PLR 200112019: Consent to revoke a foreign tax credit safe harbor election

Plain-English summary

A domestic corporation asked to revoke its election to use the safe harbor method for determining foreign income taxes paid or accrued in one country. The corporation had used that method for more than three taxable years. The IRS found that the request was timely under Treas. Reg. § 1.901-2A(d)(4), and granted consent to revoke the election for the requested year. The ruling concerns how this taxpayer may compute its foreign tax credit for qualifying foreign levies; it does not decide whether particular levies are taxes rather than payments for a specific economic benefit.

Ruling snapshot

• Question: May the taxpayer revoke its foreign tax credit safe harbor election for qualifying levies of the country?
• Outcome: Approved: the IRS granted consent to revoke the election for the requested year.
• Key authorities: IRC § 901; Treas. Reg. § 1.901-2A(d)(4).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200112019
Washington, DC 20224
Release Date: 3/23/2001
Index Numbers: 901.00-00
Person to Contact:
Robert Laudeman (50-04193)
Telephone Number:
202-622-3850
Refer Reply To:
CC:INTL:BR3-PLR-115709-00
Date:
December 15, 2000

TY:

Legend:

Taxpayer
=
Country A =
Business A =
Taxable Year a =
Taxable Year b =
Taxable Year c =
date Z
=

Dear :

This responds to your letter dated August 11, 2000 and supplemental letter dated September 26, 2000 requesting consent for Taxpayer to revoke its election, effective with Taxpayer’s Taxable Year c to use the safe harbor method described in § 1.901- 2A(c)(3) of the Income Tax Regulations in determining the amount of foreign income tax paid or accrued by Taxpayer to Country A. The information submitted is summarized below.

The rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted in support of the request for rulings, it is subject to verification on examination.

Taxpayer is a widely held and publicly traded domestic corporation. Taxpayer is the common parent of an affiliated group of corporations that join in the filing of a consolidated federal income tax return on a calendar year basis. The due date for Taxpayer’s Taxable Year c consolidated federal income tax return, including extensions, was date Z. Taxpayer and its affiliated companies are engaged in Business A in Country A.

Taxpayer has made the following representations in connection with its ruling request:
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(a) Taxpayer is a dual capacity taxpayer with respect to Country A as that term is defined under Treas. Reg. § 1.901-2(a)(2)(ii)(A).

(b) Taxpayer first filed a safe harbor election with respect to Country A qualifying levies for Taxable Year a.

(c) Taxpayer’s safe harbor election with respect to its Country A operations has continued in effect with respect to all qualifying levies of Country A for each of the Taxable Years a through Taxable Year b, inclusive.

Treas. Reg. § 1.901-2A permits dual capacity taxpayers to compute foreign tax credits for qualifying levies of each foreign country either by a "facts and circumstances" or "safe harbor" method.

Treas. Reg. § 1.901-2A(d) describes the manner in which taxpayers may elect the safe harbor method. Treas. Reg. § 1.901-2(d)(1) provides that a member of an affiliated group that files a consolidated U.S. income tax return may use the safe harbor method only if the common parent has made the election on behalf of all members of the group to use the safe harbor method with respect to that country.

Treas. Reg. § 1.901-2A(d)(4) provides that an election to use the safe harbor method that has been properly elected may not be revoked without the consent of the Commissioner. An application for consent must be made not later than the 30th day before the due date (including extensions) for the filing of the income tax return for the first taxable year for which the revocation is sought to be effective with some exceptions not applicable to this situation. The Commissioner may make his consent to any revocation conditioned upon adjustments being made in one or more taxable years so as to prevent the revocation from resulting in a distortion of the amount of any item relating to tax liability in any taxable year. The Commissioner will normally consent to a revocation under the circumstances described in Treas. Reg. § 1.901-2A(d)(4)(i) through (vi).

If a safe harbor election is revoked, a subsequent election to apply the safe harbor method for the same foreign country may be made only with the Commissioner’s consent. Treas. Reg. § 1.901-2A(d)(4).

Treas. Reg. § 1.901-2A(d)(4)(vi) provides that the Commissioner will normally consent to a revocation of a safe harbor election if the election has been in effect with respect to at least three taxable years prior to the taxable year for which the revocation is to be effective.

Based solely on the information and representations submitted, (1) Taxpayer's application for consent to revoke the safe harbor election with respect to qualifying levies of Country A was made not later than the 30th day before the Federal income tax return due date (including extensions) for Taxable Year c; and (2) Taxpayer's safe 3
PLR-115709-00

harbor election has been in effect for more than three taxable years prior to Taxable Year c. Treas. Reg. § 1.901-2A(d)(4)(vi).

Accordingly, consent is granted to Taxpayer to revoke its election to use the safe harbor method described in Treas. Reg. § 1.901-2A(c)(3) with respect to qualifying levies of Country A, effective for Taxable Year c. Treas. Reg. § 1.901-2A(d)(4)(vi).

No opinion was requested, and none is expressed, about whether, based upon all relevant facts and circumstances, the amount (if any) paid pursuant to a levy or levies imposed by Country A is not an amount paid in exchange for a specific economic benefit.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,
Anne O’Connell Devereaux
Assistant to the Branch Chief, Branch 3
Office of Associate Chief Counsel
(International) cc: