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## Record

- **Collection:** Agency decision
- **Document type:** Agency decision

## Text

HIGHLIGHTS
OF THIS ISSUE




Bulletin No. 2022–3
January 18, 2022

These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.

EXCISE TAX
Rev. Proc. 2022-11, page 449.
The revenue procedure provides the indexing factor
to be used by group health plans and health insurance
issuers to calculate the qualifying payment amount
(QPA) for items or services provided on or after January 1, 2022, and before January 1, 2023. Temporary
regulations, jointly issued with the Departments of
Health and Human Services and Labor and the Office
of Personnel Management in July 2021, provide the
methodology for calculating the QPA, which is generally the plan’s median contracted rate for the same
or similar item or service, indexed for inflation. Those
temporary regulations provide that the Department of
the Treasury and IRS will identify the annual indexing
factor in guidance, rounded to 10 decimal places.

INCOME TAX
T.D. 9959, page 328.
This document contains final regulations relating to the
foreign tax credit, including the disallowance of a credit
or deduction for foreign income taxes with respect to
dividends eligible for a dividends-received deduction;
the allocation and apportionment of interest expense,

Finding Lists begin on page ii.

foreign income tax expense, and certain deductions
of life insurance companies; the definition of a foreign
income tax and a tax in lieu of an income tax; the definition of foreign branch category income; and the time
at which foreign taxes accrue and can be claimed as
a credit. This document also contains final regulations
clarifying rules relating to foreign-derived intangible income.
T.D. 9961, page 430.
These final regulations provide guidance on the tax consequences of the discontinuation of interbank offered
rates (IBORs) that is expected to occur in the United
States and many foreign countries. The final regulations mitigate many of the tax consequences that might
otherwise arise when a taxpayer modifies a contract
that references a discontinuing IBOR in anticipation of
that discontinuation. For example, under the final regulations, modifying a debt instrument or derivative contract to replace a LIBOR-referencing rate with a qualified rate generally is not treated as a realization event
for federal income tax purposes. The final regulations
also mitigate tax consequences under the rules for integrated transactions and hedging transactions, withholding under chapter 4 of the Code, fast-pay stock, investment trusts, original issue discount, and real estate
mortgage investment conduits.

The IRS Mission
Provide America’s taxpayers top-quality service by helping
them understand and meet their tax responsibilities and enforce the law with integrity and fairness to all.

Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements of
internal practices and procedures that affect the rights and
duties of taxpayers are published.
Revenue rulings represent the conclusions of the Service
on the application of the law to the pivotal facts stated in
the revenue ruling. In those based on positions taken in rulings to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature are
deleted to prevent unwarranted invasions of privacy and to
comply with statutory requirements.
Rulings and procedures reported in the Bulletin do not have the
force and effect of Treasury Department Regulations, but they
may be used as precedents. Unpublished rulings will not be
relied on, used, or cited as precedents by Service personnel in
the disposition of other cases. In applying published rulings and
procedures, the effect of subsequent legislation, regulations,
court decisions, rulings, and procedures must be considered,
and Service personnel and others concerned are cautioned

against reaching the same conclusions in other cases unless
the facts and circumstances are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions and Other Related Items, and Subpart B,
Legislation and Related Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to these
subjects are contained in the other Parts and Subparts. Also
included in this part are Bank Secrecy Act Administrative
Rulings. Bank Secrecy Act Administrative Rulings are issued
by the Department of the Treasury’s Office of the Assistant
Secretary (Enforcement).
Part IV.—Items of General Interest.
This part includes notices of proposed rulemakings, disbarment and suspension lists, and announcements.
The last Bulletin for each month includes a cumulative index
for the matters published during the preceding months. These
monthly indexes are cumulated on a semiannual basis, and are
published in the last Bulletin of each semiannual period.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

January 18, 2022 

Bulletin No. 2022–3

Part I
T.D. 9959

AGENCY: Internal Revenue Service
(IRS), Treasury.

1, 1.336-2, 1.338-9, 1.861-3, 1.861-20,
1.904-6, 1.960-1, and 1.960-2, Suzanne
M. Walsh, (202) 317-4908; concerning §§1.250(b)-1, 1.861-8, 1.861-9, and
1.861-14, Jeffrey P. Cowan, (202) 3174924; concerning §1.250(b)-5, Brad McCormack, (202) 317-6911; concerning
§§1.164-2, 1.901-1, 1.901-2, 1.903-1,
1.905-1, and 1.905-3, Tianlin (Laura) Shi,
(202) 317-6987; concerning §§1.367(b)3, 1.367(b)-4, and 1.367(b)-10, Logan
Kincheloe, (202) 317-6075; concerning
§§1.367(b)-7, 1.861-10, and 1.904-4, Jeffrey L. Parry, (202) 317-4916; concerning
§§1.951A-2 and 1.951A-7, Jorge M. Oben
and Larry Pounders, (202) 317-6934 (not
toll-free numbers).

ACTION: Final regulations.

SUPPLEMENTARY INFORMATION:

SUMMARY: This document contains
final regulations relating to the foreign
tax credit, including the disallowance of
a credit or deduction for foreign income
taxes with respect to dividends eligible
for a dividends-received deduction; the
allocation and apportionment of interest
expense, foreign income tax expense, and
certain deductions of life insurance companies; the definition of a foreign income
tax and a tax in lieu of an income tax; the
definition of foreign branch category income; and the time at which foreign taxes
accrue and can be claimed as a credit. This
document also contains final regulations
clarifying rules relating to foreign-derived
intangible income (FDII). The final regulations affect taxpayers that claim credits
or deductions for foreign income taxes, or
that claim a deduction for FDII.

Background

DEPARTMENT OF THE
TREASURY
Internal Revenue Service
26 CFR Part 1
Guidance Related to
the Foreign Tax Credit;
Clarification of ForeignDerived Intangible Income

DATES: Effective date: These regulations
are effective on March 7, 2022.
Applicability dates: For dates of applicability, see §§ 1.164-2(i), 1.245A(d)-1(f), 1.3365, 1.338-9(d)(4), 1.367(b)-7(h), 1.367(b)10(e), 1.861-3(e), 1.861-9(k), 1.861-10(h),
1.861-14(k), 1.861-20(i), 1.901-1(j), 1.9012(h), 1.903-1(e), 1.904-6(g), 1.905-1(h),
1.905-3(d), 1.951A-7, and 1.960-7.
FOR FURTHER INFORMATION
CONTACT: Concerning §§1.245A(d)-

January 18, 2022

On December 7, 2018, the Treasury
Department and the IRS published proposed regulations (REG-105600-18) relating to foreign tax credits in the Federal
Register (83 FR 63200) (the “2018 FTC
proposed regulations”). Those regulations
addressed several significant changes that
the Tax Cuts and Jobs Act (Pub. L. 11597, 131 Stat. 2054 (2017)) (the “TCJA”)
made with respect to the foreign tax credit
rules and related rules for allocating and
apportioning deductions in determining
the foreign tax credit limitation. Certain
portions of the 2018 FTC proposed regulations were finalized as part of TD 9866,
published in the Federal Register (84 FR
29288) on June 21, 2019. The remaining
portions of the 2018 FTC proposed regulations were finalized in TD 9882, published in the Federal Register on December 17, 2019 (84 FR 69022) (the “2019
FTC final regulations”). On the same date,
new proposed regulations (REG-10549519) addressing changes made by the TCJA
as well as other related foreign tax credit
rules were published in the Federal Register (84 FR 69124) (the “2019 FTC proposed regulations”). Correcting amendments to the 2019 FTC final regulations
and the 2019 FTC proposed regulations
were published in the Federal Register
on May 15, 2020. See 85 FR 29323 (2019

328

FTC final regulations) and 85 FR 29368
(2019 FTC proposed regulations). The
2019 FTC proposed regulations were finalized as part of TD 9922, published in
the Federal Register (85 FR 71998) on
November 12, 2020 (the “2020 FTC final
regulations”). On the same date, the Treasury Department and the IRS published
proposed regulations (REG-101657-20)
in the Federal Register (85 FR 72078)
(the “2020 FTC proposed regulations”).
The 2020 FTC proposed regulations addressed changes made by the TCJA and
other foreign tax credit issues. Correcting
amendments to the 2020 FTC final regulations were published in the Federal
Register on October 1, 2021. See 86 FR
54367. A public hearing on the 2020 FTC
proposed regulations was held on April 7,
2021.
On July 15, 2020, the Treasury Department and the IRS finalized regulations
under section 250 (the “section 250 regulations”) in TD 9901, published in the
Federal Register (85 FR 43042). The
2020 FTC proposed regulations also included revisions to the section 250 regulations.
This document contains final regulations (the “final regulations”) addressing
the following: (1) the determination of
foreign income taxes subject to the credit and deduction disallowance provisions
of section 245A(d); (2) the determination
of oil and gas extraction income from domestic and foreign sources and of electronically supplied services under the
section 250 regulations; (3) the impact of
the repeal of section 902 on certain regulations issued under section 367(b); (4)
the sourcing of inclusions under sections
951, 951A, and 1293; (5) the allocation
and apportionment of interest deductions
of certain regulated utilities; (6) a revision to the controlled foreign corporation
(“CFC”) netting rule; (7) the allocation
and apportionment of section 818(f)(1)
items of life insurance companies that are
members of consolidated groups; (8) the
allocation and apportionment of foreign
income taxes, including taxes imposed
with respect to disregarded payments; (9)
the definitions of a foreign income tax and
a tax in lieu of an income tax, including

Bulletin No. 2022–3

changes to the net gain requirement, the
replacement of the jurisdictional nexus
rule with an attribution rule contained in
the net gain requirement, the treatment of
certain tax credits, the treatment of foreign
tax law elections for purposes of the noncompulsory payment rules, and the substitution requirement under section 903; (10)
the allocation of the liability for foreign
income taxes in connection with certain
mid-year transfers or reorganizations;
(11) the foreign branch category rules in
§1.904-4(f); and (12) the time at which
credits for foreign income taxes can be
claimed pursuant to sections 901(a) and
905(a).
This rulemaking finalizes, without
substantive change, certain provisions
in the 2020 FTC proposed regulations
with respect to which the Treasury Department and IRS did not receive any
comments. See §§1.164-2(d), 1.250(b)1(c), 1.250(b)-5, 1.336-2(g)(3), 1.3389(d), 1.367(b)-2, 1.367(b)-3, 1.367(b)-4,
1.367(b)-7, 1.367(b)-10, 1.461-1, 1.8613(d), 1.861-8(e)(4), 1.861-8(e)(8)(v),
1.861-9(g)(3), 1.861-10(e)(8)(v), 1.86110(f), 1.901-1, 1.901-2(e)(4), 1.901-2(f),
1.904-4(b), 1.904-4(c), 1.904-6, 1.905-3,
1.954-1, 1.960-1, and 1.960-2. These provisions are generally not discussed in this
preamble.
No comments were received with respect to the transition rules contained in
the 2020 FTC proposed regulations to
account for the effect on loss accounts of
net operating loss carrybacks to pre-2018
taxable years that are allowed under the
Coronavirus Aid, Relief, and Economic
Security Act, Pub. L. 116-136, 134 Stat.
281 (2020). Section 1.904(f)-12(j) was
finalized without change in TD 9956,
published in the Federal Register (86 FR
52971) on September 24, 2021.
Comments that do not pertain to the
2020 FTC proposed regulations, or that
are otherwise outside the scope of this
rulemaking, are generally not addressed
in this preamble but may be considered in
connection with future guidance projects.
The rules contained in proposed
§1.861-9(k) (election to capitalize certain
expenses in determining tax book value
of assets), §1.861-10(g) (requiring the direct allocation of interest expense in the
case of certain foreign banking branches),
and §§1.904-4(e)(1)(ii) and 1.904-5(b)

