to P in year 1. In accordance fund of 75u in year 3. In year 2 the amount of with paragraph (d)(3)(ii) and subject to para- foreign taxes deemed paid by CFC1 would be graph (d)(4), CFC shall reduce its pool of for- $50 (50u/100u×$100). Both CFC1 and CFC2 must eign taxes by $50 and increase its pool of adjust their pools of foreign taxes in year 3 earnings and profits by 50u. because the year 3 refund would have the ef- Example 2. Controlled foreign corporation fect of reducing below zero CFC2’s pool of (CFC) is a wholly-owned subsidiary of its do- foreign taxes. CFC1 reduces its pool of for- mestic parent, P. Both CFC and P are cal- eign taxes by $42.86 determined as follows: endar year taxpayers. In year 1 CFC earned $50 (foreign taxes deemed paid on the dis- 400u of general limitation manufacturing in- tribution from CFC2) ¥$7.14 (the foreign come and 200u of shipping income. On date 1, taxes that would have been deemed paid had CFC paid 200u of foreign tax, 100u with re- the refund occurred prior to the distribution spect to general limitation manufacturing (50u/175u×$25)). CFC2 reduces its pool of for- income, and 100u with respect to shipping in- eign taxes by $32.14 (the difference between come. On date 1, the exchange rate is $1:1u. the dollar value of 75u refund determined as On date 2, a date that is after the filing of of the date of payment of the foreign tax and P’s United States tax return, CFC receives a the $42.86 adjustment to CFC1’s pool of for- refund of 75u, 25u of which is related to the eign taxes). At the end of year 3, the fol- manufacturing income and 50u of which is lowing reflects the pools of foreign taxes and related to the shipping income. Subject to earnings and profits for CFC1 and CFC2. paragraph (d)(4), CFC shall reduce its pools of foreign taxes related to general limitation Earnings and prof- income and shipping income by $25 and $50, its(u) Foreign taxes respectively (because the refund is trans- lated at the rate of exchange prevailing on CFC2: the date of payment of the foreign tax), and Y1 ...... 100 $100 Y2 ...... 100¥<50>=50 $100¥<$50>=$50 increase the respective pools of earnings and Y3 ...... 50+75=125 $50¥<$32.14>=$17.86 profits by 25u and 50u (because the earnings CFC1: and profits are increased by the functional Y2 ...... 50 $50 currency amount of the refund received). If Y3 ...... 50 $50¥<$42.86>=$7.14 the refund to CFC was not specifically re- lated to any separate category of income, (4) Exceptions. The provisions of para- CFC, pursuant to § 1.904–6, is required to allo- graph (d)(2) of this section shall not cate that refund in accordance with the pro- apply and a redetermination of United visions of that section. Example 3. CFC1 is a foreign corporation States tax liability is required to ac- that is wholly-owned by P, a domestic cor- count for the effect of a redetermina- poration. CFC2 is a foreign corporation that tion of foreign tax on foreign taxes is wholly-owned by CFC1. Unless stated oth- deemed paid by a United States cor- erwise, the exchange rate is always $1.1u. In poration under section 902 or section year 1, CFC2 has earnings and profits of 100u 960 to the extent provided in this para- (net of foreign taxes) and paid 100u in foreign graph (d)(4). taxes with respect to those earnings. CFC2 has no income and pays no foreign taxes in (i) Hyperinflationary currencies. A re- years 2 and 3. CFC1 has no earnings and prof- determination of United States tax li- its other than those resulting from distribu- ability is required if the foreign tax li- tions from CFC2 and pays no foreign taxes. ability is in a hyperinflationary cur- Situation (i). In year 2, CFC2 receives a re- rency. The term ‘‘hyperinflationary fund of foreign taxes of 25u. In year 3, CFC2 currency’’ means the currency of a makes a distribution of CFC1 of 50u. CFC1 is country in which there is cumulative deemed to have paid $30 of foreign taxes with inflation during the base period of at respect to that distribution (50u/125u×$75). At the end of year 3, the following reflects the least 100% as determined by reference pools of earnings and profits and foreign to the consumer price index of the taxes of CFC1 and CFC2. country listed in the monthly issues of International Financial Statistics, or a Earnings and prof- its(u) Foreign taxes successor publication, of the Inter- national Monetary Fund. ‘‘Base pe- CFC2: riod’’ means, with respect to any tax- Y1 ...... 100 $100 Y2 ...... 100+25=125 $100¥<$25>=$75 able year, the thirty-six calendar Y3 ...... 125¥<50>=75 $75¥<$30>=$45 months immediately preceding the last CFC1: day of such taxable year (see § 1.985– Y3 ...... 50 30 2T(b)(2)).

