Ezel / IRS Rulings / 200848051

CCA 200848051: U.S. parent needs a section 3121(l) agreement to deduct foreign-subsidiary FICA

Number
200848051
Outcome
Advice
Document type
Chief Counsel Advice
IRS subject
Definitions
Topics
Employment taxes
Code sections
§ 3121
Ruling dated
July 22, 2008
Publicly released
November 28, 2008
Source
View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2008, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Currency note: this determination was released in 2008
Statutory amendments, regulation changes, court decisions, or later IRS guidance may have changed the analysis since then. Treat this page as historical context, not current tax advice. Verify current law before relying on any specific rule, threshold, or position mentioned here.
Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.
About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.
View official IRS release (PDF)

Plain-English summary

Chief Counsel interpreted IRC § 3121(z)(3) to deny a U.S. parent a deduction even for FICA taxes it actually paid on behalf of a foreign subsidiary. The email suggested that this result could encourage section 3121(l) agreements. With such an agreement, the parent could deduct FICA paid for the foreign subsidiary's employees to the extent the subsidiary did not reimburse it.

Ruling snapshot

  • Question: May a U.S. parent deduct FICA taxes paid for a foreign subsidiary's employees?
  • Outcome: Advice given. Not under section 3121(z)(3) alone, but unreimbursed payments are deductible with a section 3121(l) agreement.
  • Key authorities: IRC §§ 3121(l) and 3121(z)(3).

Full text (IRS public release)

ID: CCA-722141-08 Number: 200848051
Office: -----------------------------
Release Date: 11/28/2008

UILC: 3121.00-00

From: --------------------
Sent: Tue 7/22/2008 2:19 PM
To: ------------------------------------------
Cc:
Subject: RE: § 3121(z)(3)

Yes, I think it does mean no deduction for the US parent even for the FICA taxes it actually pays on
behalf of the foreign sub. This could be intended as an incentive to enter into 3121(l) agreements. If the
US parent has an (l) agreement, it is entitled to deduct the FICA taxes is pays with respect to employees
of the foreign sub to the extent that the foreign sub does not reimburse the US parent for those taxes.

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