26 CFR § 1.901(m)-1 - Definitions.

§ 1.901(m)-1 Definitions.

(a) Definitions. For purposes of section 901(m), this section, and §§ 1.901(m)-2 through 1.901(m)-8, the following definitions apply:

(1) The term aggregate basis difference means, with respect to a foreign income tax and a foreign payor, the sum of the allocated basis differences and the allocated basis difference adjustments for a U.S. taxable year of a section 901(m) payor, plus any aggregate basis difference carryover from the immediately preceding U.S. taxable year of the section 901(m) payor with respect to the foreign income tax and foreign payor, as adjusted under § 1.901(m)-6(c). For purposes of this definition, if foreign law imposes tax on the combined income (within the meaning of § 1.901-2(f)(3)(ii)) of two or more foreign payors, all foreign payors whose items of income, deduction, gain, or loss are included in the U.S. taxable income or earnings and profits of the section 901(m) payor are treated as a single foreign payor. Aggregate basis difference is determined with respect to each separate category.

(2) The term aggregate basis difference carryover has the meaning provided in § 1.901(m)-3(c).

(3) The term aggregated CAA transaction means a series of related CAAs occurring as part of a plan.

(4) The term allocable foreign income means the portion of foreign income of a foreign payor that relates to the foreign income tax amount of the foreign payor that is paid or accrued by, or considered paid or accrued by, a section 901(m) payor.

(5) The term allocated basis difference means, with respect to an RFA and a foreign income tax, the sum of the cost recovery amounts and disposition amounts assigned to a U.S. taxable year of the section 901(m) payor under § 1.901(m)-5.

(6) The term allocated basis difference adjustment means an adjustment to a section 901(m) payor's allocated basis difference with respect to an RFA and a foreign income tax for a U.S. taxable year. If the RFA has a positive basis difference, the allocated basis difference adjustment is equal to the lesser of the allocated basis difference or the portion of any unallocated CAA gain that corresponds to the CAA gain recognized by the section 901(m) payor or a member of the section 901(m) payor's consolidated group. If the RFA has a negative basis difference, the allocated basis difference adjustment is equal to the greater of the allocated basis difference or the portion of any unallocated CAA loss that corresponds to the CAA loss recognized by the section 901(m) payor or a member of the section 901(m) payor's consolidated group. For purposes of this paragraph, CAA gain or CAA loss recognized by the section 901(m) payor or a member of the section 901(m) payor's consolidated group includes their distributive share of CAA gain or CAA loss recognized by a partnership.

(7) The term applicable foreign corporation means -

(i) For taxable years of foreign corporations beginning before January 1, 2018, a section 902 corporation (as defined in section 909(d)(5) (as in effect on December 21, 2017)), and

(ii) For taxable years of foreign corporations beginning after December 31, 2017, a controlled foreign corporation (as defined in section 957).

(8) The term basis difference has the meaning provided in § 1.901(m)-4.

(9) The term CAA gain means the amount of gain recognized with respect to an RFA for U.S. tax purposes as a result of a CAA.

(10) The term CAA loss means the amount of loss recognized with respect to an RFA for U.S. tax purposes as a result of a CAA.

(11) The term consolidated group has the meaning provided in § 1.1502-1(h).

(12) The term cost recovery amount has the meaning provided in § 1.901(m)-5(b)(2).

(13) The term covered asset acquisition (or CAA) has the meaning provided in § 1.901(m)-2.

(14) The term cumulative basis difference exemption has the meaning provided in § 1.901(m)-7(b)(2).

(15) The term disposition means an event (for example, a sale, abandonment, or mark-to-market event) that results in gain or loss being recognized with respect to an RFA for purposes of U.S. income tax or a foreign income tax, or both.

(16) The term disposition amount has the meaning provided in § 1.901(m)-5(c)(2).

(17) The term disqualified tax amount has the meaning provided in § 1.901(m)-3(b).

(18) The term disregarded entity means an entity that is disregarded as an entity separate from its owner, as described in § 301.7701-2(c)(2)(i) of this chapter.

(19) The term fiscally transparent entity means an entity, including a disregarded entity, that is fiscally transparent under the principles of § 1.894-1(d)(3) for purposes of U.S. income tax or a foreign income tax (or both).

(20) The term foreign basis means the adjusted basis of an asset determined for purposes of a foreign income tax.

(21) The term foreign basis election has the meaning provided in § 1.901(m)-4(c).

