Treasury Pauses on Imposing Foreign Tax Credit Rules
The IRS announced a notice to allow taxpayers to follow the former rules on the foreign tax credit while it considers whether to modify its newer standards for claiming the credit. The IRS said taxpayers can choose to follow the pre-2021 rules in determining their eligibility for the credit for tax years 2022 and 2023. This will enable companies to temporarily avoid the tougher new standards on certain issues, like requirements that taxpayers must have a nexus of activity in a foreign country and must be able to recover significant costs in order to have the resulting taxes qualify for the credit.
IRS To Address Currency Issues in Previously Taxed Income Regulations
The IRS plans to address a foreign exchange issue regarding distributions of previously taxed earnings and profits (PTEP) in a forthcoming rule. Section 986(c) addresses foreign currency gains or losses on distributions of PTEP attributable to changes in exchange rates. The IRS’s regulations on PTEP will include the issue of how foreign exchange rules apply when a controlled foreign corporation (CFC) receives a distribution of PTEP from a lower-tier CFC that uses a different functional currency.
Pennsylvania SALT Workaround Bills Introduced
The Pennsylvania legislature introduced two bills that would create a workaround for the federal cap on state and local tax (SALT) deductions. The measures (HB1584, SB659) would allow partnerships and S corporations to choose to pay the 3.07% state income tax at the entity level rather than passing that income to individual owners. Pennsylvania is the largest state without a workaround for the $10,000 SALT cap set by the federal tax law.
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