Tax News

CCH (cch.taxgroup.com) reports:

Final and temporary regulations have been issued relating to the recapture of overall domestic losses under Code Sec. 904(g). The regulations also provide updated guidance with respect to overall foreign losses and separate limitation losses for individuals and corporations claiming foreign tax credits.
CCH Comment: The domestic loss regulations implement the policy underscoring Code Sec. 904(g) which is to mitigate the mismatch which can occur when U.S. source loss is allocated to foreign source income, resulting in excess foreign tax credits which are then carried forward. Such losses cannot offset U.S. source taxable income in a subsequent year, nor can the carried forward foreign tax credits offset the tax on such income. Instead, Code Sec. 904(g) recharacterizes a portion of the taxpayer's U.S.-source income for each succeeding tax year as foreign-source income in an amount equal to the lesser of: (1) the amount of the unrecharacterized overall domestic losses for years prior to such succeeding year; or (2) 50 percent of the taxpayer's U.S.-source income for such succeeding tax year.
The temporary regulations provide for the establishment, maintenance and recapture of a separate domestic loss account for each separate category of foreign source income offset by a domestic loss, and determine when an overall domestic loss is treated as having been sustained. Overall domestic losses are recaptured by treating up to 50 percent of a taxpayer's U.S. source taxable income as foreign source income until the overall domestic loss account has been reduced to zero.
The temporary regulations also include new provisions regarding the establishment and recapture of separate limitation loss accounts implementing the separate loss provisions of Code Sec. 904(f)(5). Such accounts are required with respect to a separate category to the extent a foreign source loss in that category offsets foreign source income in another separate category. Finally, the temporary regulations update existing regulations governing the determination and maintenance of overall foreign loss accounts, as well as the recapture of overall foreign losses and the allocation of net operating and capital losses. Ordering rules are provided for the allocation of net operating losses, net capital losses, U.S. source losses, and separate limitation losses, as well as the recapture of separate limitation losses, overall foreign losses and overall domestic losses.
The regulations are effective as of December 31, 2007, and generally apply to taxable years beginning after that date. Taxpayers may choose to apply the overall domestic loss provisions in other taxable years beginning after December 31, 2006, or use any reasonable method consistently applied to those years including a method based on the ordering rules contained in Notice 89-3, 1989-1 CB 622.
The text of the temporary regulations also serves as the text of proposed regulations. Written or electronic comments regarding the proposed regulations have been requested, and must be received by March 20, 2007. A public hearing on the proposed regulations has been scheduled for April 10, 2008.
T.D. 9371, 2008FED ¶47,007
Proposed Regulations, NPRM REG-141399-07, 2008FED ¶49,779
Other References:
Code Sec. 904
CCH Reference - 2007FED ¶27,881
CCH Reference - 2007FED ¶27,888G
CCH Reference - 2007FED ¶27,892
CCH Reference - 2007FED ¶27,893
CCH Reference - 2007FED ¶27,894
CCH Reference - 2007FED ¶27,894C
CCH Reference - 2007FED ¶27,895
CCH Reference - 2007FED ¶27,895C
CCH Reference - 2007FED ¶27,896
CCH Reference - 2007FED ¶27,899C
CCH Reference - 2007FED ¶27,899D
CCH Reference - 2007FED ¶27,899G
CCH Reference - 2007FED ¶27,899H
CCH Reference - 2007FED ¶27,900AA
CCH Reference - 2007FED ¶27,900AB
CCH Reference - 2007FED ¶27,900AC
CCH Reference - 2007FED ¶27,900AD
CCH Reference - 2007FED ¶27,900AE
CCH Reference - 2007FED ¶27,900AF
CCH Reference - 2007FED ¶27,900AG
CCH Reference - 2007FED ¶27,900B
CCH Reference - 2007FED ¶27,900EA
Code Sec. 1502
CCH Reference - 2007FED ¶33,154
CCH Reference - 2007FED ¶33,154C
Tax Research Consultant
CCH Reference - TRC INTLOUT:6,262
CCH Reference - TRC CONSOL:45,250