Bulletin No. 2022–3

(2) (relating to the definition of financial
services income) are not finalized in this
document. The Treasury Department and
the IRS are continuing to study the comments received in connection with those
provisions.
Summary of Comments and
Explanation of Revisions
I. Disallowance of Foreign Tax Credit
or Deduction for Foreign Income Taxes
under Section 245A(d)
Proposed §1.245A(d)-1(a) generally provided that neither a credit under
section 901 nor a deduction is allowed
for foreign income taxes (as defined in
§1.901-2(a)) paid or accrued by a domestic or foreign corporation that are attributable to a specified distribution or specified
earnings and profits of a foreign corporation. The proposed rule defined a specified
distribution — in the case of a distribution to a domestic corporation — as the
portion of a dividend for which a deduction under section 245A(a) is allowed, a
hybrid dividend, or a distribution of certain previously taxed earnings (“PTEP”)
related to section 245A(d) (“section
245A(d) PTEP”). In the case of a distribution to another foreign corporation, a
specified distribution included the portion
of the distribution attributable to section
245A(d) PTEP, or a tiered hybrid dividend that gives rise to a U.S. shareholder
inclusion by reason of section 245A(e)(2)
and §1.245A(e)-1(c)(1). Specified earnings and profits included the portion of the
earnings and profits of a foreign corporation that would give rise to a specified distribution if an amount equal to the entire
earnings and profits of the foreign corporation were distributed. Specified earnings
and profits also included an amount equal
to the portion of a U.S. return of capital
amount, as that term is defined in §1.86120(b), that is treated as arising in a section 245A subgroup, after the application
of the asset method in §1.861-9. Proposed
§1.245A(d)-1(a) relied upon the rules in
§1.861-20 to associate gross income included in the foreign tax base (“foreign
gross income”) with these amounts and to
allocate foreign income taxes to the foreign gross income. The proposed regulations also included an anti-avoidance rule

329

to, for example, prevent taxpayers from
using successive foreign law distributions
to inappropriately associate withholding
tax on the distributions with PTEP arising
from inclusions under sections 951(a) and
951A(a). See proposed §1.245A(d)-1(b)
(2). The Treasury Department and the IRS
requested comments on possible revisions
to §1.861-20 to address these concerns,
including rules to require the maintenance
of separate accounts that would reflect the
effect of foreign law transactions on the
earnings and profits of a foreign corporation. 85 FR at 72079.
A comment noted that proposed
§1.245A(d)-1(a) explicitly treated as
specified earnings and profits the portion
of a U.S. return of capital amount that is
deemed to arise pursuant to §1.861-20(d)
(3)(i) in a section 245A subgroup under the
asset method of §1.861-9, yet did not explicitly treat any amount as specified earnings and profits when the asset method of
§1.861-9 applies under proposed §1.86120(d)(3)(v) to characterize a disregarded
payment that is a remittance as made from
a section 245A subgroup. The comment
also expressed concerns that proposed
§1.245A(d)-1 did not adequately clarify
the treatment of foreign tax imposed on a
distribution received by a domestic or foreign corporation with respect to its interest in a partnership, or on the proceeds of
a disposition of such an interest.
The comment also noted the uncertainty in proposed §1.245A(d)-1(a) over the
use of the asset method of §1.861-9 to
characterize foreign taxable income of a
CFC and apply the disallowance rules of
section 245A(d), including when a CFC
receives a distribution that is a U.S. return
of capital amount. The comment stated
that, if the U.S. return of capital amount is
treated as made from earnings in a section
245A subgroup of the distributing CFC,
the disallowance under section 245A(d)
of foreign taxes associated with the portion of the specified earnings and profits
attributable to tested income of the recipient CFC not included by a United States
shareholder has the inappropriate effect of
double-counting the inclusion percentage
of section 960(d).
With respect to the anti-avoidance rule
of proposed §1.245A(d)-1(b)(2), the comment acknowledged the need to address
successive foreign law distributions and

January 18, 2022

discussed three alternative approaches.
One approach would revise §1.861-20(d)
(2)(ii)(A) to treat a foreign law distribution as made ratably out of all of a foreign
corporation’s earnings and profits, including PTEP, if the amount of its earnings and
profits exceeds the foreign gross income
arising from the foreign law distribution.
The second approach would maintain separate E&P accounts to track the effect of
foreign law distributions; the comment
viewed this option as overly complex and
burdensome. The third approach would
maintain the anti-avoidance rule of proposed §1.245A(d)-1(b)(2) and make no
substantive changes to the operative rules.
The comment indicated that a flexible,
well-articulated anti-avoidance rule could
be more effective at policing attempts to
avoid section 245A(d) than a series of potentially manipulable mechanical rules.
The Treasury Department and the IRS
agree that proposed §1.245A(d)-1 did not
clearly describe the income under Federal
income tax law to which foreign gross income should be treated as corresponding
for purposes of allocating and apportioning foreign income taxes under §1.860-20.
This lack of clarity resulted in uncertainty
in determining the extent to which foreign
income taxes on a U.S. return of capital
amount, which can arise in a variety of
transactions involving both stock and
partnership interests, should be treated as
attributable to income of a foreign corporation that would give rise to a deduction
under section 245A(a) when distributed.
In response to these comments,
§1.245A(d)-1(a) is revised to eliminate
references to specified distributions and
specified earnings and profits. Instead,
§1.245A(d)-1(a) of the final regulations
provides that no credit or deduction is
allowed for foreign income taxes attributable to (1) “section 245A(d) income” of
a domestic corporation, a successor of a
domestic corporation, or a foreign corporation (see §1.245A(d)-1(a)(1)(i)-(ii) and
(a)(2)), or (2) “non-inclusion income” of a
foreign corporation (see §1.245A(d)-1(a)
(1)(iii)).
Section 245A(d) income means, in the
case of a domestic corporation, dividends
or inclusions for which a deduction under
section 245A(a) is allowed, a distribution
of section 245A(d) PTEP, and hybrid dividends and inclusions related to tiered hy-

January 18, 2022

brid dividends under section 245A(e). In
the case of a successor of a domestic corporation, section 245A(d) income means
a distribution of section 245A(d) PTEP. In
the case of a foreign corporation, section
245A(d) income means an item of subpart
F income that gives rise to an inclusion for
which a deduction under section 245A(a)
is allowed, a tiered hybrid dividend, and a
distribution of section 245A(d) PTEP. Under §1.245A(d)-1(b)(1), foreign income
taxes are attributable to section 245A(d)
income if the taxes are allocated and apportioned under §1.861-20 to the statutory
grouping within each section 904 category (the “section 245A(d) income group”)
to which section 245A(d) income is assigned.
Accordingly, the disallowance under §1.245A(d)-1(a) applies not only to
foreign income taxes that are paid or accrued with respect to certain distributions
and inclusions, but also to taxes paid or
accrued by reason of the receipt of a foreign law distribution with respect to stock,
a foreign law disposition, ownership of a
reverse hybrid, a foreign law inclusion regime, or the receipt of a disregarded payment described in §1.861-20(d)(3)(v)(B),
to the extent the foreign income taxes are
attributable to section 245A(d) income.
The disallowance also applies where a
foreign corporation pays or accrues foreign income taxes that are attributable to
section 245A(d) income of the foreign
corporation, in which case such taxes
are not eligible to be deemed paid under
section 960 in any taxable year. For example, the disallowance applies to foreign
income taxes paid or accrued by reason of
the receipt by the foreign corporation of a
tiered hybrid dividend.
These revised rules ensure that §1.86120, including the rules of §1.861-20(d)(2)
for allocating and apportioning foreign income tax to a statutory or residual grouping in a year in which there is no income
for Federal income tax purposes in the
grouping, apply consistently to allocate
and apportion foreign income taxes to the
section 245A(d) income group. The rules
of §1.861-20(d)(3) apply to determine the
circumstances under which foreign gross
income included by reason of a dividend
or other distribution with respect to stock,
a partnership distribution, a sale or exchange of stock, or a sale or exchange of a

330

partnership interest is assigned to the section 245A(d) income group.
Non-inclusion income is defined as
income other than subpart F income, tested income, or income described in section 245(a)(5), without regard to section
245(a)(12), (items of income constituting
post-1986 undistributed U.S. earnings) of
a foreign corporation. Section 1.245A(d)1(b)(2)(ii) attributes foreign income taxes
to non-inclusion income of a foreign corporation to the extent the foreign income
taxes are allocated and apportioned to
the domestic corporation’s section 245A
subgroup category of stock when applying §1.861-20 for purposes of section
904 as the operative section. The final
rules also attribute foreign income taxes
to the non-inclusion income of a reverse
hybrid or foreign law CFC to the extent
that they are allocated and apportioned
to the non-inclusion income group under
§1.861-20. See §1.245A(d)-1(b)(2)(iii).
The disallowance under §1.245A(d)1(a)(1)(iii) therefore applies to foreign income taxes paid or accrued by a domestic
corporation that are attributable to non-inclusion income of a foreign corporation in
which the domestic corporation is a United
States shareholder. For example, paragraph
(a)(1)(iii) applies to foreign income taxes
that a domestic corporation that is a United
States shareholder of a foreign corporation
pays or accrues by reason of its receipt
from the foreign corporation of a distribution that is a U.S. return of capital amount
to the extent the foreign income taxes are
attributable to non-inclusion income of the
foreign corporation. The final regulations at
§1.245A(d)-1(b)(2)(ii) clarify that this rule
extends to foreign income taxes the domestic corporation pays or accrues by reason
of a remittance, a distribution that is a U.S.
return of partnership basis amount, or a
disposition that gives rise to a U.S. return
of capital amount or a U.S. return of partnership basis amount. The disallowance
under paragraph (a)(1)(iii) also applies to
foreign income taxes that a domestic corporation that is a United States shareholder
pays or accrues by reason of its ownership
of a reverse hybrid or foreign law CFC, to
the extent the foreign income taxes are attributable to non-inclusion income of the
reverse hybrid or foreign law CFC and not
otherwise disallowed under paragraph (a)
(1)(i) or (ii).

Bulletin No. 2022–3

The proposed anti-avoidance rule in
§1.245A(d)-1(b)(2) is finalized without
substantive change at §1.245A(d)-1(b)
(3). While revising §1.861-20(d)(2)(ii)(A)
to treat a foreign law distribution as made
ratably out of all of a foreign corporation’s
earnings and profits would be a potentially
feasible alternative approach, the Treasury
Department and the IRS have determined
that on balance the anti-avoidance rule
provides an appropriate framework and
the necessary flexibility to address section
245A(d) avoidance.
Finally, for the avoidance of doubt,
the final regulations clarify that section
245A(d) operates to deny the credit or
deduction for foreign taxes paid or accrued with respect to dividends for which
a domestic corporation could claim a deduction under section 245A, regardless
of whether the corporation claims the deduction on its return. See §1.245A(d)-1(c)
(19) and (21) (defining section 245A(d)
income and section 245A(d) PTEP). See
also H.R. Rep. No. 115-466, at 600 (2017)
(Conf. Rep.) (“No foreign tax credit or
deduction is allowed for any taxes paid
or accrued with respect to any portion of
a distribution treated as a dividend that
qualifies for the DRD.”); id. at 598 (describing section 245A as “an exemption
for certain foreign income by means of a
100-percent deduction”).
II. Section 250 Regulations — Definition
of Electronically Supplied Service
Section 1.250(b)-5 provides rules for
determining whether a service is provided
to a person, or with respect to property, located outside the United States and therefore gives rise to foreign-derived deduction eligible income (“FDDEI service”).
The rules identify specific enumerated
categories, including a category for general services provided to either consumers
or business recipients. For purposes of determining whether such a general service
constitutes a FDDEI service, the rules
require the location of the recipient to be
identified.
The regulations contain special rules in
§1.250(b)-5(d)(2) and §1.250(b)-5(e)(2)
(iii) for determining the location at which
“electronically supplied services” are provided. Section 1.250(b)-5(c)(5) defines
the term “electronically supplied service”

Bulletin No. 2022–3

to mean a general service (other than an
advertising service) that is delivered primarily over the internet or an electronic
network, and provides that such services
include cloud computing and digital
streaming services. Proposed §1.250(b)5(c)(5) revised that definition to clarify
that, to qualify as an electronically supplied service, the value of the service to the
end user must be derived primarily from
the service’s automation and electronic
delivery and would not include, for example, legal, accounting, medical or teaching
services “delivered electronically and synchronously.” No comments were received
on the proposed revised definition of an
electronically supplied service.
By providing the example of professional or teaching services provided in
real time (synchronously) as not constituting electronically supplied services, proposed §1.250(b)-5(c)(5) was intended to
illustrate cases where the primary value of
the service was not in its automation and
electronic delivery. However, this example may have implied that the temporal
aspect of when the service is rendered,
relative to when the end user accesses that
service, is a determinative factor in constituting an “electronically supplied service.” The Treasury Department and the
IRS had intended that services accessed
by an end user outside of real time (asynchronously) also will not constitute an
“electronically supplied service” if, under
all the facts and circumstances, they primarily involve human effort. Therefore,
the final regulations remove the reference
to “and synchronously” from the fourth
sentence of §1.250(b)-5(c)(5) to clarify that the definition does not depend on
whether the services are rendered synchronously or asynchronously but rather
depend on whether the services primarily
involve human effort.
III. Allocation and Apportionment of
Expenses Under Section 861 Regulations
A. Treatment of section 818(f)(1) items
for consolidated groups
Proposed §1.861-14(h) provided that
certain items of life insurance companies
described in section 818(f)(1) that are
members of a consolidated group are allocated and apportioned on a life subgroup

331

basis but provided a one-time election to
allocate and apportion these items on a
separate company basis. The one comment received endorsed the approach
in the 2020 FTC proposed regulations,
which are finalized without change.
B. Allocation and apportionment of
foreign income taxes
1. In general
The 2020 FTC proposed regulations
provided more detailed and comprehensive guidance regarding the assignment
of foreign gross income, and the allocation and apportionment of the associated
foreign income taxes, to the statutory and
residual groupings in certain cases. This
guidance included rules for dispositions of
stock and partnership interests, and rules
for transactions that are distributions with
respect to a partnership interest, under
Federal income tax law. It also included
new rules addressing the allocation and
apportionment of foreign income taxes
imposed by reason of disregarded payments.
2. Dispositions of stock
Proposed §1.861-20(d)(3)(i)(D) provided that the foreign gross income arising
from a transaction that is treated as a sale,
exchange, or other disposition of stock for
Federal income tax purposes is assigned
first to the statutory and residual groupings to which any U.S. dividend amount is
assigned under Federal income tax law, to
the extent thereof. Foreign gross income
is next assigned to the grouping to which
the U.S. capital gain amount is assigned,
to the extent thereof. Any excess of the
foreign gross income over the sum of the
U.S. dividend amount and the U.S. capital
gain amount is assigned to the statutory
and residual groupings in the same proportions in which the tax book value of
the stock is (or would be if the taxpayer
were a United States person) assigned to
the groupings under the rules of §1.8619(g) in the U.S. taxable year in which the
disposition occurs.
A comment recommended that, to the
extent of any basis in the stock attributable
to a previous increase under section 961,
foreign gross income in excess of the U.S.

January 18, 2022

dividend amount be assigned to the same
statutory grouping as the PTEP that gave
rise to the basis increase. The comment
noted that assigning foreign gross income
in excess of the U.S. dividend amount to
the grouping that produced the underlying
PTEP would better conform the tax attribution consequences of a disposition of
stock with the tax attribution consequences of a pre-sale distribution with respect
to the stock.
Under §1.861-20(d)(1), Federal income tax law applies to characterize the
transaction that gives rise to foreign gross
income. The sale of stock may result in
a U.S. dividend amount, a U.S. return of
capital amount, and a U.S. capital gain
amount for U.S. tax purposes. As noted in
the preamble to the 2020 FTC proposed
regulations, when a controlled foreign corporation has retained PTEP, the usual consequence will be to increase the portion of
the amount realized on the sale of the corporation’s stock that is treated as a return
of capital for U.S. tax purposes, as a result
of the basis adjustments under section 961.
Accordingly, it is reasonable to conceive
of foreign gross income in the amount of
the basis attributable to retained PTEP as
a timing difference associated with the
earnings represented by the PTEP, just as
an amount of foreign gross income equal
to a section 1248 amount that is included
in the U.S. dividend amount is treated as
a timing difference associated with those
non-previously taxed earnings.
However, the approach suggested in the
comment would create an additional compliance burden for taxpayers and administrative burdens for the IRS by requiring
the separate tracking of basis in the stock
attributable to a previous increase under
section 961, which is not otherwise required for U.S. tax purposes. Additional
rules would be required to associate PTEP
with the particular shares of stock being
sold, such as in the case of a taxpayer with
PTEP in different statutory groupings who
sells one class of stock but retains a different class of stock. The Treasury Department and the IRS have determined that the
groupings to which the tax book value of
the stock is assigned is an administrable
and reasonably accurate surrogate for both
the PTEP and the future, unrealized earnings of the corporation with which the foreign gross income is properly associated

January 18, 2022

when foreign tax is imposed on a U.S. return of capital amount. For these reasons,
the final regulations retain the rule in proposed §1.861-20(d)(3)(i)(D).
3. Partnership transactions
Proposed §1.861-20(d)(3)(ii)(B) assigned foreign gross income arising from
a partnership distribution in excess of the
U.S. capital gain amount by reference to
the asset apportionment percentages of the
tax book value of the partner’s distributive
share of the partnership’s assets (or, in the
case of a limited partner with less than a
10 percent interest, the tax book value of
the partnership interest), which are a surrogate for the partner’s distributive share
of earnings of the partnership that are not
recognized in the year in which the distribution is made for U.S. tax purposes. This
approach is based on principles similar
to those underlying the rule in proposed
§1.861-20(d)(3)(i)(D) for allocating and
apportioning foreign tax imposed on an
amount that is a return of capital with
respect to stock for Federal income tax
purposes. Similarly, the 2020 FTC proposed regulations associated foreign gross
income from the disposition of a partnership interest in excess of the U.S. capital
gain amount with a hypothetical distributive share that is determined by reference
to the tax book value of the partnership’s
assets (or, in the case of a limited partner
with less than a 10 percent interest, the tax
book value of the partnership interest).
See proposed §1.861-20(d)(3)(ii)(C).
A comment recommended that, in the
case of either a distribution with respect
to a partnership or a disposition of a partnership interest, foreign gross income in
excess of the U.S. capital gain amount
be characterized instead by reference to
the statutory and residual groupings of
amounts maintained in partner-level accounts that track the partners’ distributive
shares of partnership earnings in prior
years. According to the comment, the tax
book value method potentially distorts
the allocation of tax to U.S. income items
in cases in which the amount of income
produced by the asset is disproportionate
to its basis. For this reason, the comment
recommended tracing foreign gross income to amounts in the partner’s cumulative distributive share account in order

332

to provide for more accurate matching
of foreign gross income to partners’ distributive shares of partnership income for
the current and prior years. The comment
recommended that these new partner-level accounts be increased as a partner includes a distributive share of partnership
income and decreased as the partnership
makes distributions. Under this multi-year
account approach, foreign gross income
arising from partnership distributions
would be characterized by reference to the
earnings in the account out of which the
distribution is made, and foreign gross income arising from a disposition of a partnership interest would be characterized by
reference to the earnings in the account
at the time of disposition. In either case,
additional rules (such as providing for the
use of a pro rata, last-in-first-out, or other
approach) would be required to determine
the earnings in the account out of which
a distribution is considered to be made,
and for cases in which the amount in the
partner-level account exceeds the foreign
gross income arising from a disposition of
that partner’s partnership interest.
Recognizing the additional record-keeping requirements and complexity required by this approach, the comment
suggested in the alternative that foreign
gross income in excess of a U.S. capital
gain amount recognized by reason of a
partnership distribution or disposition of a
partnership interest be characterized based
on the partner’s distributive share of the
partnership’s current year income, to the
extent thereof, with any excess assigned
based on the tax book value method provided for in the 2020 FTC proposed regulations.
The final regulations retain the approach from the 2020 FTC proposed regulations for characterizing foreign gross
income arising from a partnership distribution or disposition. The Treasury Department and the IRS do not agree that it
is appropriate to treat a partnership distribution as made out of a partner’s distributive share of partnership income. Contrary
to the ordering rules that apply to distributions by a corporation, under Federal
income tax law partnership distributions
are not sourced from current or accumulated partnership income. Similarly, under Federal income tax law, a partnership
distribution reduces a partner’s basis in its

Bulletin No. 2022–3

partnership interest without differentiating
between basis from capital contributions
and basis from a partner’s distributive
share of partnership income.
A common principle of the rules in
§1.861-20 is that Federal income tax law
applies to characterize foreign gross income. To the extent a partnership distribution or disposition is treated as a return
of basis for Federal income tax purposes,
§1.861-20(d)(3)(ii)(B) and (C) appropriately reflect this principle by allocating
and apportioning any foreign tax imposed
on the partnership distribution in the same
manner as foreign tax on a return of capital with respect to stock. Furthermore, this
approach to characterizing foreign gross
income arising from a partnership distribution is consistent with the approach in
§1.861-20(d)(3)(v)(C)(1) that applies to a
distribution that is a remittance by a taxable unit.
As acknowledged by the comment,
characterizing foreign gross income by
reference to a partner’s distributive share
of partnership income in prior years
would require creating new partner-level
accounts to track the partner’s aggregate
distributive share of unremitted partnership income. That type of partner-level
account is not otherwise required to be
maintained to characterize partnership
distributions for Federal income tax purposes and would be unduly burdensome
for both taxpayers and the IRS, as well
as being generally inconsistent with the
Federal income tax rules for characterizing partnership distributions. In addition,
the Treasury Department and the IRS have
determined that the suggested alternative
approach of characterizing foreign gross
income by reference to a partner’s distributive share of current year partnership
income would be susceptible to manipulation by timing partnership distributions
to maximize foreign tax credit benefits.
Therefore, the comment is not adopted.
4. Disregarded payments
The 2020 FTC proposed regulations
addressed the allocation and apportionment of foreign income taxes that are
imposed by reason of a disregarded payment between taxable units. In the case of
foreign income taxes paid or accrued by
an individual or domestic corporation, the

Bulletin No. 2022–3

rules defined a taxable unit as a foreign
branch, foreign branch owner, or nonbranch taxable unit as defined in proposed
§1.904-6(b)(2)(i)(B). In the case of foreign income taxes paid by a foreign corporation, the rules defined a taxable unit
by reference to the tested unit definition
in proposed §1.954-1(d)(2), as contained
in proposed regulations (REG-12773219) addressing the high-tax exception
under section 954(b)(4), published in the
Federal Register (85 FR 44650) on July
23, 2020 (the “2020 HTE proposed regulations”). See proposed §1.861-20(d)(3)
(v)(E)(9).
In general, the 2020 FTC proposed regulations characterized a disregarded payment as either a payment out of the current income attributable to a taxable unit
(a “reattribution payment”), a contribution
to a taxable unit, or a remittance out of accumulated earnings of a taxable unit. See
proposed §1.861-20(d)(3)(v). The rules
assigned foreign gross income arising
from a reattribution payment to the statutory and residual groupings of the recipient taxable unit based on the groupings
to which the current income out of which
the reattribution payment was made is assigned. See proposed §1.861-20(d)(3)(v)
(B). The rules assigned foreign gross income arising from a contribution received
by a taxable unit to the residual grouping,
and assigned foreign gross income arising from a remittance by reference to the
statutory and residual groupings to which
the assets of the payor taxable unit were
assigned for purposes of apportioning interest expense, which served as a proxy
for the accumulated earnings of the payor
taxable unit. See proposed §1.861-20(d)
(3)(v)(C). For this purpose, the assets of
a payor taxable unit were determined under the rules of §1.987-6(b), modified to
include in a taxable unit’s assets any stock
that it owned, and in certain circumstances
reattributed another taxable unit’s assets to
the taxable unit or reattributed the taxable
unit’s assets to another taxable unit. See
proposed §1.861-20(d)(3)(v)(C)(1)(ii).
Comments criticized the tax book value method as an inaccurate surrogate for
accumulated earnings of a taxable unit
in the case of an asset with a basis that is
disproportionate to the income produced
by the asset and requested that foreign
gross income arising from a remittance

333

be assigned to the statutory and residual
groupings based on the current earnings
of a taxable unit. In addition, comments
requested that, rather than trace foreign
gross income arising from disregarded
payments to current or accumulated earnings of a taxable unit, the definition of
which generally includes disregarded entities, the rules should only trace such foreign gross income to current or accumulated income of a qualified business unit
(“QBU”) to reduce the complexity and
compliance burden of the rules. Finally, a
comment suggested that the modifications
to the rules of §1.987-6(b) for purposes
of determining the assets of a taxable unit
should be expanded to include not only
stock, but any interest of a taxable unit in
another taxable unit, including a partnership.
The Treasury Department and the IRS
do not agree that current earnings of a taxable unit, rather than the tax book value
of its assets, should be the basis for characterizing foreign gross income included
by reason of a remittance. The Treasury
Department and the IRS have determined
that, although the tax book value of the assets of a taxable unit may not be a perfect
surrogate for the accumulated earnings of
that taxable unit, it is a better surrogate
than current-year earnings of the taxable
unit. The use of current-year earnings is
rejected because the current-year earnings may already have been accounted for
through reattribution payments, may not
reflect all of a taxable unit’s assets, and
could be subject to manipulation through
the timing of disregarded payments, depending on the character of the earnings
attributed to a taxable unit for a particular
taxable year. Although a more accurate
matching of foreign gross income to accumulated income for Federal income tax
purposes could be achieved through the
maintenance of multi-year accounts tracking accumulated earnings of a taxable
unit, characterizing the accumulated earnings of a taxable unit by reference to the
tax book value of its assets appropriately
balances concerns about administrability,
compliance burdens, manipulability, and
accuracy.
The Treasury Department and the IRS
do not agree that foreign gross income
should be traced to income only when disregarded payments are made by a QBU,

