US Authorities Issue Final Ruling On Foreign Tax Credit Limit

by Leroy Baker, Tax-News.com, New York

22 July 2004

Following a proposal published in January 2001, the Internal Revenue Service and the Treasury Department have announced a final ruling on calculating taxpayers’ maximum foreign tax credit.

The ruling encompasses the calculation of foreign tax credit limits for taxpayers with capital gains and losses and provides detailed guidance on adjusting for different tax rates and on accounting for losses.

Due to the complexity of foreign tax credit rules, taxpayers below a certain income level have the option of a simpler approach, discarding the need to make adjustments, the authorities stated.

This means that for the 2004 tax year, this option will be available to those with a taxable income at or below the 28% bracket ($178,650 for married, joint filers), excluding net capital gains or qualified dividends. This is conditional on these taxpayers having less than $20,000 in net capital gains or qualified dividends from foreign sources.

However, proposals that would have affected the calculation of foreign tax credits for US corporations have been withdrawn in response to public comment.

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