CCA 201112019: Foreign tax credit may be claimed for contested foreign taxes

Plain-English summary

Chief Counsel advised that when a taxpayer pays taxes to a foreign government while contesting its liability for those taxes, the taxpayer may claim a foreign tax credit for them under the cited revenue ruling and court decision. The advice applied that position to taxes deemed paid in connection with a distribution to a U.S. parent because the taxes had been paid to the foreign country and the taxpayer was contesting its liability.

Ruling snapshot

• Question: May the taxpayer claim a foreign tax credit for foreign taxes paid while contesting its liability?
• Outcome: Advice given.
• Key authorities: IRC § 901; Rev. Rul. 70-290; International Business Machines Corporation v. U.S., 38 Fed. Cl. 661 (1997)

Full text (IRS public release)

ID: CCA_2011021811045838 Number: 201112019
Release Date: 3/25/2011
Office: ------------------
UILC: 901.01-00

From: ---------------------
Sent: Friday, February 18, 2011 11:05:02 AM
To: -------------------------------------------------------
Cc: ------------------------------------------------
Subject: February 17 Teleconference

As requested in our phone conversation yesterday, please find a summary of our conclusions in your case:

Under Revenue Ruling 70-290, 1970-1 C.B. 160, and International Business Machines Corporation v. U.S. (IBM), 38 Fed. Cl. 661 (1997), where a taxpayer pays taxes to a foreign government and contests its liability for such taxes, the taxpayer is entitled to claim a foreign tax credit for such taxes. As discussed in our teleconference, under the authority of the revenue ruling and IBM, it is our position that the taxpayer is entitled to claim the foreign tax credit for the taxes that were deemed paid with respect to the distribution to the U.S. parent because those taxes have been paid to the foreign country and the taxpayer is contesting its liability for such taxes.