January 18, 2022

rather than a taxable unit. The purpose of
this rule in the 2020 FTC proposed regulations was to implement a tracing regime for foreign income tax imposed on
disregarded payments that more accurately distinguished payments made out of
current income from those made out of
accumulated income, rather than treating
all disregarded payments as either remittances or contributions. Tracing cannot
achieve the policy goal of improved accuracy in matching disregarded payments
to the current or accumulated earnings out
of which the payment is made if it does
not fully account for all disregarded payments. Accordingly, this recommendation
is not adopted.
The Treasury Department and the IRS
agree that for purposes of §1.861-20 the
assets of a taxable unit should include
not only stock that it owns, but also its
interests in other taxable units. Asset tax
book values serve as a surrogate for the
accumulated earnings from which a taxable unit made a remittance; including a
taxable unit’s interests in all other taxable
units appropriately reflects all of the income-producing assets of a taxable unit
that could produce earnings. Accordingly,
§1.861-20(d)(3)(v)(C)(1)(ii) of the final
regulations provides that a taxable unit’s
assets include its pro rata share of the
assets of another taxable unit in which it
owns an interest.
The definitions of the terms “contribution” and “remittance” in §1.861-20(d)(3)
(v)(E) of the final regulations are revised
so that, together, they describe all payments that are not reattribution payments.
The proposed regulations defined a “contribution” as a transfer of property to a taxable unit that would be treated as a contribution to capital described in section 118
or a transfer described in section 351 if
the taxable unit were a corporation under
Federal income tax law, or the excess of
a disregarded payment made by a taxable
unit to another taxable unit that the first
taxable unit owns over the portion of the
disregarded payment that is a reattribution
payment. The proposed regulations defined a “remittance” as a transfer of property that would be treated as a distribution
by a corporation to a shareholder with respect to its stock if the taxable unit were a
corporation for Federal income tax law, or
the excess of a disregarded payment made

January 18, 2022

by a taxable unit to a second taxable unit
over the portion of the disregarded payment that is a reattribution payment, other
than an amount treated as a contribution.
The proposed definition of “contribution”
did not encompass a disregarded payment
that is neither a reattribution payment nor
a transfer that would be described in section 351, such as, in some circumstances,
disregarded interest payments. To fill this
gap, §1.861-20(d)(3)(v)(E) of the final
regulations defines a “contribution” as the
excess of a disregarded payment made by
a taxable unit to another taxable unit that
the first taxable unit owns over the portion of the disregarded payment, if any,
that is a reattribution payment. This definition encompasses a transfer of property
to a taxable unit that would be treated as
a contribution to capital described in section 118 or a transfer described in section
351 if the taxable unit were a corporation.
In addition, §1.861-20(d)(3)(v)(E) of the
final regulations defines a “remittance”
as a disregarded payment that is neither a
contribution nor a reattribution payment.
This definition encompasses a transfer of
property that would be treated as a distribution by a corporation to a shareholder
with respect to its stock if the taxable unit
were a corporation. These changes ensure
that the final regulations provide rules for
allocating foreign income taxes attributable to all disregarded payments.
In addition, the final regulations define
a “taxable unit” by reference to the tested
unit definition in §1.951A-2(c)(7)(iv)(A),
a final regulation, instead of by reference
to the definition of a taxable unit in proposed §1.954-1(d)(2). See §1.861-20(d)
(3)(v)(E)(9).
The final regulations provide a special
rule at §1.861-20(d)(3)(vi) for allocating
and apportioning foreign income tax on
foreign gross income included by a taxpayer by reason of its ownership of a U.S. equity hybrid instrument (defined in §1.86120(b)(22) as an instrument that is stock
or a partnership interest under Federal income tax law but that is debt or otherwise
gives rise to the accrual of income that is
not treated as a dividend or a distributive
share of partnership income under foreign
law). This special rule, which generally
allocates foreign income tax on foreign
gross interest income with respect to a U.S.
equity hybrid instrument to the grouping

334

to which distributions with respect to the
instrument are assigned, clarifies how section 245A(d) and §1.245A(d)-1 apply to
foreign income tax that is attributable to
a hybrid dividend. As discussed in part I
of this Summary of Comments and Explanation of Revisions, §1.245A(d)-1 relies
upon the rules of §1.861-20 to determine
whether foreign income tax is attributable
to income described in section 245A, including a hybrid dividend described in
section 245A(e), in which case a credit
or deduction for the foreign income tax is
disallowed.
Section 1.861-20(d)(3)(vi)(A) treats
foreign gross income included by reason
of an accrual of income with respect to a
U.S. equity hybrid instrument as a distribution. Accordingly, it assigns the foreign
gross income to the statutory and residual groupings as though the accrual were
a foreign law distribution that was made
on the date of the accrual. Section 1.86120(d)(3)(vi)(B) provides an identical rule
for a payment of interest under foreign
law with respect to the U.S. equity hybrid
instrument; therefore, withholding tax on
the payment is also attributed to income
(determined under Federal income tax
law) from the instrument.
Finally, as part of finalizing the rules
in §1.861-20(d)(3)(v), conforming changes are made to §1.951A-2(c)(7) and
(8). In particular, §1.951A-2(c)(7)(iii)
(B) is deleted and Examples 1 and 3 in
§1.951A-2(c)(8)(iii)(A) and (C) are revised accordingly while Example 2 in
§1.951A-2(c)(8)(iii)(B) is removed as
obsolete. Section 1.951A-2(c)(7)(iii)(B)
is removed from the final regulations because the special rules in that paragraph
for allocating and apportioning current
year taxes imposed by reason of a disregarded payment are rendered obsolete by
the final rules in §1.861-20(d)(3)(v). Under §1.951A-2(c)(7)(iii)(A), deductible
expenses (including expenses for current
year taxes) are allocated and apportioned
under the principles of §1.960-1(d)(3) and
the rules in §1.861-20.
5. Applicability date
Section 1.861-20 (other than §1.86120(h)) applies to taxable years that begin
after December 31, 2019, and end on or
after November 2, 2020. Section 1.861-

Bulletin No. 2022–3

20(h) applies to taxable years beginning
on or after December 28, 2021. In addition, the revisions to §1.951A-2(c)(7)
and (8) apply to taxable years that begin
after December 28, 2021; however, taxpayers may choose to apply the final rules
to taxable years that begin after December 31, 2019, and on or before December
28, 2021, consistent with the applicability
date of §1.861-20(d)(3)(v).
Several comments asked the Treasury
Department and the IRS to provide a delayed applicability date for §1.861-20.
The rules in proposed §1.861-20 revised
the corresponding provisions in the 2019
FTC proposed regulations, which were
not finalized with the 2020 FTC final regulations to provide an additional opportunity for comment. Because the regulations
are finalized substantially as proposed,
with primarily clarifying changes in response to comments, the Treasury Department and the IRS have determined that it
is not appropriate to modify the proposed
applicability date.
IV. Creditability of Foreign Taxes Under
Sections 901 and 903
A. Jurisdictional nexus requirement
1. In general
The 2020 FTC proposed regulations
added a jurisdictional nexus requirement
for determining whether a foreign tax
qualifies as a foreign income tax for purposes of section 901. Proposed §1.9012(a)(3) and (c) generally required that,
for a foreign tax to be a foreign income
tax, the foreign country imposing the tax
must have sufficient nexus to the taxpayer’s activities or investment of capital or
other assets that give rise to the income
base on which the foreign tax is imposed.
In the case of a foreign tax imposed by a
foreign country on nonresident taxpayers,
the 2020 FTC proposed regulations provided that a foreign tax satisfies the jurisdictional nexus requirement if it meets
one of three nexus tests.
First, under proposed §1.901-2(c)(1)
(i), a foreign tax meets the jurisdictional
nexus requirement if it is imposed only
on income that is attributable, under reasonable principles, to the nonresident’s
activities located in the foreign country

Bulletin No. 2022–3

(for this purpose, the nonresident’s activities include its functions, assets, and risks)
(“activities-based nexus”). To meet the
activities-based nexus test, the allocation
of a nonresident’s income to the nonresident’s activities in the foreign country
cannot take into account, as a significant
factor, the location of customers, users,
or any similar destination-based criterion.
Proposed §1.901-2(c)(1)(i) further provided that reasonable principles for determining income attributable to a nonresident’s
activities include rules similar to those for
determining effectively connected income
under section 864(c).
Second, under proposed §1.901-2(c)(1)
(ii), a foreign tax imposed on the nonresident’s income arising in the foreign country meets the jurisdictional nexus requirement only if the foreign tax law sourcing
rules are reasonably similar to the sourcing rules that apply for Federal income tax
purposes (“source-based nexus”).
Third, under proposed §1.901-2(c)(1)
(iii), a foreign tax imposed on income or
gain from sales or other dispositions of
property that is subject to tax in the foreign
country on the basis of the situs of real or
movable property meets the jurisdictional
nexus requirement only if it is imposed
with respect to income or gain from the
disposition of real property situated in
the foreign country or movable property
forming part of the business property of a
taxable presence in the foreign country (or
from interests in certain entities holding
such property) (“property-based nexus”).
In the case of a foreign tax imposed
by a foreign country on its residents, proposed §1.901-2(c)(2) provided that in determining whether the foreign tax meets
the jurisdictional nexus requirement, any
allocation of income, gain, deduction or
loss between a resident taxpayer and a related or controlled entity under the foreign
country’s transfer pricing rules must follow arm’s length principles, without taking into account as a significant factor the
location of customers, users, or any other
similar destination-based criterion.
Under the 2020 FTC proposed regulations, the jurisdictional nexus requirement also applied to determine whether a
foreign levy is a tax in lieu of an income
tax under section 903 (an “in lieu of tax”).
Specifically, the 2020 FTC proposed regulations modified the substitution require-

335

ment to add proposed §1.903-1(c)(1)(iv),
which required that the generally-imposed
net income tax would either continue to
qualify as a net income tax under proposed
§1.901-2(a)(3), or would itself constitute a
separate levy that is a net income tax if
it were to be imposed on the excluded income that is covered by the tested in lieu
of tax. This modification was intended to
ensure that a foreign tax can qualify as an
in lieu of tax only if the foreign country
imposing the tax could instead have subjected the excluded income to a tax on net
gain that would satisfy the jurisdictional
nexus requirement in proposed §1.9012(c). In addition, proposed §1.903-1(c)(2)
(iii) provided that, to satisfy the substitution requirement, a withholding tax must
meet the source-based jurisdictional nexus
requirement in proposed §1.901-2(c)(1)
(ii) to qualify as a “covered withholding
tax.” Comments regarding the jurisdictional nexus test of the substitution requirement are discussed in this part IV.A
of this Summary of Comments and Explanation of Revisions; other comments regarding the proposed modifications to the
in lieu of tax provisions are discussed in
part IV.C of this Summary of Comments
and Explanation of Revisions.
2. Reasonableness of jurisdictional nexus
requirement
i. Text and history of the relevant
statutory provisions
a. Income tax in the U.S. sense
Comments questioned the validity of
the jurisdictional nexus requirement, stating that the requirement is inconsistent
with the plain language, structure, and
legislative history of the statutory foreign
tax credit provisions. Comments stated
that the plain meaning of “income tax” refers solely to whether the base of the tax
is net income and does not require a justification (nexus) for the imposition of the
tax. Some comments stated that the term
“income tax” should not be interpreted
to encompass U.S. rules or international
norms regarding jurisdiction to tax because, according to those comments, when
the foreign tax credit provisions were first
enacted there were limited source rules
in the Code and international norms for

