Effects of Losses on the Credit for Foreign Income Taxes

41 Pages Posted: 17 Feb 2008

See all articles by Lawrence Lokken

Lawrence Lokken

University of Florida College of Law

Date Written: February 15, 2008


Under US tax law, a US resident (e.g., a domestic corporation) is allowed credit against US tax for foreign income taxes, but the credit may not exceed US tax, before credit, on income from foreign sources. This credit limitation is calculated separately for foreign income taxes on passive income, on the one hand, and other (general limitation) income, on the other. To preserve the long-run integrity of these separate limitations, Congress has adopted three sets of rules requiring recapture of losses. The underlying idea is that if loss in one category offsets income in another category, the loss should be recaptured by recharacterizing subsequent income of the loss category as income of the category offset by the loss. Each of the three loss rules is complex, but interactions of the three rules are stunningly complex. The Treasury, in December of 2007, issued regulations on the loss rules, devoting special attention to interactions among them. This paper explains and illustrates the new regulations.

Suggested Citation

Lokken, Lawrence, Effects of Losses on the Credit for Foreign Income Taxes (February 15, 2008). Available at SSRN: https://ssrn.com/abstract=1094084 or http://dx.doi.org/10.2139/ssrn.1094084

Lawrence Lokken (Contact Author)

University of Florida College of Law ( email )

P.O. Box 117625
Gainesville, FL 32611-7625
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Abstract Views
PlumX Metrics