IRS ASSOCIATE CHIEF COUNSEL ON FOREIGN TAX CREDIT EFFECTS OF FOREIGN SHAREHOLDER REDEMPTION

On Nov 1, 2013, the IRS Chief Counsel's Office issued AM 2013-006, an Advice Memorandum signed by the Associate Chief Counsel (International), providing the IRS position on the Section 902 deemed-paid foreign tax credit implications of a foreign shareholder redemption under Section 312(n)(7). S...

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Bibliographic Details
Published in:Journal of International Taxation 2014-04, Vol.25 (4), p.23
Main Authors: Anson, Tim, Fischl, Alan, Collins, Marty, Chen, Matthew, Kwok, Judy
Format: Article
Language:English
Subjects:
Controlled foreign corporations
Disregarded entities
Dividend distributions
Earnings
Foreign subsidiaries
Foreign tax credits
Income taxes
International taxation
Regulation
Stock redemptions
Stockholders
Tax credits
Tax rates
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Summary:On Nov 1, 2013, the IRS Chief Counsel's Office issued AM 2013-006, an Advice Memorandum signed by the Associate Chief Counsel (International), providing the IRS position on the Section 902 deemed-paid foreign tax credit implications of a foreign shareholder redemption under Section 312(n)(7). Specifically, pursuant to the IRS interpretation of Reg. 1.902-1(a)(8)(i), the Service said that a redemption of a foreign shareholder of a foreign corporation (that also had a US shareholder) reduced not only the foreign subsidiary's post-1986 earnings and profits (E&P) pool, but also a proportionate amount of the foreign subsidiary's post-1986 foreign tax pool. The IRS analysis, which rests primarily on its interpretation of Reg. 1.902-1(a)(8)(i) and the policy underlying Section 902, is somewhat questionable and arguably inconsistent with the plain language of the Code and Regulations. Nonetheless, the AM signals that the IRS may scrutinize similar transactions, including other non-redemptive transactions that involve a reduction of E&P under Section 312(a).
ISSN:1049-6378