PLR 200649026: Consent granted to revoke dual-capacity foreign-tax safe harbor

Plain-English summary

A domestic corporate group asked to revoke its safe-harbor election for determining foreign income taxes paid by dual-capacity taxpayers in one country. The IRS granted consent effective for the requested tax year and all subsequent years. The application was submitted at least 30 days before the extended return due date, and the election had applied for at least the preceding three taxable years. Those facts met the cited regulatory conditions for normally granting revocation consent. The IRS did not determine whether any particular foreign levy was paid in exchange for a specific economic benefit or otherwise qualified for foreign-tax-credit treatment.

Ruling snapshot

• Question: Could the group revoke its dual-capacity foreign-tax safe-harbor election for the requested year and later years?
• Outcome: Approved; consent granted effective for the requested tax year and subsequent years.
• Key authorities: IRC § 901; Treas. Reg. §§ 1.901-2(a)(2)(ii)(A), 1.901-2A(c)(1), (3), (d)(4)(vi).

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200649026
Third Party Communication: None
Release Date: 12/8/2006
Date of Communication: Not Applicable
Index Number: 901.00-00, 901.01-04
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:INTL:B03
PLR-138976-06
Date:
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September 07, 2006

TY: -------

Legend

Corp A = -----------------------------------------------------------------------------------------------
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Corp B = -------------------------------------- Corp C = ---------------------------------- Country L = ---------- Date N = --------------------------- Tax Year = ------- X Tax Year = ------- Y

Dear ---------------:

This is in response to your letter dated August 7, 2006, in which you request consent for Corp A to revoke, effective for Tax Year Y and for all subsequent taxable years, its election, effective beginning for Tax Year X, to use the safe harbor method described in Treas. Reg. §1.901-2A(c)(3) in determining the amount of foreign income tax paid or accrued to Country L. The information submitted for consideration is substantially as set forth below.

The ruling contained in this letter is 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.

Corp A is a domestic corporation that is the common parent of an affiliated group of corporations (“the Corp A Group”) that filed a U.S. consolidated federal income tax return for Tax Year X and for all subsequent tax years. The due date (including

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extensions) for Corp A’s U.S. consolidated federal income tax return for Tax Year Y is Date N, which is more than 30 days after August 7, 2006.

The Corp A Group’s Country L operations are conducted by several domestic and foreign subsidiaries. Several of these subsidiaries are, and have been, dual capacity taxpayers, as defined in Treas. Reg. §1.901-2(a)(2)(ii)(A), with respect to their operations in Country L.

Corp B, now known as Corp C, a wholly owned domestic subsidiary of Corp A, filed a safe harbor election under Treas. Reg. §1.901-2A(d)(3)(ii) with respect to Country L levies paid or accrued by members of its consolidated group for Tax Year X and for subsequent years. That safe harbor election has not been revoked under §1.901- 2A(d)(4).

Treas. Reg. §1.901-2A(c)(1) permits dual capacity taxpayers in computing foreign tax credits for qualifying levies of each country to use either a “facts and circumstances” method or a ”safe harbor” method to determine the amount of a levy that is not paid in exchange for a specific economic benefit.

Treas. Reg. §1.901-2A(d) describes the manner in which taxpayers may elect and revoke the safe harbor method. Treas. Reg. §1.901-2A(d)(4) provides that the safe harbor method election may not be revoked without the consent of the Commissioner. An application for consent to revoke the election must be made not later than 30 days 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 certain 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 §1.901-2A(d)(4)(i) through (vi).

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, Corp A’s application for consent to revoke the safe harbor election with respect to qualifying levies of Country L was made not later than 30 days before Date N, the due date (including extension) for Corp A’s U.S. consolidated federal income tax return for Tax Year Y, and the applicable safe harbor election has been in effect with respect to at least Corp A’s last three taxable years prior to Tax Year Y. Accordingly, consent is granted to Corp A to revoke the safe harbor election effective for Tax Year Y and for all subsequent taxable years.

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No opinion was requested, and no opinion is expressed, as to whether, based upon all of the relevant facts and circumstances, the amount (if any) paid pursuant to a levy or levies imposed by Country L is not an amount paid in exchange for a specific economic benefit.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter.

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

A copy of this letter must be attached to any income tax return to which it is relevant. Alternatively, taxpayers filing their returns electronically may satisfy this requirement by attaching a statement to their return that provides the date and control number of the letter ruling.

Sincerely,

Richard L. Chewning
Senior Counsel, Branch 3
Office of the Associate Chief Counsel
(International)

Enclosure (1)