January 18, 2022

determining the source of income were
still developing. Other comments stated
that the inclusion of a jurisdictional nexus
requirement would require Congressional
action and noted that other exceptions to
creditability have been enacted by Congress (see, for example, section 901(f),
(i) and (m)). Some comments stated that
the Supreme Court in Biddle v. Comm’r,
302 U.S. 573 (1938), made only a passing
reference to “an income tax in the U.S.
sense,” and that neither Biddle nor any
other case has interpreted the statute to include a jurisdictional nexus requirement.
The Treasury Department and the IRS
have determined that the addition of a jurisdictional nexus requirement is a valid
exercise of the government’s rulemaking
authority. The Treasury Department and
the IRS have determined that it is reasonable and appropriate to interpret the
terms “income tax” and “tax in lieu of an
income tax” in sections 901 and 903, respectively, to incorporate a jurisdictional
nexus requirement. Judicial decisions
and administrative guidance over the past
century have interpreted the term “income, war profits, and excess profits tax,”
which is not defined in section 901 or by
the limited initial explanation in the early
legislative history. These interpretations
have consistently followed the principle,
introduced by the Biddle court, that the
determination of whether a foreign tax is
creditable under section 901 is made by
evaluating whether such tax, if enacted
in the United States, would be an income
tax (in other words, whether the foreign
tax is “an income tax in the U.S. sense”).
See PPL Corp. v. Comm’r, 569 U.S. 329,
335 (2013). See also Inland Steel Co. v.
United States, 230 Ct. Cl. 314, 325 (1982)
(“Whether a foreign tax is an income tax
under I.R.C. §901(b)(1) is to be decided
under criteria established by United States
revenue laws and court decisions.”). It
is well-settled that U.S. tax provisions
should generally be interpreted with reference to domestic tax concepts absent a
clear Congressional expression that foreign concepts control. United States v.
Goodyear Tire & Rubber Co., 493 U.S.
132, 145 (1989). The jurisdictional nexus
requirement is consistent with the principle that U.S. tax principles, not varying
foreign tax law policies, should control
the determination of whether a foreign tax

January 18, 2022

is an income tax (or a tax in lieu of an income tax) that is eligible for a U.S. foreign
tax credit.
U.S. tax law has long incorporated a
jurisdictional nexus limitation in taxing
income of foreign persons. For example,
the United States only taxes income of
foreign persons that have income that is
effectively connected with a U.S. trade
or business or attributable to U.S. real
property, or have income that is fixed or
determinable, annual or periodic (FDAP)
income sourced in the United States. See
sections 871, 881, 882, and 897. In addition, U.S. foreign tax credit rules reflect
international norms of taxing jurisdiction
that assign the primary right to tax to the
source country, the secondary right to tax
to the country where the taxpayer is a resident or engaged in a trade or business, and
the residual right to tax to the country of
citizenship or place of incorporation. See
sections 904(a) (limiting foreign tax credits to U.S. tax on foreign source income)
and 906(b)(1) (limiting foreign tax credits allowed to foreign persons engaged in
a U.S. trade or business to foreign taxes
on foreign source effectively connected
income). In keeping with these traditional U.S. taxing rules, international taxing
norms (such as provisions included in
the OECD Model Tax Convention), and
the longstanding approach of the courts
to apply U.S. tax principles in determining whether a foreign tax is an income tax
in the U.S. sense, it is appropriate for the
definition of a creditable tax to incorporate the concept of jurisdictional nexus
from the U.S. tax law. The fact that U.S.
tax rules have changed since the foreign
tax credit provisions were first enacted
does not preclude an interpretation of the
term “income tax” to reflect U.S. norms,
because the principle of “an income tax in
the U.S. sense” incorporates an evolving
standard of what constitutes an income tax
in the U.S. sense.
In addition, the net gain requirement
in existing §1.901-2(b), which prescribes
the elements of gross receipts and costs
that must comprise the base of a foreign
income tax, has historically reflected jurisdictional norms in limiting creditable
taxes to those imposed on net income.
The jurisdictional nexus requirement clarifies the limits on the scope of the items
of gross receipts and costs that may prop-

336

erly be taken into account in computing
the taxable base of a creditable foreign
income tax. Absent this rule, U.S. tax on
net income could be reduced by credits
for a foreign levy whose taxable base was
improperly inflated by unreasonably assigning income to a taxpayer, or by not appropriately taking into account significant
costs that are attributable to gross receipts
properly included in the taxable base.
Existing §1.901-2(b)(4)(i)(A) has long
contained a form of a nexus rule, by requiring recovery of significant costs and
expenses that are “attributable, under reasonable principles” to gross receipts included in the foreign tax base. A rule providing the extent to which gross receipts
and costs are within the scope of a jurisdiction’s right to tax is therefore necessary
to determine which items of gross receipts
and costs a foreign levy must include to
satisfy the net gain rules.
To better reflect the role of the jurisdictional nexus rule as an element of the
net gain requirement, the rule in proposed
§1.901-2(c) is incorporated in the net gain
requirement as new paragraph §1.9012(b)(5). In addition, the term “jurisdictional nexus requirement” is replaced with
“attribution requirement” to more clearly
reflect that the rule provides limits on the
scope of gross receipts and costs that are
attributable to a taxpayer’s activities and
thus appropriately included in the foreign
tax base for purposes of applying the other
components of the net gain requirement.
b. Relationship to foreign tax credit
limitation
Some comments asserted that Congress explicitly removed a jurisdictional
nexus requirement from the predecessor
to section 901 in 1921, and since then,
Congress has addressed concerns regarding jurisdiction to tax through the foreign tax credit limitation under section
904 (and its predecessor provisions). The
comments pointed out that the foreign tax
credit provision, when first enacted under the Revenue Act of 1918, provided
that U.S. tax was “credited with … the
amount of any income, war-profits and
excess-profits taxes paid during the taxable year to any foreign country, upon income derived from sources therein, or to
any possession of the United States.” Pub.

Bulletin No. 2022–3

L. 65-254, §§ 222(a)(1) and 238(a), 40
Stat. 1057, 1073, 1080-81 (emphasis added). The comments stated that the phrase
“upon income derived from sources therein” served as a jurisdictional nexus limit,
which Congress eliminated and replaced
by enacting the foreign tax credit limitation in the Revenue Act of 1921. The comments asserted that this legislative history
shows that Congress has rejected including a jurisdictional nexus requirement in
section 901. The comments also stated that
the only concern regarding jurisdiction
to tax discussed in the legislative history
to the 1918 and 1921 Revenue Acts was
Congress’ desire to preserve U.S. primary
taxing rights over U.S. source income.
The Treasury Department and the IRS
disagree with the comments’ conclusion
that Congress has expressly rejected a jurisdictional nexus requirement for creditable foreign taxes. Although source-based
taxing rights are an appropriate element
of jurisdictional nexus, tax residence and
conducting business in a foreign country
also provide jurisdictional nexus. The
Treasury Department and the IRS view
the introduction of the foreign tax credit
limitation in 1921 as merely refining the
1918 Revenue Act’s limitation of credits to tax imposed upon foreign source
income. The legislative history does not
explain why Congress removed the phrase
“upon income from sources therein” in
1921, nor does it suggest that Congress
believed it was removing a jurisdictional
nexus requirement and replacing it with a
foreign tax credit limitation.
The Treasury Department and the IRS
also disagree with the comments’ assertion that statutory policy regarding jurisdiction to tax is confined to the section
904 foreign tax credit limitation. Congress
has not explicitly addressed jurisdictional
nexus with respect to the foreign tax credit. There is no statutory provision that
addresses whether the foreign tax credit should be allowed for taxes imposed
outside of traditional U.S. taxing norms.
Section 904 does not address the threshold question of whether a foreign tax is
an income tax in the U.S. sense. It only
limits the allowable credit to the amount
of pre-credit U.S. tax on particular categories of foreign source income, as revised by Congress from time to time. The
foreign tax credit limitation preserves re-

Bulletin No. 2022–3

sidual U.S. tax on foreign source income
subject to a foreign rate of tax that is lower
than the U.S. rate, but does not ensure that
the foreign tax has an appropriate jurisdictional basis. The statute is silent with
respect to jurisdictional nexus, and it is
reasonable and appropriate for regulations
to apply U.S. tax concepts in addressing
the creditability of extraterritorial foreign
levies that Congress could not have anticipated when the foreign tax credit provisions were first enacted.
c. Legislative re-enactment doctrine
Some comments argued that the addition of a jurisdictional nexus requirement
is precluded by the legislative re-enactment doctrine. These comments noted that
the 1980 temporary and proposed section
901 regulations, which contained similar nexus requirements, drew numerous
adverse comments and were the subject
of Congressional hearings, and that the
Treasury Department and the IRS did
not finalize those provisions in TD 7918
(48 FR 46276) (“the 1983 regulations”).
These comments asserted that in passing
the Tax Reform Act of 1986, Pub. L. 99514, 100 Stat. 2085 (1986), and the Tax
Cuts and Jobs Act, Pub. L. No. 115-97,
131 Stat 2054 (2017) (“TCJA”), Congress
was aware of the 1983 regulations (which
do not contain a jurisdictional nexus requirement) and did not amend the statute
to add one, with the result that Congress
implicitly endorsed the 1983 regulations
and precluded the Treasury Department
and the IRS from modifying them.
The Treasury Department and the IRS
disagree with these comments. The legislative re-enactment doctrine does not
preclude an agency from changing its
regulatory interpretation of a statute if
Congress amends related provisions. See
Helvering v. Reynolds, 313 U.S. 428, 432
(1941) (“[The doctrine of legislative reenactment] does not mean that the prior
construction has become so imbedded in
the law that only Congress can effect a
change.”). See also Helvering v. Wilshire
Oil Co., 308 U.S. 90, 100 (1939) (holding
that the legislative reenactment doctrine
applies where “it does not appear that the
rule or practice has been changed by the
administrative agency through exercise of
its continuing rule-making power”); Mc-

337

Coy v. U.S., 802 F.2d 762 (4th Cir. 1986);
Interstate Drop Forge Co. v. Com., 326
F2d 743 (7th Cir. 1964).
Additionally, while a purported legislative re-enactment may indicate that
Congress was aware of, and implicitly
endorsed, the prior regulatory interpretation, a regulation or administrative ruling
promulgated under a re-enacted statute
is not treated as binding unless other evidence clearly manifests such a purpose.
See Oklahoma Tax Com. v. Texas Co., 336
U.S. 342 (1949); Jones v. Liberty Glass
Co., 332 U.S. 524 (1947). There is no indication that Congress intended to preclude
the amendment of the section 901 and 903
regulations to add a jurisdictional nexus
requirement. None of the comments identified any aspect of either the Tax Reform
Act of 1986 or the TCJA that suggests that
Congress intended to limit future regulations addressing the definition of creditable foreign taxes under sections 901 and
903. Therefore, the Treasury Department
and the IRS have determined that the legislative re-enactment doctrine does not
preclude the adoption of prospective regulations that include a jurisdictional nexus
requirement.
ii. Policy and purpose of the statutory
foreign tax credit provisions
Comments stated that adding a jurisdictional nexus requirement is contrary to
the policy of the foreign tax credit, which
is to mitigate double taxation of foreign
source income. These comments asserted that double taxation results when the
United States imposes tax on income that
is taxed by another country, regardless of
whether the other country had a proper jurisdictional basis for imposing the tax, and
unrelieved double taxation could discourage foreign investment. The comments
asserted that Congress enacted the foreign
tax credit to enhance the competitiveness
of American companies operating abroad,
and the jurisdictional nexus requirement
in the 2020 FTC proposed regulations
would impede this competitiveness. The
comments asserted that the policy goal of
sections 901 and 903 is not to influence international norms or change the behavior
of foreign governments.
However, another comment stated that
the jurisdictional nexus requirement may

