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TAX CLINIC

FTC. USP has no foreign income
taxes that qualify for the corporate
AMT FTC. USP chooses to claim
an FTC for the tax year. USP’s
corporate AMT FTC is the lesser
of the pro rata share of the foreign
income taxes ($165 million) or 15%
of the CFC AFSI adjustment (15%
of $500 million + $200 million, or
$105 million). Thus, even though
blending of CFC1 and CFC2’s for-
eign income taxes is allowed, USP is
allowed to claim only $105 million
of a corporate AMT FTC in the
current year. The remaining $60
million of taxes paid by CFC1 and
CFC2 are carried forward for up to
five years.

Example 2: Assume US1, a domestic
corporation, is an applicable corpo-
Foreign income taxes are taken into deemed paid or attributable to inclu- ration and wholly owns FB1, a for-
account for purposes of the corporate sions under Sec. 951 or 951A. eign branch in country X. FB1 has
AMT FTC only if a two-prong test The IRS is granted regulatory au- net income of $500 million, none of
is met (i.e., the foreign income taxes thority to provide regulations or other which is considered ECI, and has
must be taken into account on the guidance as is necessary to “carry out $150 million of foreign income taxes
relevant applicable financial statement the purposes of this subsection.” that are (1) income taxes within the
and be paid or accrued, for U.S. federal The examples below illustrate meaning of Sec. 901; (2) taken into
income tax purposes, by the relevant the mechanics of the corporate account on the applicable financial
corporation). AMT FTC: statements; and (3) paid or accrued
Excess corporate AMT FTCs at- for federal income tax purposes by
tributable to CFCs may be carried Example 1: Assume USP, a do- US1. Thus, FB1’s foreign income
forward for five years. As drafted, the mestic corporation, is an applicable taxes qualify for the corporate AMT
corporate AMT FTC carryforward corporation and wholly owns each FTC. Because FB1 is a foreign
appears to apply only to CFC-level for- of CFC1 and CFC2, both foreign branch of US1, no limitation applies
eign taxes in excess of the CFC-specific corporations in countries X and Y, on the foreign income taxes paid by
limitation, rather than global foreign respectively. CFC1 and CFC2 have FB1. Thus, US1 is allowed to claim
taxes in excess of the overall corporate net income of $500 million and $150 million of a corporate AMT
AMT liability. As a result, it does not $200 million, respectively, none of FTC in the current year.
appear that any foreign income taxes which is considered effectively con-
paid or accrued directly by a domestic nected income (ECI). CFC1 and As with many aspects of the act,
corporation would be allowed as a car- CFC2 have $150 million and $15 several questions and issues are left un-
ryforward. The corporate AMT FTC million, respectively, of foreign in- answered as they relate to the corporate
does not include any limitations under come taxes that are (1) income taxes AMT FTC. The next section of this IMAGE BY MOHD HAFIEZ MOHD RAZALI/EYEEM/GETTY IMAGES
Sec. 904 — such as separate category within the meaning of Sec. 901; (2) item examines unanswered questions
income or loss, overall foreign loss, taken into account on the applicable related to the scope of foreign income
overall domestic loss, or loss recapture financial statements; and (3) paid taxes that are available for the corporate
provisions — in determining the credit. or accrued for federal income tax AMT FTC, what taxes are “taken into
Additionally, it is not determined on purposes by CFC1 and CFC2. Thus, account,” timing issues, foreign tax
a country-by-country basis, nor does CFC1 and CFC2’s foreign income redeterminations issues, and transition
it matter if taxes paid by CFCs are taxes qualify for the corporate AMT and carryforward issues.

20 March 2023 The Tax Adviser