26 USC 986 - Determination of foreign taxes and foreign corporation’s earnings and profits

U.S Code last checked for updates: Nov 23, 2024

§ 986.

Determination of foreign taxes and foreign corporation’s earnings and profits

(a)

Foreign income taxes

(1)

Translation of accrued taxes

(A)

In general

(B)

Exception for certain taxes

Subparagraph (A) shall not apply to any foreign income taxes—

(i)

paid after the date 2 years after the close of the taxable year to which such taxes relate, or

(ii)

paid before the beginning of the taxable year to which such taxes relate.

(C)

Exception for inflationary currencies

(D)

Elective exception for taxes paid other than in functional currency

(i)

In general

(ii)

Application to qualified business units

(iii)

Election

(E)

Special rule for regulated investment companies

(F)

Cross reference

(2)

Translation of taxes to which paragraph (1) does not apply

For purposes of determining the amount of the foreign tax credit, in the case of any foreign income taxes to which subparagraph (A) or (E) of paragraph (1) does not apply—

(A)

such taxes shall be translated into dollars using the exchange rates as of the time such taxes were paid to the foreign country or possession of the United States, and

(B)

any adjustment to the amount of such taxes shall be translated into dollars using—

(i)

except as provided in clause (ii), the exchange rate as of the time when such adjustment is paid to the foreign country or possession, or

(ii)

in the case of any refund or credit of foreign income taxes, using the exchange rate as of the time of the original payment of such foreign income taxes.

(3)

Authority to permit use of average rates

(4)

Foreign income taxes

(b)

Earnings and profits and distributions

For purposes of determining the tax under this subtitle—

(1)

of any shareholder of any foreign corporation, the earnings and profits of such corporation shall be determined in the corporation’s functional currency, and

(2)

in the case of any United States person, the earnings and profits determined under paragraph (1) (when distributed, deemed distributed, or otherwise taken into account under this subtitle) shall (if necessary) be translated into dollars using the appropriate exchange rate.

(c)

Previously taxed earnings and profits

(1)

In general

(2)

Distributions through tiers

(Added Pub. L. 99–514, title XII, § 1261(a), Oct. 22, 1986, 100 Stat. 2586; amended Pub. L. 100–647, title I, § 1012(v)(1)(A), Nov. 10, 1988, 102 Stat. 3528; Pub. L. 105–34, title XI, § 1102(a)(1), (b)(1), Aug. 5, 1997, 111 Stat. 963, 965; Pub. L. 108–357, title IV, § 408(a), (b), Oct. 22, 2004, 118 Stat. 1499.)

cite as: 26 USC 986