January 18, 2022

reasonably be viewed as consistent with
the underlying principles and purposes of
the foreign tax credit regime. This comment asserted that the allowance of a foreign tax credit for a tax levied on amounts
that do not have a significant connection
to the foreign jurisdiction taxing such income, particularly U.S. source income,
could effectively convert the foreign tax
credit regime into a means of subsidizing
foreign jurisdictions at the expense of the
U.S. fisc. Similarly, one comment that
questioned the government’s authority to
include a jurisdictional nexus requirement
also acknowledged that taxes that have
no nexus whatsoever to the taxing jurisdiction would not properly be considered
taxes.
The Treasury Department and the IRS
agree with the comment that the jurisdictional nexus requirement is consistent
with the policy goals of the foreign tax
credit. The foreign tax credit is not intended to subsidize foreign jurisdictions
at the expense of the U.S. fisc. The legislative history to the predecessor provisions to section 901, as well as subsequent
statutory amendments, reflect Congress’
consistent concern that foreign tax credits
should not be allowed to offset U.S. tax
on income that does not have a significant connection to the foreign jurisdiction
taxing such income. See, for example, S.
Rep. No. 67-275, at 17 (1921) (describing the need to avoid allowing a foreign
tax credit to “wipe out” tax properly attributable to U.S. source income); Senate
Comm. on Finance, 98th Cong., 2d Sess.,
Deficit Reduction Act of 1984, Explanation of Provisions Approved by the Committee on March 21, 1984, at 392 (Comm.
Print 1984) (describing the need for separate foreign tax credit limitation categories to prevent the U.S. Treasury from
inappropriately “bear[ing] the burden” of
foreign taxes).
The 2020 FTC proposed regulations
are also consistent with the statutory purpose of the foreign tax credit to relieve
double taxation of income through the
United States ceding its own taxing rights
only where the foreign country has the

primary right to tax income. See Bowring
v. Comm’r, 27 B.T.A. 449, 459 (1932)
(“In the case of the citizen and resident
alien, the United States recognizes the primary right of the foreign government to
tax income from sources therein. . . and
accordingly, grants a credit.”). To ensure
that the United States provides a foreign
tax credit only where the foreign country
appropriately asserts jurisdiction to tax
income, creditable foreign levies must incorporate norms similar to those in U.S.
tax law that limit the scope of income subject to the tax.
Some comments asserted that double
taxation meriting relief exists in every
case in which a foreign tax is not allowed
as a foreign tax credit against U.S. tax.
However, that assertion is inconsistent not
only with the foreign tax credit limitation
in section 904, but with the plain text of
section 901. Section 901 allows a credit
only for income, war profits, and excess
profits taxes, and not for all foreign taxes that may be imposed by a foreign jurisdiction (such as value added taxes or
sales taxes, which may qualify for a deduction under section 164), or for other
levies such as tariffs. As explained in part
IV.A.2.i.a of this Summary of Comments
and Explanation of Revisions, determining which items of gross receipts and costs
are properly included in a foreign taxable
base is inherent to the determination of
whether the foreign tax is an income tax
in the U.S. sense.
As noted in the preamble to the 2020
FTC proposed regulations, the fundamental purpose of the foreign tax credit — to
mitigate double taxation with respect to
taxes imposed on income — is served
most appropriately if there is substantial
conformity in the principles used to calculate the base of the foreign tax and the
base of the U.S. income tax. This conformity extends not just to ascertaining
whether the foreign tax base approximates
U.S. taxable income determined on the
basis of realized gross receipts reduced
by allocable costs and expenses, but also
to whether there is a sufficient nexus between the income that is subject to tax and

the foreign jurisdiction imposing the tax.
Therefore, the final regulations retain the
requirement in the 2020 FTC proposed
regulations that for a foreign tax to qualify as an income tax, the tax must conform with established international jurisdictional norms, reflected in the Internal
Revenue Code and related guidance, for
allocating profit between associated enterprises, for allocating business profits of
nonresidents to a taxable presence in the
foreign country, and for taxing cross-border income based on source or the situs of
property.
Recently, many foreign jurisdictions
have disregarded international taxing
norms to claim additional tax revenue, resulting in the adoption of novel extraterritorial taxes that diverge in significant respects from U.S. tax rules and traditional
norms of international taxing jurisdiction.
These extraterritorial assertions of taxing authority often target digital services,
where countries seeking additional revenue have chosen to abandon international
norms to assert taxing rights over digital
service providers.1
The Treasury Department and the IRS
have determined that it is necessary and
appropriate to adapt the regulations under sections 901 and 903 to address this
change in circumstances, especially in relation to the taxation of the digital economy – a sector that did not exist when the
foreign tax credit provisions were first
enacted. Accordingly, regulations are necessary and appropriate to more clearly delineate the circumstances in which a tax
does not qualify as an income tax in the
U.S. sense due to the foreign jurisdiction’s
unreasonable assertion of jurisdictional
taxing authority.
Some comments asserted that the jurisdictional nexus requirement in the 2020
FTC proposed regulations is inconsistent
with Congressional policy reflected in the
repeal of the per-country foreign tax credit limitation in favor of an overall foreign
tax credit limitation. These comments
suggested that the proposed jurisdictional
nexus requirement would effectively revert to the more limited per-country lim-

See OECD Inclusive Framework on BEPS, Tax Challenges Arising from Digitalisation – Report on Pillar One Blueprint, at 10 (Oct. 14, 2020) (“Globalisation and digitalisation have
challenged fundamental features of the international income tax system, such as the traditional notions of permanent establishment and the arm’s length principle (ALP), and brought to the
fore the need for higher levels of enhanced tax certainty through more extensive multilateral tax co-operation. These transformational developments have taken place against a background of
increasing public attention on the taxation of highly digitalised global businesses.”).
1

January 18, 2022

338

Bulletin No. 2022–3

itation and, more generally, that the repeal
of the per-country limitation reflects a
general policy favoring broader availability of foreign tax credits. The Treasury
Department and the IRS disagree with
these comments. The jurisdictional nexus
requirement does not prevent cross-crediting within a particular separate category
described in section 904, which has been
amended numerous times by Congress.
For example, the nexus requirement does
not preclude a foreign tax credit against
U.S. tax on foreign source general category income derived from one country for
a foreign tax imposed by another country
that is assigned to the general category,
whereas under the former per-country
limitation, such cross-crediting would not
be allowed.
Additionally, while comments frame
the per-country limitation as more restrictive than the overall limitation, the debate
concerning the limitation also highlighted
circumstances in which the overall limitation is in fact the more restrictive of the
two.2 In 1960, when adding back the overall limitation, but retaining the per-country limitation, Congress explained that the
overall limitation may not be appropriate
based on the business model of a particular taxpayer. See S. Rep. No. 86-1393, at
3773-74 (1960). Thus, the Treasury Department and the IRS do not agree with
the comments’ assertion that Congress’
choice in 1976 to retain only the overall
limitation supports the broadest allowance of foreign tax credits, because either
the per-country or overall limitation may
more significantly restrict the amount of
foreign tax credit, depending on the circumstances of a particular taxpayer.
Similarly, the choice in 1976 to add
back the overall limitation and make it
the only limitation did not represent Congress’s definitive choice to allow unlimited
cross-crediting of high-rate foreign taxes
against U.S. tax on foreign source income
subject to a lower rate of foreign tax. S.
Rep. No. 86-1393, at 3773-74. Rather,
Congress has continually amended and
debated the appropriate scope of the foreign tax credit limitation since 1962. The
ongoing Congressional amendments to

the foreign tax credit limitation show that
Congress had not definitively resolved the
permissible scope of cross-crediting when
it enacted the predecessor provision to
section 901.
In addition, Congress did not repeal the
per-country limitation in 1976 primarily
as a policy choice to allow cross-crediting.
Rather, Congress repealed the per-country
limitation because it allowed a taxpayer to
reduce U.S. tax on U.S. source income by
application of a foreign source loss, and
later to reduce U.S. tax on foreign source
income through a foreign tax credit. See S.
Rep. No. 94-938, at 236 (1976); H.R. Rep.
No. 94-658, at 225 (1975); Joint Comm.
on Taxation, General Explanation of the
Tax Reform Act of 1976, at 236 (1976).
In conclusion, the comments’ claim that
the jurisdictional nexus requirement in
the 2020 FTC proposed regulations is inconsistent with the Congressional policy
reflected in the repeal of the per-country
limitation is not supported by the legislative history and is contradicted by subsequent amendments to section 904.
Comments also stated that section
904(d)(2)(H)(i), which provides a rule for
assigning to a separate category foreign
tax imposed by a foreign country on an
amount that does not constitute income
under U.S. tax principles, provides further
support for the view that foreign tax credit provisions should be construed broadly, with limited reference to U.S. rules.
One comment pointed to cases, including
Schering Corp. v. Comm’r, 69 T.C. 579
(1978) and Helvering v. Campbell, 139
F.2d 865 (1944), in which courts allowed
a credit for foreign taxes on amounts that
the U.S. does not tax due to timing or base
differences, for example, as a result of
characterization differences.
The Treasury Department and the IRS
find these comments unpersuasive, because the jurisdictional nexus requirement
in the 2020 FTC proposed regulations
would not preclude a credit for foreign
taxes imposed on an amount of taxable
income that exceeds taxable income computed under U.S. tax law rules due to base
or timing differences. The nexus rule requires that the activity subject to the tax

have sufficient connection to the foreign
country imposing the tax. It does not require that every item included in the foreign tax base conform in timing or amount
to items included in U.S. taxable income.
Consistent with section 904(d)(2)(H)(i),
the jurisdictional nexus requirement in the
2020 FTC proposed regulations does not
preclude a credit for foreign income taxes
imposed on base difference amounts.
3. Other policy considerations
Several comments questioned the policy reasons discussed in the preamble to
the 2020 FTC proposed regulations that
motivated the Treasury Department and
the IRS to add the jurisdictional nexus requirement. Comments disagreed with the
notion that destination-based taxing rights
lack sufficient connection to a jurisdiction. They noted that Congress’s deliberations of alternative approaches to the U.S.
corporate income tax and the current multilateral negotiations by the OECD/G20
Inclusive Framework on Base Erosion and
Profit Shifting (“Inclusive Framework”)
with respect to reallocating taxing rights
under the “Pillar 1” proposal demonstrate
that there is a legitimate debate about
claims to destination-based taxing rights.
This ongoing debate, the comments stated, indicates that market-based or destination-based taxes are income taxes. As
such, some comments asserted that the
jurisdictional nexus rule in the 2020 FTC
proposed regulations is inconsistent with
changes that have occurred in how income
can be generated through technology and
changes that various taxing jurisdictions,
including U.S. states, have made to their
taxing regimes in response to those changes. The comments recommended that if
the jurisdictional nexus requirement is
not eliminated in the final regulations, the
requirement should be modified such that
it is more flexible and takes into account
evolving jurisdictional norms. One comment asked that the requirement be expansive enough to allow credits for taxes imposed on income sourced to a jurisdiction
based on the situs of users or customers,
as well as taxes imposed on a taxpayer

For example, both houses of Congress, in retreating from the overall limitation in 1954, explained that “[t]he effect of the [overall] limitation is unfortunate because it discourages a company
operating profitably in one foreign country from going into another country where it may expect to operate at a loss for a few years. Consequently your committee has removed the overall
limitation.” H.R. Rep. No. 83-1337, at 4103 (1954); see also S. Rep. No. 83-1622, at 4739 (1954).
2

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339

January 18, 2022

that generates income from customers in
a jurisdiction without having a physical
presence in that jurisdiction.
One comment pointed out that U.S.
income tax principles incorporate destination-based taxing rights. As an example, the comment noted that proposed
§1.861-18(f)(2)(ii) provided that when a
copyrighted article is sold and transferred
through an electronic medium, the sale
is deemed to have occurred at the location of download or installation onto the
end-user’s device. As another example,
the comment cited §1.250(b)-4(d)(1)(ii)
(D), which provides that a sale of certain
property that primarily contains digital
content is for a foreign use if the end user
downloads, installs, receives, or accesses
the purchased digital content on the end
user’s device outside the United States.
Another comment noted that Congress
considered imposing a destination-based
income tax as part of the 2017 tax reform.
In addition, comments stated that over
half of U.S. states with a corporate income
tax determine the amount of a taxpayer’s
income subject to the state’s corporate income tax by apportioning the taxpayer’s
federal taxable income using sales as the
single factor. The comments stated that
under the proposed jurisdictional nexus
requirements, these state income taxes
would fail to be an “income tax” in the
U.S. sense even though the income subject to the state corporate income taxes is
based in significant respects on the taxpayer’s taxable income determined under
the Code. The comments also questioned
whether this policy means that a foreign
country can deny a foreign tax credit for
otherwise eligible U.S. state corporate income taxes simply because the states rely
on sales-based apportionment factors to
source income and a market-based jurisdictional nexus standard.
In general, the Treasury Department
and the IRS disagree with these comments. As explained in part IV.A.2 of this
Summary of Comments and Explanation of Revisions, whether a foreign tax
is creditable under section 901 depends
on whether the tax is an “income tax in
the U.S. sense.” Neither prior unenacted