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(ii) Foreign tax adjustment of two per- is reduced below zero shall be deter- cent or more. If the foreign tax liability mined at the close of the taxable year of a United States taxpayer is in a cur- of the foreign corporation in which the rency other than a hyperinflationary foreign tax redetermination occurred. currency and the amount of foreign tax In no case shall taxes paid or accrued accrued for the taxable year to a for- with respect to one separate category eign country, as measured in units of be applied to offset a negative balance foreign currency, exceeds the amount in any other separate category. of foreign tax paid to that foreign (v) Example. The provisions of para- country for the taxable year (as meas- graph (d)(4)(iv) are illustrated by the ured in units of foreign currency) by at following example. least two percent, then the Service, in its discretion, may require a redeter- Example. Controlled foreign corporation (CFC) is a wholly-owned subsidiary of P, a mination of United States tax liability. domestic corporation. Both P and CFC are (iii) Example. The provisions of para- calendar year taxpayers. In year 1, CFC has graph (d)(4)(ii) are illustrated by the 200u of general limitation income with re- following example. spect to which 100 of taxes are paid when the exchange rate was $1:1u. In year 1, CFC dis- Example. Controlled foreign corporation is tributes half (50u) of its earnings and profits a wholly-owned subsidiary of its domestic (100u). Under section 902, P is deemed to have parent, P. Both CFC and P are calendar year paid $50 of the foreign taxes paid by CFC taxpayers. In year 1, CFC has general limita- with respect to that distribution (50u/100u × tion income of 200u and, by year-end, had ac- $100). In year 2, CFC receives a refund of all crued foreign taxes with respect to that in- of its year 1 taxes (100u). In year 2, CFC earns come of 100u when the exchange rate is $1:1u. an additional 290u of income—200u of ship- In year 1, CFC makes a distribution to P of ping income with respect to which 100u of 50u, half of its earnings and profits of 100u. P taxes are paid, and 90u of general limitation is deemed to have paid $50 of foreign tax with income with respect to which 45u of taxes respect to that distribution (50u/100u × $100). are paid when the exchange rate was $1:1u. P In year 2, after P has filed its United States is required to redetermine its year 1 United tax return, CFC pays its actual foreign tax States tax liability to account for the for- liability of 98.50 when the exchange rate is eign tax redetermination occurring in year 2 $1:1u. Subject to paragraph (d)(4), CFC must because, if an adjustment to CFC’s pool of reduce its pool of foreign taxes by $1.50 and general limitation taxes were made, the pool increase the corresponding pool of earnings would be <$5≤. CFC is not permitted to carry and profits by 1.50u. (The refund is translated a deficit in any pool of foreign taxes; there- into dollars at the rate of exchange pre- fore, P must redetermine its United States vailing on the date of payment of the foreign liability for year 1. tax, and the adjustment to earnings and profits is in ‘‘u’’s.) In year 2, CFC earns 200u (e) Foreign tax imposed on foreign re- of general limitation income and accrues fund. If the redetermination of foreign 120u of tax when the exchange rate is $1:1u. tax for a taxable year or years is occa- In year 2, CFC distributes 100u to P. P is sioned by the refund to the taxpayer of deemed to have paid $128 of foreign tax (($48.50 + $120) × 100u/(51.50u + 80u)). In year 3, taxes paid to a foreign country or pos- after P filed its year 2 United States tax re- session of the United States and the turn, CFC pays its actual year 2 tax liability foreign country or possession imposed of 100u when the exchange rate is $1:1u. The tax on the refund, then the amount of Service may require P to recompute its year the refund shall be considered to be re- 2 United States tax liability to account for duced by the amount of any tax de- the effect of the overaccrual of foreign tax scribed in section 901 imposed by the pursuant to § 1.905–3T(d)(4)(ii). foreign country or possession of the (iv) Deficit in foreign tax pool. A rede- United States with respect to such re- termination of United States tax li- fund. In such case, no other credit ability is required if a foreign tax rede- under section 901, and no deduction termination occurs with respect to for- under section 164, shall be allowed for eign taxes deemed paid with respect to any taxable year with respect to such a subpart F inclusion or an actual dis- tax imposed on such refund. tribution which has the effect of reduc- (f) Reduction of corporate level tax on ing below zero the distributing foreign distribution of earnings and profits. If a corporation’s pool of foreign taxes in United States shareholder of a con- any separate category. Whether a for- trolled foreign corporation receives a eign corporation’s pool of foreign taxes distribution out of previously taxed

