26 U.S.C. § 986
For purposes of determining the amount of the foreign tax credit, in the case of a taxpayer who takes foreign income taxes into account when accrued, the amount of any foreign income taxes (and any adjustment thereto) shall be translated into dollars by using the average exchange rate for the taxable year to which such taxes relate.
Subparagraph (A) shall not apply to any foreign income taxes-
Subparagraph (A) shall not apply to any foreign income taxes the liability for which is denominated in any inflationary currency (as determined under regulations).
At the election of the taxpayer, subparagraph (A) shall not apply to any foreign income taxes the liability for which is denominated in any currency other than in the taxpayer's functional currency.
An election under this subparagraph may apply to foreign income taxes attributable to a qualified business unit in accordance with regulations prescribed by the Secretary.
Any such election shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
In the case of a regulated investment company which takes into account income on an accrual basis, subparagraphs (A) through (D) shall not apply and foreign income taxes paid or accrued with respect to such income shall be translated into dollars using the exchange rate as of the date the income accrues.
For adjustments where tax is not paid within 2 years, see section 905(c).
For purposes of determining the amount of the foreign tax credit, in the case of any foreign income taxes to which subparagraph (A) or (E) of paragraph (1) does not apply-
To the extent prescribed in regulations, the average exchange rate for the period (specified in such regulations) during which the taxes or adjustment is paid may be used instead of the exchange rate as of the time of such payment.
For purposes of this subsection, the term "foreign income taxes" means any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States.
For purposes of determining the tax under this subtitle-
Foreign currency gain or loss with respect to distributions of previously taxed earnings and profits (as described in section 959 or 1293(c)) attributable to movements in exchange rates between the times of deemed and actual distribution shall be recognized and treated as ordinary income or loss from the same source as the associated income inclusion.
The Secretary shall prescribe regulations with respect to the treatment of distributions of previously taxed earnings and profits through tiers of foreign corporations.
26 U.S.C. § 986
EDITORIAL NOTES
AMENDMENTS2004-Subsec. (a)(1)(D). Pub. L. 108-357, §408(a), added subpar. (D). Former subpar. (D) redesignated (E). Subsec. (a)(1)(E). Pub. L. 108-357, §408(b)(1), added subpar. (E). Former subpar. (E) redesignated (F). Pub. L. 108-357, §408(a), redesignated subpar. (D) as (E).Subsec. (a)(1)(F). Pub. L. 108-357, §408(b)(1), redesignated subpar. (E) as (F).Subsec. (a)(2). Pub. L. 108-357, §408(b)(2), inserted "or (E)" after "subparagraph (A)" in introductory provisions.1997-Subsec. (a). Pub. L. 105-34, §1102(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows:"(a) FOREIGN TAXES.- "(1) IN GENERAL.-For purposes of determining the amount of the foreign tax credit-"(A) any foreign income taxes shall be translated into dollars using the exchange rates as of the time such taxes were paid to the foreign country or possession of the United States, and "(B) any adjustment to the amount of foreign income taxes shall be translated into dollars using-"(i) except as provided in clause (ii), the exchange rate as of the time when such adjustment is paid to the foreign country or possession, or"(ii) in the case of any refund or credit of foreign income taxes, using the exchange rate as of the time of original payment of such foreign income taxes."(2) FOREIGN INCOME TAXES.-For purposes of paragraph (1), 'foreign income taxes' means any income, war profits, or excess profits taxes paid to any foreign country or to any possession of the United States."Subsec. (a)(3), (4). Pub. L. 105-34, §1102(b)(1), added par. (3) and redesignated former par. (3) as (4).1988- Pub. L. 100-647 substituted "foreign taxes and foreign corporation's earnings and profits" for "foreign corporation's earnings and profits and foreign taxes" in heading, and revised and restructured the provisions of subsecs. (a) and (b).
STATUTORY NOTES AND RELATED SUBSIDIARIES
EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108-357, title IV, §408(c), Oct. 22, 2004, 118 Stat. 1500, provided that: "The amendments made by this section [amending this section] shall apply to taxable years beginning after December 31, 2004."
EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105-34, title XI, §1102(c)(1), Aug. 5, 1997, 111 Stat. 966, provided that: "The amendments made by subsections (a)(1) and (b) [amending this section and section 989 of this title] shall apply to taxes paid or accrued in taxable years beginning after December 31, 1997."
EFFECTIVE DATE OF 1988 AMENDMENT Amendment by Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647 set out as a note under section 1 of this title.
EFFECTIVE DATESection applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1261(e) of Pub. L. 99-514 set out as a note under section 985 of this title.
- Secretary
- The term "Secretary" means the Secretary of the Treasury or his delegate.
- United States person
- The term "United States person" means-(A) a citizen or resident of the United States,(B) a domestic partnership,(C) a domestic corporation,(D) any estate (other than a foreign estate, within the meaning of paragraph (31)), and(E) any trust if-(i) a court within the United States is able to exercise primary supervision over the administration of the trust, and(ii) one or more United States persons have the authority to control all substantial decisions of the trust.
- corporation
- The term "corporation" includes associations, joint-stock companies, and insurance companies.
- shareholder
- The term "shareholder" includes a member in an association, joint-stock company, or insurance company.
- taxable year
- The term "taxable year" means the calendar year, or the fiscal year ending during such calendar year, upon the basis of which the taxable income is computed under subtitle A. "Taxable year" means, in the case of a return made for a fractional part of a year under the provisions of subtitle A or under regulations prescribed by the Secretary, the period for which such return is made.
- taxpayer
- The term "taxpayer" means any person subject to any internal revenue tax.