legislative proposals nor potential future
(yet undetermined) changes to the Code
with respect to U.S. jurisdictional limits
are determinative of what constitutes an
income tax in the U.S. sense under current law.
The Treasury Department and the IRS
acknowledged in the preamble to the
2020 FTC proposed regulations that future changes in U.S. law may necessitate
rethinking the rules for determining creditable foreign income taxes. It is nevertheless important that these final regulations
be issued promptly to address novel extraterritorial taxes. Existing law is unclear on
the extent to which foreign taxes that are
inconsistent with existing jurisdictional
norms meet the definition of an income
tax under section 901, and the Treasury
Department and the IRS had previously
received comments requesting guidance
on this matter.3 In addition, to the extent
these novel extraterritorial taxes, which
many foreign jurisdictions have already
adopted, are being paid by taxpayers and
claimed as a foreign tax credit, this would
have an immediate and detrimental impact
on the U.S. fisc. Therefore, the Treasury
Department and the IRS disagree with the
suggestion in comments that the potential
for future law changes necessitates a delay
in the issuance of these necessary and appropriate regulations.
The Treasury Department and the IRS
also disagree that the manner in which
U.S. states determine the amount of income that is taxable in a particular state
has any bearing on whether a foreign tax
is an income tax in the U.S. sense. See,
for example, Heiner v. Mellon, 304 U.S.
271, 279 (1937) (“It is well settled that in
the interpretation of the words used in a
federal revenue act, local law is not controlling unless the federal statute by express language or necessary implication,
makes its own operation dependent upon
state law.”). Nothing in the Code, legislative history, or case law suggests that
whether a tax is an income tax in the U.S.
sense should be determined by reference
to state, as opposed to Federal, income tax
principles. Furthermore, it is immaterial
whether a foreign country would provide

a foreign tax credit under its own law for
U.S. state income taxes.
In addition, U.S. tax law imposing U.S.
tax on income of nonresidents is not based
on notions of destination or customer location. See sections 864(c), 871, 881, and
882. Moreover, the comment citing section 250 is inapposite, as that provision
merely defines the scope of sales and services that constitute income from export
activity that qualifies for a special U.S.
tax deduction; it does not operate to assert
taxing jurisdiction over income of nonresidents. Similarly, while proposed §1.86118(f)(2)(ii) interprets the place of sale as
being the place of download solely for the
purpose of determining the source of certain types of income from the sale or exchange of digital property in cases where
the statutory source rule looks to the place
where the sale occurs, this rule does not
expand the scope of U.S. tax on income
derived by nonresidents. U.S. law does
not tax income from the sale or exchange
of property by a nonresident unless the
nonresident conducts a trade or business
in the United States (if applicable, through
a U.S. permanent establishment) or disposes of a United States real property interest as provided under section 897.
One comment stated that the jurisdictional nexus requirement may be reasonably viewed as consistent with the policy
of the foreign tax credit regime, which, as
discussed in part IV.A.2 of this Summary
of Comments and Explanation of Revisions, is not intended to subsidize foreign
jurisdictions at the expense of the U.S.
fisc. However, the comment also asserted
that defining what are acceptable standards of taxing jurisdiction based upon
U.S. principles may be unduly restrictive
and may result in non-creditability of foreign taxes even when the foreign tax law
is mostly aligned with U.S. principles. As
an example, the comment posited that if
a foreign country’s generally-imposed net
income tax on its residents could in certain instances apply in a manner that is
inconsistent with traditional arm’s length
principles, that tax would be non-creditable with respect to all resident taxpayers,
even for taxpayers to which income would

See New York State Bar Association Tax Section, Report on Issues Relating to the Definition of a Creditable tax for Purposes of Sections 901 and 903 of the Code, Rep’t No. 1332 (Nov.
24, 2015).
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Bulletin No. 2022–3

be allocated in a manner consistent with
arm’s length principles.
Comments also pointed out that the
jurisdictional nexus requirement that was
included in the 1980 temporary and proposed regulations at §4.901-2(a)(1) (flush
language) was a more flexible standard because it required only that the foreign tax
follow reasonable rules regarding source
of income, residence, or other bases for
tax jurisdiction, and did not require specific rules that are similar to Federal income
tax rules. In addition, one comment noted
that the 1980 temporary regulations also
provided that a foreign tax may satisfy
the definition of an income tax even if the
foreign tax law differs substantially from
the income tax provisions of the Code.
That comment recommended that the final
regulations should provide flexibility to
accommodate the continued evolution of
international tax policy consensus, which
may diverge from the U.S. view of traditional taxing norms.
Comments also asserted that certain
U.S. sourcing rules reflect domestic policies other than jurisdiction to tax. As an
example, one comment noted that the title passage rule for inventory in sections
861(a)(6) and 862(a)(6) reflects administrative simplification concerns, and former section 863(b) served as an incentive for certain activities. The comments
argued that foreign countries that adopt a
rule different from U.S. source rules due
to different choices among competing policies should not cause the foreign tax to be
non-creditable. One comment argued that
diverging views of taxing rights, especially as between developed and developing
countries, have long existed outside the
context of novel extraterritorial taxes. The
comment asserted that diverging views on
taxing rights is what makes relief from
double taxation necessary; it is not a reason to deny creditability of a foreign tax.
The Treasury Department and the IRS
generally agree that different countries
may diverge in their approach to asserting
jurisdictional taxing rights, just as countries may have different approaches in
determining the amounts of realized gross
receipts and recoverable costs and expens-

es included in the foreign taxable base. As
a result, the net gain requirement in existing §1.901-2, as well as in these final
regulations, does not require strict conformity between foreign and U.S. tax law.
However, the final regulations do require
that a foreign tax must be consistent with
the general principles of income taxation
reflected in the Code for it to be an “income tax in the U.S. sense.” These principles include not only those related to determining realization, gross receipts, and
cost recovery, but also principles related
to assertion of taxing rights. The purpose
of section 901 is not to provide double tax
relief in all cases in which foreign tax is
imposed on income of a U.S. taxpayer, but
rather, to relieve double taxation only in
the case of foreign taxes that are “income,
war profits, and excess profits taxes.” Accordingly, the purpose of the regulations
under section 901 is to provide clarity and
certainty as to which income tax principles reflected in the Code the foreign tax
law must have for a tax to be an income
tax in the U.S. sense within the meaning
of section 901. However, the Treasury Department and the IRS agree with the comments asserting that certain aspects of the
source requirement can appropriately be
revised to be more flexible; these changes
are described in part IV.A.4 of this Summary of Comments and Explanation of
Revisions.
Several comments recommended that
the Treasury Department and the IRS
address the policy concerns regarding
extraterritorial taxes through alternative
approaches. These comments recommended that the Treasury Department
utilize international forums, such as the
Inclusive Framework and bilateral treaty
negotiations, to dissuade foreign jurisdictions from enacting or imposing these
taxes. Comments argued that the denial of
foreign tax credits is unlikely to prevent
foreign jurisdictions from imposing extraterritorial taxes and will instead harm the
U.S. taxpayers operating in those foreign
jurisdictions. One comment asserted that
the foreign tax credit regulations should
not be used as a tool to further U.S. foreign policy goals. Another comment rec-

ommended that, instead of adopting the
jurisdictional nexus requirement, the Treasury Department and the IRS consider an
alternative approach for defining what
exceeds appropriate taxing jurisdiction
by reference to the criteria that the U.S.
Trade Representative has used to evaluate whether these taxes are discriminatory
and burden U.S. commerce. Finally, one
comment asserted that the jurisdictional
nexus requirement would disproportionately disallow credits for taxes imposed
by developing countries, which are more
likely to assert taxing rights in a manner that is inconsistent with international
norms, as compared to taxes imposed by
developed countries.
The Treasury Department and the IRS
agree that international forums can be an
effective way of discouraging foreign jurisdictions from enacting extraterritorial
taxes; indeed, the Treasury Department
is actively engaged in and supporting
negotiations under the auspices of the Inclusive Framework that would result in
their elimination.4 However, contrary to
the comments’ assertion, the Treasury Department and the IRS’s determination that
regulations are necessary and appropriate
to ensure that the U.S. fisc does not bear
the costs of such taxes derives from the
text, purpose, and policy of section 901,
and not from any foreign policy goals.
The Treasury Department and the IRS
have concluded that these novel extraterritorial taxes (some of which are currently
in force and being levied on U.S. taxpayers) are contrary to the text and purpose
of section 901 and therefore must be addressed now. Furthermore, nothing in the
text, structure, or history of section 901
suggests that the Treasury Department or
the IRS should consider the level of economic development of a country in determining whether a foreign tax imposed by
that country meets the standards in section
901. Lastly, the Treasury Department and
the IRS have considered the recommendation to use the criteria used by the U.S.
Trade Representative but have determined
that those criteria are designed for a different purpose (that of evaluating whether
the foreign tax is unreasonable or discrim-

See OECD/G20 Base Erosion and Profit Shifting Project, Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy (October 8, 2021)
(describing agreement reached by 136 countries to “remove all Digital Services Taxes and other relevant similar measures with respect to all companies, and to commit not to introduce such
measures in the future.”).
4

Bulletin No. 2022–3

341

January 18, 2022

inatory and burdens or restricts U.S. commerce under U.S. trade laws), and are not
suitable for purposes of defining whether
a tax is an income tax in the U.S. sense for
purposes of U.S. tax laws.
Finally, one comment recommended that the Treasury Department and the
IRS develop a list of per se creditable and
non-creditable taxes to provide taxpayers
certainty and reduce compliance burdens.
A per se list of creditable and non-creditable taxes would require significant government resources to analyze foreign taxes and maintain such a list, which would
need to be updated every time foreign tax
laws change. Therefore, the final regulations do not adopt this comment.
4. Modifications to the source-based
nexus requirement
Comments argued that the determination of whether foreign sourcing rules are
reasonably similar to U.S. sourcing rules
would be complex and result in significant uncertainty because U.S. sourcing
rules are not sufficiently well-defined.
Comments pointed out that the preamble
to the 2020 FTC proposed regulations
acknowledged that the U.S. rules for determining income effectively connected
with a U.S. trade or business have been
developed through case law, are not strictly delineated, and thus were not used as
the standard for the activities-based nexus requirement. The comments suggested
that the U.S. sourcing rules for royalties
and services are similarly addressed only
in case law and not well-developed. They
contended that it would be difficult to apply the sparse and inconsistent U.S. case
law on royalty sourcing to determine if a
foreign tax law’s sourcing rules for royalties are reasonably similar to U.S. rules. In
addition, comments asserted that the U.S.
sourcing rules are designed to distinguish
between U.S. and foreign source income,
and are not well-suited for determining,
for example, whether a royalty paid from
one CFC to another is specifically sourced
to the payor CFC’s jurisdiction of residence. With respect to services income,
one comment noted that it is unclear
whether services should be sourced solely
based on the source of the labor or by also
taking into account the location of capital, especially when significant intangible

January 18, 2022

property is involved. Another comment
asked for clarification on how to evaluate
whether a foreign withholding tax that is
imposed both on services performed in the
country imposing the tax and on technical service fees paid by a resident of such
foreign country (regardless of where the
services are performed) meets the sourcebased nexus requirement; this comment
asked whether the determination of “reasonably similar” would depend on how
important technical services are relative to
that foreign country’s economy.
In response to these comments, the final regulations modify the source-based
nexus requirement to provide additional
flexibility and clarity. Section 1.901-2(b)
(5)(i)(B) continues to require that the foreign sourcing rules must be reasonably
similar to the sourcing rules under the
Code. However, in recognition that the
Code does not provide detailed sourcing
rules addressing every category of income, or every type of income within that
category, and that the interpretation and
application of the Code sourcing rules are
sometimes addressed only in case law and
sub-regulatory guidance, §1.901-2(b)(5)
(i)(B) also provides that the foreign tax
law’s application of sourcing rules need
not conform in all respects to the interpretation that applies for Federal income tax
purposes. Thus, for example, the final regulations require that in the case of gross
income arising from gross receipts from
royalties, the foreign tax law must impose
tax on such royalties based on the place of
use of, or the right to use, the intangible
property. However, the final regulations
do not require that the foreign law, in determining the place of use of an intangible
in a particular transaction or fact pattern,
reach the same conclusion as the IRS in a
particular revenue ruling or a U.S. court in
a particular case.
The final regulations provide additional certainty by specifying the source principles that foreign tax law must apply to
be considered reasonably similar to U.S.
source rules. With respect to income from
services, §1.901-2(b)(5)(i)(B)(1) provides
that gross income arising from services
must be sourced based on where the services are performed, as determined under reasonable principles, which do not
include determining the place of performance based on the location of the service