(22) The term foreign country creditable tax (or FCCT) means, with respect to a foreign income tax amount, the amount of income, war profits, or excess profits tax paid or accrued to a foreign country or possession of the United States and claimed as a foreign tax credit for purposes of determining the foreign income tax amount. To qualify as a FCCT, the tax imposed by the foreign country or possession must be a foreign income tax or a withholding tax determined on a gross basis as described in section 901(k)(1)(B).

(23) The term foreign disposition gain means, with respect to a foreign income tax, the amount of gain recognized on a disposition of an RFA in determining foreign income, regardless of whether the gain is deferred or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, foreign disposition gain has the meaning provided in § 1.901(m)-5(c)(2)(iii).

(24) The term foreign disposition loss means, with respect to a foreign income tax, the amount of loss recognized on a disposition of an RFA in determining foreign income, regardless of whether the loss is deferred or disallowed or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, foreign disposition loss has the meaning provided in § 1.901(m)-5(c)(2)(iii).

(25) The term foreign income means, with respect to a foreign income tax, the taxable income (or loss) reflected on a foreign tax return (as properly amended or adjusted), even if the taxable income (or loss) is reported by an entity that is a fiscally transparent entity for purposes of the foreign income tax. If, however, foreign law imposes tax on the combined income (within the meaning of § 1.901-2(f)(3)(ii)) of two or more foreign payors, foreign income means the combined taxable income (or loss) of such foreign payors, regardless of whether such income (or loss) is reflected on a single foreign tax return.

(26) The term foreign income tax means an income, war profits, or excess profits tax for which a credit is allowable under section 901 or section 903, except that it does not include any withholding tax determined on a gross basis as described in section 901(k)(1)(B).

(27) The term foreign income tax amount means, with respect to a foreign income tax, the amount of tax (including an amount of tax that is zero) reflected on a foreign tax return (as properly amended or adjusted). If foreign law imposes tax on the combined income (within the meaning of § 1.901-2(f)(3)(ii)) of two or more foreign payors, however, a foreign income tax amount means the amount of tax imposed on the combined income, regardless of whether the tax is reflected on a single foreign tax return.

(28) The term foreign payor means an individual or entity (including a disregarded entity) subject to a foreign income tax. If foreign law imposes tax on the combined income (within the meaning of § 1.901-2(f)(3)(ii)) of two or more individuals or entities, each such individual or entity is a foreign payor. An individual or entity may be a foreign payor with respect to more than one foreign income tax for purposes of applying section 901(m).

(29) The term foreign taxable year means a taxable year for purposes of a foreign income tax.

(30) The term mid-year transaction means a transaction in which a foreign payor that is a corporation or a disregarded entity has a change in ownership or makes an election pursuant to § 301.7701-3 to change its entity classification, or a transaction in which a foreign payor that is a partnership terminates under section 708(b)(1), provided in each case that the foreign payor's foreign taxable year does not close as a result of the transaction, and, if the foreign payor is a corporation or a partnership, the foreign payor's U.S. taxable year closes.

(31) The term prior CAA has the meaning provided in § 1.901(m)-6(b)(2).

(32) The term prior section 743(b) CAA has the meaning provided in § 1.901(m)-6(b)(4)(iii).

(33) The term relevant foreign asset (or RFA) has the meaning provided in § 1.901(m)-2.

(34) The term reverse hybrid has the meaning provided in § 1.909-2(b)(1)(iv).

(35) The term RFA class exemption has the meaning provided in § 1.901(m)-7(b)(3).

(36) The term RFA exemption has the meaning provided in § 1.901(m)-7(b)(4).

(37) The term RFA owner (U.S.) means a person that owns an RFA for U.S. income tax purposes.

(38) The term RFA owner (foreign) means an individual or entity (including a disregarded entity) that owns an RFA for purposes of a foreign income tax.

(39) The term section 338 CAA has the meaning provided in § 1.901(m)-2(b)(1).

(40) The term section 743(b) CAA has the meaning provided in § 1.901(m)-2(b)(3).

(41) The term section 901(m) payor means a person eligible to claim the foreign tax credit allowed under section 901(a), regardless of whether the person chooses to claim the foreign tax credit, as well as an applicable foreign corporation. Each member of a consolidated group is a separate section 901(m) payor. If individuals file a joint return, those individuals are treated as a single section 901(m) payor.

(42) The term separate category means each separate category described in § 1.904-5(a)(4)(v), and in the case of an applicable foreign corporation described in paragraph (a)(7)(ii) of this section, each income group described in § 1.960-1(d)(2)(ii).

