August 2010

Congress Votes to Limit Use of Foreign Tax Credits

From Journal of Accountancy.

The House of Representatives on Tuesday interrupted its August recess and passed H.R. 1586 by a vote of 247–161, sending the bill to President Barack Obama. The president signed the bill into law the same evening. The measure was passed by the Senate on Aug. 5. The bill is designed to increase funding for Medicaid and education, and to pay for that funding, it makes changes to the how corporations can use the foreign tax credit.

In addition to its foreign income and credit provisions, the bill terminates the advance refundability of the earned income credit (under IRC § 3507), effective for tax years beginning after Dec. 31, 2010

Under new IRC § 909, corporations will no longer be able to split creditable foreign taxes from the foreign income they are associated with; taxpayers will have to take that income into account in order to take the associated foreign tax credit. This provision will be effective for foreign taxes paid or accrued in tax years beginning after Dec. 31, 2010.

Full article.