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VerDate Apr<17>2002 08:32 Apr 20, 2002 Jkt 197088 PO 00000 Frm 00742 Fmt 8010 Sfmt 8010 Y:\SGML\197088T.XXX pfrm12 PsN: 197088T Internal Revenue Service, Treasury § 1.905–4T

earnings and profits and a foreign necessitated by a foreign tax redeter- country has imposed tax on the income mination that reduced the amount of of the controlled foreign corporation, foreign taxes paid or deemed paid, then which tax is reduced on distribution of the United States taxpayer shall file the earnings and profits of the corpora- the notification with respect to such tion, then the United States share- foreign tax redetermination within 180 holder shall redetermine its United days after the date the foreign tax re- States tax liability for the year or determination occurs. If a redeter- years affected. mination of United States liability is [T.D. 8210, 53 FR 23613, June 23, 1988] necessitated by a foreign tax redeter- mination that increased the amount of § 1.905–4T Notification and redeter- foreign taxes paid or deemed paid, then mination of United States tax liabil- the United States taxpayer claiming ity (temporary). foreign tax credits for accrued foreign (a) Application of this section. The taxes must notify the Service within rules of this section shall apply if, as a the period provided by section result of a foreign tax redetermination 6511(d)(3)(A). Filing of the appropriate as defined in § 1.905–3T(c), a redeter- notification within the prescribed time mination of United States tax liability shall constitute a claim for the refund is required under § 1.905–3T. of United States tax. (b) Notification—(1) General rules. Any (3) Notification contents—(i) In general. United States taxpayer for which a re- The taxpayer shall provide the Service determination of United States tax li- with information sufficient to redeter- ability is required shall notify the Sec- mine the tax including, but not limited retary in the manner described in this to the following: the United States tax- paragraph (b), and the Service will re- payer’s name, address, and identifying determine the United States tax liabil- number; the taxable year or years of ity of the United States taxpayer. No- the taxpayer that are affected by the tification shall be made by filing Form redetermination of United States tax 1120X or 1040X, and Form 1118 or 1116, liability; information required in para- in the manner described in the instruc- graph (b) (ii) and (iii) below the respect tions to Form 1118 with the Service to foreign tax redeterminations affect- Center where the taxpayer filed the tax ing the redetermination of United return claiming the foreign tax credit States tax liability, including informa- to which the notice relates. Notifica- tion in a form that will enable the tion shall be filed within the time pre- Service to verify and compare the scribed by and shall contain the infor- original computations with respect to mation required by this paragraph (b). a claimed foreign tax credit, the re- The amount of tax, if any, due upon a vised computations resulting from the redetermination shall be paid by the foreign tax redeterminations, and the taxpayer after notice and demand has net changes resulting therefrom. been made by the Service. Subchapter (ii) Direct foreign tax credit. In the B of chapter 63 of the Code (relating to case of foreign taxes paid by or on be- deficiency procedures) shall not apply half of the taxpayer, if— with respect to the assessment of the (A) The taxpayer receives a refund of amount due upon such redetermina- foreign tax, the taxpayer’s information tion. In accordance with section 905(c) shall include: the amount of foreign and section 6501(c)(5), the amount of taxes paid in foreign currency; the date additional tax due shall be assessed and or dates the foreign taxes were paid; collected without regard to the provi- the rate of exchange on each date the sions of section 6401(a) (relating to lim- foreign taxes were paid; the amount of itations on assessment and collection). the foreign taxes refunded in foreign The amount of tax, if any, shown by a currency; redetermination to have been overpaid (B) The foreign taxes when paid differ shall be credited or refunded to the from the accrued amounts claimed as taxpayer in accordance with the provi- credits by the taxpayer because of fluc- sions of § 301.6511(d)–3. tuation in the value of the foreign cur- (2) Time for filing. If a redetermina- rency in which the foreign taxes were tion of United States tax liability is paid, the taxpayer’s information shall

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