(43) The term subsequent CAA has the meaning provided in § 1.901(m)-6(b)(4)(i).

(44) The term subsequent section 743(b) CAA has the meaning provided in § 1.901(m)-6(b)(4)(iii).

(45) The term successor transaction has the meaning provided in § 1.901(m)-6(b)(2).

(46) The term tentative disqualified tax amount has the meaning provided in § 1.901(m)-3(b)(2)(ii).

(47) The term unallocated basis difference means, with respect to an RFA and a foreign income tax, the basis difference reduced by the sum of the cost recovery amounts and the disposition amounts that have been computed under § 1.901(m)-5.

(48) The term unallocated CAA gain means, with respect to an RFA, the CAA gain reduced by the sum of the allocated basis difference adjustments that have been computed with respect to the RFA.

(49) The term unallocated CAA loss means, with respect to an RFA, the CAA loss reduced by the sum of the allocated basis difference adjustments that have been computed with respect to the RFA.

(50) The term U.S. basis means the adjusted basis of an asset determined for U.S. income tax purposes.

(51) The term U.S. basis deduction has the meaning provided in § 1.901(m)-5(b)(3).

(52) The term U.S. disposition gain means the amount of gain recognized for U.S. income tax purposes on a disposition of an RFA, regardless of whether the gain is deferred or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, U.S. disposition gain has the meaning provided in § 1.901(m)-5(c)(2)(iii).

(53) The term U.S. disposition loss means the amount of loss recognized for U.S. income tax purposes on a disposition of an RFA, regardless of whether the loss is deferred or disallowed or otherwise not taken into account currently. Notwithstanding the foregoing, if after a section 743(b) CAA there is a disposition of an asset that is an RFA with respect to that section 743(b) CAA, U.S. disposition loss has the meaning provided in § 1.901(m)-5(c)(2)(iii).

(54) The term U.S. taxable year means a taxable year as defined in section 7701(a)(23).

(b) Applicability dates.

(1) Except as provided in paragraph (b)(2) of this section, this section applies to CAAs occurring on or after March 23, 2020.

(2) Paragraphs (a)(8), (12), (13), (15), (16), (18), (19), (23) through (26), (31) through (33), (39), (40), (43) through (45), (47), (50), and (52) through (54) of this section apply to CAAs occurring on or after July 21, 2014, and to CAAs occurring before that date resulting from an entity classification election made under § 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014. Paragraphs (a)(8), (12), (13), (15), (16), (18), (19), (23) through (26) through (33), (39), (40), (43) through (45), (47), (50), and (52) through (54) of this section also apply to CAAs occurring on or after January 1, 2011, and before July 21, 2014, other than CAAs occurring before July 21, 2014, resulting from an entity classification election made under § 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, but only if the basis difference (within the meaning of section 901(m)(3)(C)(i)) in one or more RFAs with respect to the CAA had not been fully taken into account under section 901(m)(3)(B) either as of July 21, 2014, or, in the case of an entity classification election made under § 301.7701-3 that is filed on or after July 29, 2014, and that is effective on or before July 21, 2014, before the transactions that are deemed to occur under § 301.7701-3(g) as a result of the change in classification.

(3) Taxpayers may, however, choose to apply provisions in this section before the date such provisions are applicable pursuant to paragraph (b)(1) or (2) of this section, provided that they (along with any persons that are related (within the meaning of section 267(b) or 707(b)) to the taxpayer) -

(i) Consistently apply this section, § 1.704-1(b)(4)(viii)(c)(4)(v) through (vii), and §§ 1.901(m)-3 through 1.901(m)-8 (excluding § 1.901(m)-4(e)) to all CAAs occurring on or after January 1, 2011, and consistently apply § 1.901(m)-2 (excluding § 1.901(m)-2(d)) to all CAAs occurring on or after December 7, 2016, on any original or amended tax return for each taxable year for which the application of the provisions listed in this paragraph (b)(3)(i) affects the tax liability and for which the statute of limitations does not preclude assessment or the filing of a claim for refund, as applicable;

(ii) File all tax returns described in paragraph (b)(3)(i) of this section for any taxable year ending on or before March 23, 2020, no later than March 23, 2021; and

(iii) Make appropriate adjustments to take into account deficiencies that would have resulted from the consistent application under paragraph (b)(3)(i) of this section for taxable years that are not open for assessment.

[T.D. 9895, 85 FR 16249, Mar. 23, 2020]