Foreign Tax Credit Planning- The Use of the “Technical Taxpayer” Rule to Split Foreign Tax Credits
By Anthony Diosdi U.S. taxpayers are generally subject to U.S. tax on their worldwide income, but may be provided a tax credit for foreign income taxes paid or accrued. The main purpose of the foreign tax credit is to mitigate the double taxation of foreign source income that might occur if such income is taxed by both the United States and a foreign country. A U.S. taxpayer may receive a “direct” foreign tax credit for foreign taxes that the taxpayer itself pays. Internal Revenue Code Section 901 limits the foreign tax credit to foreign taxes imposed on “income, war profits or excess profits.” Internal Revenue Code Section 903 extends the credit to foreign taxes imposed “in-lieu-of” an income tax. In order to be creditable under either Internal Revenue Code Sections…