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Charts of Examples in Notice 2014-44


Last week the IRS released Notice 2014-44, announcing that regulations will be issued under Code §901(m). 

Code §901(m)(1) provides that, in the case of a covered asset acquisition ("CAA"), the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to relevant foreign assets ("RFAs") will not be taken into account in determining the foreign tax credit allowed under Code §901(a), and in the case of foreign income tax paid by a Code §902 corporation (as defined in Code §909(d)(5)) will not be taken into account for purposes of Code §§902 or 960.  Instead, the disqualified portion of any foreign income tax is allowed as a deduction.

Calculation of the disqualified portion of a foreign income tax requires the determination of the basis difference, which is the change in an asset's adjusted basis as a result of a CAA.  The regulations will deal with situations where there are differences in the U.S. and foreign basis of an asset as a result of a CAA.  Certain transactions will not be treated as dispositions for purposes of Code §901(m).

The notice provides two examples of the new rules.  Images of the charts are shown below and the charts can be viewed as PDF files here:  Notice 2014-44 Example 1, Notice 2014-44 Example 2.

UPDATE - 7/30/14:  Yesterday the IRS released Notice 2014-45, which eliminates a potential timing abuse in Notice 2014-44.  Notice 2014-44 stated that it would apply to dispositions on or occuring after July 21, 2014.  Notice 2014-45 states that Notice 2014-44 will also apply to any dispositions triggered by check-the-box elections filed on or after July 29, 2014 with an effective date on or before July 21, 2014.

Notice 2014-44 ex 1

Notice 2014-44 ex 2

Tags: 901 Foreign Tax Credits, 901(m) Covered Asset Acquisitions, Authority - Notices, Charts - Situational Charts