342

recipient. Thus, a withholding tax that is
imposed on payments for services performed in the country imposing the tax
would meet the source-based nexus requirement, but a withholding tax on fees
for technical services performed outside
of that country would not meet the sourcebased nexus requirement. In addition, the
separate levy rules at §1.901-2(d)(1)(iii)
are modified to provide that withholding
taxes that apply different sourcing rules
to subsets of a single class of gross income of nonresidents are treated as separate levies. Therefore, a withholding tax
that applies a nonqualifying source rule
to a subset of service income would not
be creditable, but because it is treated as
a separate levy the nonqualifying source
rule would not prevent a withholding tax
on other services that satisfies the sourcebased nexus requirement from qualifying
as a creditable tax.
Several comments also pointed out that
the United States and the foreign jurisdiction may disagree on how to characterize
the income from a particular transaction,
making it more difficult to determine
whether the foreign tax meets the jurisdictional nexus requirement. The comments
noted that issues of characterization are
particularly prevalent with respect to cross
border payments for digital goods. The
comments stated that in respect of software transactions that are treated as sales
of copyrighted articles under §1.861-18,
some foreign countries regard some or all
payments by their resident taxpayers for
software copies as royalties, and accordingly, impose a royalty withholding tax
on those payments. The comments also
asserted that even in cases where a foreign country may not consider the payment subject to royalty withholding tax,
the foreign country may nonetheless tax
other copyrighted article transactions as
royalties. As such, the comments argued,
cross border payments for digital goods
should be excepted from the jurisdictional
nexus requirement. Another comment noted that similar characterization questions
may arise when distinguishing between
technical service fees and royalties; the
comment queried whether a foreign withholding tax imposed on royalties that the
United States would view as a payment
for services would be determined to be
non-creditable or would require an eval-

Bulletin No. 2022–3

uation of the magnitude of the services
relative to the royalty.
Comments also argued that the United
States lacks guidance on the classification
and sourcing of income from cloud computing transactions, noting that the Treasury Department and the IRS have not yet
finalized the proposed cloud computing
regulations that were issued in 2019. The
comments asserted that given the evolving U.S. guidance on the character and
source of cloud computing transactions,
the creditability of a foreign tax imposed
on such transactions should not depend on
whether foreign law is reasonably similar
to U.S. law.
In response to these comments, the
final regulations provide that, in general, foreign tax law applies for purposes
of determining the character of the gross
income or gross receipts that arise from a
transaction. See §1.901-2(b)(5)(i)(B). The
determination of whether the foreign law
source rule is reasonably similar to the
source rules under the Code will follow
from the foreign law characterization of
that income. If there is no statutory source
rule in the Code for a particular amount
that is subject to foreign tax, then the
foreign law source rule will satisfy the
source-based nexus requirement if it is
reasonably similar to the U.S. source rule
that applies by closest analogy. However,
the final regulations also clarify that in the
case of copyrighted articles, to satisfy the
source-based nexus requirement, the foreign tax law must treat a transaction that
is considered the sale of a copyrighted article under §1.861-18 (where the acquirer
receives only the right to use a copyrighted article and not, for example, the right
to duplicate and publicly distribute, or the
right to publicly display the article) as a
sale of tangible property and not as a license. See §1.901-2(b)(5)(i)(B)(3). This
rule is consistent with established U.S.
law and international norms. See §1.86118(c); see also OECD Model Tax Convention (2017), commentary to art. 12. The
Treasury Department and the IRS have
determined that this rule is necessary to
ensure that foreign jurisdictions cannot reclassify income from sales of copyrighted
articles as royalties to assert taxing rights
that are extraterritorial in nature and outside the scope of what is an income tax in
the U.S. sense.

Bulletin No. 2022–3

Comments recommended that, if the
jurisdictional nexus requirement is not
withdrawn entirely in the final regulations,
then payments for services and payments
for digital goods should be excepted from
the source-based nexus requirement. With
respect to payment for services, the comments argued that the U.S. source rule
for services is not the international norm;
many countries impose withholding tax on
payment for services made by a resident
in the country (or by a nonresident with a
permanent establishment in the country).
Comments noted that the UN Model Tax
Convention allows contracting states to
impose withholding taxes on a variety of
services fees, and that the United States
has income tax treaties with foreign jurisdictions that allow the foreign country to
withhold tax on payments for services not
performed in that country. Several comments also asserted that withholding taxes on payments for services are not novel
taxes, but rather are long-standing taxes
that are also creditable under existing
§1.903-1. Specifically, comments pointed
to Example 3 of existing §1.903-1(b)(3),
which concludes that a gross basis tax imposed on a nonresident for technical services performed outside the country imposing the tax are creditable. As such, the
comments stated, these withholding taxes
are consistent with international norms
and the final regulations should continue
to allow these taxes to be creditable.
In addition, comments expressed concern about the increased incidence of
unrelieved double taxation in respect of
cross-border payments for digital services. The comments suggested that under proposed §1.861-19, essentially all
cloud transactions, as defined in those
proposed regulations, will be classified as
services for Federal income tax purposes.
As such, foreign withholding taxes imposed on payments for those services, if
not imposed on the basis that the services
are performed in the country, would be
non-creditable under the proposed sourcebased nexus requirement. Comments also
pointed out that the effect of the sourcebased nexus requirement in the 2020 FTC
proposed regulations is to create disparate
treatment for software suppliers based on
the approach a supplier adopts to commercializing the software. As an example, comments pointed out that a software

343

supplier that makes software available
through limited time subscription is treated under Federal income tax rules as receiving payments of service fees, whereas
a software supplier that provides software
to users through downloads under limited-time licenses is treated as receiving
payments of rents. If a foreign country
imposes withholding taxes on both payments, the withholding tax paid by the first
software supplier would not be creditable
(because the U.S. source rules would not
permit the service payment to be sourced
based on the location of the user) whereas the taxes paid by the second supplier
would be creditable (because U.S. source
rules would permit the rental payment to
be sourced based on where the user installs the software copy). The comments
argued that there is no policy justification
for such disparate results.
The Treasury Department and the IRS
have determined that it is necessary and
appropriate to narrow the circumstances
under existing law (for example, as illustrated in Example 3 of §1.901-1(b)(3))
in which withholding taxes on payment
for services are creditable. The taxation
of services performed by nonresidents,
under U.S. tax law, is clearly limited to
cases in which the services are performed
in the United States. Nothing in the Code,
legislative history, or case law indicates
that a different approach is appropriate for
technical or digital services. The Treasury
Department and the IRS have determined
that the assertion of foreign withholding
taxes on income from services that are not
performed within the foreign jurisdiction
is not consistent with an income tax in the
U.S. sense and therefore should not qualify for a credit under section 901.
Furthermore, the Code provides for
disparate treatment of classes of income
depending on whether the transaction that
gives rise to the income is characterized
as a service, license, sale, or something
else. This different treatment is also reflected in existing international norms,
including the OECD Model Tax Convention. Seeking to conform the treatment of
digital transactions under the Code, or to
anticipate possible future changes to the
treatment or classification of digital transactions, is beyond the scope of these regulations. Instead, the Treasury Department
and the IRS have determined that analyz-

January 18, 2022

ing whether a foreign tax is an income tax
based on how such income is characterized under foreign law and comparing the
foreign tax law sourcing rule to U.S. tax
principles, provides adequate flexibility to
account for differences between U.S. and
foreign law, while adhering to the requirement that a foreign tax be an income tax in
the U.S. sense to be creditable. Thus, the
final regulations do not adopt the recommendation to except digital services from
the jurisdictional nexus requirement.
One comment noted that the 2020 FTC
proposed regulations could create different results for sales of software, depending on whether the software is delivered
on tangible media or delivered by way of
digital download because there are different U.S. source rules for such transactions.
As an example, the comment explained
that a sale of a software copy that is delivered on tangible media is sourced, under
U.S. income tax principles, based on title
passage, whereas the sale of a copyrighted article delivered through an electronic
medium is deemed to occur, under proposed §1.861-18(f)(2)(ii), at the location
of download or installation. The comment
further noted that if proposed §1.861-18(f)
(2)(ii) is not finalized, and the title passage
rule continues to apply to digital deliveries, then for U.S. income tax purposes,
the source of the income would be determined based upon where the servers from
which the software copy is made available is located. The comment argued that
these distinctions should not be the basis
for causing the supplier of the software to
be eligible or ineligible for a foreign tax
credit.
The Treasury Department and the IRS
have determined that it is unnecessary to
require a foreign tax law’s sourcing rule
for income derived from the sale or other
disposition of property to conform with
U.S. source rules. This is because under
the Code, the United States imposes tax
on such income of a nonresident only if
the nonresident conducts a U.S. trade or
business (if applicable, through a U.S.
permanent establishment) or the income
is derived from real or movable property
situated in the United States. Thus, the final regulations provide that, with respect
to foreign tax imposed on income derived
from the sale or other disposition of property, including copyrighted articles sold

January 18, 2022

through an electronic medium, the tax
meets the attribution requirement only if
the inclusion of the income in the foreign
tax base meets the activities-based nexus
requirement in §1.901-2(b)(5)(i)(A) or
the property-based nexus requirement in
1.901-2(b)(5)(i)(C).
5. Activities-based nexus requirement
One comment stated that the physical
presence and permanent establishment
standard is not an inherent part of the U.S.
tax system; rather, it is a political invention in the 1920s that was the result of
bargaining between the United States and
its treaty partners. The comment stated
that by adopting this standard in the 2020
FTC proposed regulations, the Treasury
Department and the IRS ignored the economic realities of digital economies and
lacked reasoned decision-making. The
comment recommended that the final
regulations provide that the jurisdictional
nexus requirement is satisfied when consumers of a service rendered by a foreign
corporation are located in the taxing jurisdiction.
The Treasury Department and the IRS
disagree with the comment’s assertion
that the physical presence and permanent
establishment standard is not an appropriate measure for nexus. The permanent
establishment standard is a critical part of
the U.S. Model Income Tax Convention,
existing U.S bilateral tax treaties, and the
OECD Model Tax Convention. Furthermore, a physical presence standard is consistent with the nexus rules in section 864,
which provide that only income effectively connected with a trade or business that
a foreign resident conducts in the United
States is subject to U.S. tax. Contrary to
the comment’s contention, the 2020 FTC
proposed regulations did not ignore the
economic realities of digital economies;
rather, they adopted a standard based on
the existing Code and traditional international taxing norms. The Treasury Department and the IRS have determined that
the income tax principles in the Code do
not allow for the assertion of taxing rights
based solely on the existence of consumers in a jurisdiction.
One comment asserted that, where the
foreign law includes elements in common
with the effectively connected income

344

standard under section 864(c), a broader
standard for attributing income to nonresidents on the basis of the nonresidents’
activities as well as activities of the nonresident’s related parties should satisfy
the activities-based nexus requirement of
the 2020 FTC proposed regulations. The
Treasury Department and the IRS disagree
with this comment. Taking into account
activities of the nonresident’s related parties would be inconsistent with the principles reflected in the U.S. Model Income
Tax Convention, and the OECD Model
Tax Convention, as well as in section 864
(unless the other party is acting on behalf
of the nonresident). Accordingly, the final
regulations at §1.901-2(b)(5)(i)(A) clarify that the activities-based attribution requirement is not met when the nonresident
is deemed to have a trade or business in
the taxing jurisdiction by reason of activities conducted by another person, or when
the foreign tax law attributes profits to
the nonresident based upon the activities
of another person, other than in the case
of a party acting on behalf of the nonresident or in the case of a pass-through entity
of which the nonresident is an owner. In
addition, the final regulations clarify in
§1.901-2(b)(5)(i)(A) that foreign tax law
that attributes income to a nonresident by
taking into account as a significant factor
the mere location of persons from which
a nonresident makes purchases does not
meet the activities-based nexus requirement.
Comments requested that taxes paid to
Puerto Rico be exempted from the application of the jurisdictional nexus requirement because, as a U.S. territory, its taxes
should not be treated in the same manner
as taxes imposed by a foreign country. For
Federal income tax purposes, a credit is
allowed for income taxes paid or accrued
to any foreign country or United States
territory. See section 901(b)(1); see also
section 903. As no distinction is made
between taxes imposed by foreign countries and those imposed by U.S. territories,
the final regulations follow the 2020 FTC
proposed regulations in applying the same
standards in defining what is a creditable
income ta

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/agency%3Airs%3A0a42e4f2c0c6993f. Public record. Not legal advice.