[Title 26 CFR 1.960-5]
[Code of Federal Regulations (annual edition) - April 1, 2002 Edition]
[Title 26 - INTERNAL REVENUE]
[Chapter I - INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY]
[Subchapter A - INCOME TAX (CONTINUED)]
[Part 1 - INCOME TAXES]
[Sec. 1.960-5 - Credit for taxable year of inclusion binding for taxable year of exclusion.]
[From the U.S. Government Printing Office]


26INTERNAL REVENUE102002-04-012002-04-01false1.960-5Sec. 1.960-5INTERNAL REVENUEINTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURYINCOME TAX (CONTINUED)INCOME TAXES
Sec. 1.960-5  Credit for taxable year of inclusion binding for taxable year of exclusion.

    (a) Taxes not allowed as a deduction for taxable year of exclusion. 
In the case of any taxpayer who--
    (1) Chooses to claim a foreign tax credit as provided in section 901 
for the taxable year for which he is required to include in gross income 
under section 951(a) an amount attributable to the earnings and profits 
of a controlled foreign corporation, and
    (2) Does not choose to claim a foreign tax credit as provided in 
section 901 for a taxable year in which he receives an amount which is 
excluded from gross income under section 959(a)(1) and which is 
attributable to such earnings and profits of such controlled foreign 
corporation,

No deduction shall be allowed under section 164 for the taxable year of 
such exclusion for any foreign income taxes paid or accrued on or with 
respect to such excluded amount.
    (b) Illustration. The application of this section may be illustrated 
by the following example:

    Example. Domestic Corporation N owns all the one class of stock of 
controlled foreign corporation A. Both corporations use the calendar 
year as the taxable year. All of A Corporation's earnings and profits of 
$80 for 1978 (after payment of foreign income taxes of $20 on its total 
income of $100 for such year) are attributable to amount required

[[Page 416]]

under section 951(a) to be included in N Corporation's gross income for 
1978. For 1978, N Corporation chooses to claim a foreign tax credit for 
the $20 of foreign income taxes which for such year are paid by A 
Corporation and deemed paid by N Corporation under section 960(a)(1) and 
paragraph (c)(1) of Sec. 1.960-1. For 1979, A Corporation distributes 
the entire $80 of 1978 earnings and profits, a foreign income tax of $8 
being withheld therefrom. Although N Corporation does not choose to 
claim a foreign tax credit for 1979, it may not deduct such $8 of 
foreign income taxes under section 164. Corporation N may, however, 
deduct under such section a foreign income tax of $4 which is withheld 
from a distribution of $40 by A Corporation during 1979 from its 1979 
earnings and profits.

[T.D. 7120, 36 FR 10859, June 4, 1971, as amended by T.D. 7649, 44 FR 
60089, Oct. 18, 1979]