Section 901(m) was a 2010 revenue raiser and an anti-abuse provision from a different era in U.S. international tax.1 Section 901(m) arose in the world of deferral and post-1986 E&P and tax pools, where taxpayers could selectively repatriate high-taxed earnings and defer low-taxed earnings from tax, and when the United States had one of the highest statutory rates of corporate tax in the world. Through this provision, Congress sought to cut back the foreign tax credit benefit from §338 elections and similar transactions that produced amortization for U.S. E&P purposes, but not for local tax purposes — so-called ‘‘covered asset acquisitions.’’ Such transactions might be the product of planning or, more commonly, the result of taxpayers’ natural choice to elect §338(g) in the acquisition of a foreign target, particularly where the foreign target and the sellers of stock were foreign persons not affected in any way by the buyer’s §338 election.
In December 2016, the IRS and Treasury issued proposed regulations3 providing detailed guidance on §901(m) and the calculations of the amount of disqualified taxes.4 Some of these calculations are painfully detailed, for example, the rules for dispositions or third country creditable taxes. The Proposed Regulations generally were prospective only, so that perhaps some tax professionals left the Proposed Regulations on the shelf. Now, virtually all of the rules found in the Proposed Regulations have been included in the Final Regulations and are generally effective for covered asset acquisitions completed after March 23, 2020. This article serves to reacquaint readers with the now final regulations and highlight some of the key provisions that were retained from the Proposed Regulations.
To learn more, read the full article.
Originally published in the Tax Management International Journal. http://www.bna.com