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Rev. Rul. 2016-8: Tax Aspects of the Cuban Thaw


Last week the IRS released Rev. Rul. 2016-8.  The ruling removes certain restrictions that had been in place for over 25 years on income earned in Cuba.  In particular, Cuba had been a country to which Code §901(j)(1)(A) had applied. 

Code §901(j)(1)(A) applies to any foreign country:

  • the government of which the United States does not recognize, unless such government is otherwise eligible to purchase defense articles or services under the Arms Export Control Act,
  • with respect to which the United States has severed diplomatic relations,
  • with respect to which the United States has not severed diplomatic relations but does not conduct such relations, or
  • which the Secretary of State has, pursuant to section 6(j) of the Export Administration Act of 1979, as amended, designated as a foreign country which repeatedly provides support for acts of international terrorisms.

When Code §901(j)(1)(A) applies to a country, generally any taxes paid to the country cannot be claimed as credits in the U.S. under Code §§901, 902, or 960.  In addition, generally all income earned by a controlled foreign corporation in such a country is Subpart F income.

With Cuba now removed (effective December 21, 2015) from the list of countries to which Code §901(j)(1)(A) applies, only the following countries remain:  Iran, Sudan, and Syria.  See Rev. Rul. 2005-3.

Tags: 901 Foreign Tax Credits, 951 Subpart F Income, Authority - Revenue Rulings