CCA 1024056: Counsel described the overall foreign loss recapture approach for separate categories

Plain-English summary

The Office of Chief Counsel explained how the overall foreign loss recapture rules under IRC § 904(f)(1) apply to the separate category limitations under IRC § 904(d). Counsel described the IRS position for post-1986 years as recapturing foreign-source income in a separate category with an overall foreign loss recapture account, subject to the stated 50 percent limitation. The memo also distinguished the pre-2007 regulations and explained that they did not apply by their terms to overall foreign losses sustained in post-1986 years.

Ruling snapshot

• Question: How do the overall foreign loss recapture rules apply to the separate foreign tax credit limitation categories?
• Outcome: Advice given
• Key authorities: IRC §§ 904(d) and 904(f)(1); Treas. Reg. §§ 1.904(f)-1(a)(1), (c)(1), and 1.904(f)-2(c)(1); Temp. Treas. Reg. § 1.904(f)-2T(c)(1)

Full text (IRS public release)

ID: CCA_2010050617305735 Number: 201024056
Release Date: 6/18/2010
Office: ------------------
UILC: 904.05-06

From: ---------------------
Sent: Thursday, May 06, 2010 5:31:02 PM
To: -----------------------
Cc:
Subject: RE: FTC OFL Recapture

Confirming my telephone advice, the statute does not specifically address how to apply the overall foreign
loss (OFL) recapture rules of section 904(f)(1) to the section 904(d) separate category limitations. The
consistent IRS position for post-1986 years, as reflected in instructions to Form 1118 and BNA
computational software, followed the position articulated in the 1986 Act committee reports and Bluebook
and reflected in temporary regulations at Treas. Reg. 1.904(f)-2T(c)(1) published in 2007, which is to
recapture up to 100% of the foreign source income in any separate category with an OFL recapture
account, to the extent of 50% of the total amount of foreign source income in all categories for the year.
The 1987 regulations under section 904(f), which provided at Treas. Reg. 1.904(f)-2(c)(1) prior to
amendment in 2007 that recapture is limited to 50% of the foreign source income for the year in each
separate category with an OFL recapture account, did not apply by their terms to OFLs sustained in post-
1986 years. See Treas. Reg. 1.904(f)-1(a)(1) and (c)(1). ---------------------------------------------------------------

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