2013-11-09
Below is a chart of Chief Counsel Advice AM2013-006 in which the IRS addressed the effect of a Code §302 redemption on a controlled foreign corporation's ("CFC") pool of foreign taxes.
In Year 1, the CFC redeemed all of its stock owned by one of its shareholders in a transaction that qualified as a Code §302 distribution. The distribution reduced its pool of undistributed earnings and profits. In Year 2, the CFC paid a dividend representing 100% of its undistributed earnings and profits to its sole remaining shareholder.
The IRS concluded that the Code §302 distribution in Year 1 not only reduces the CFC's undistributed earnings and profits, but it also must reduce the CFC's pool of foreign income taxes. Without such a reduction, the distribution in Year 2 would carry tax credits associated with earnings and profits previously distributed.
The chart can be viewed as a PDF file here: CCA AM2013-006
Tags: 901 Foreign Tax Credits, Authority - PLRs / CCAs, Charts - Situational Charts
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