Update on US Treasury Relief to 2022 Foreign Tax Credit Regulations

In March of 2023, ACA wrote to the US Treasury regarding its proposed regulation: IRS: REG-112096-22: Regulations Relating to the Foreign Tax Credit. In our commentary, ACA cited that the proposed regulation would adversely affect US citizens living and working overseas as these non-resident taxpayers will require a comprehensive understanding of foreign tax laws and complex corporate taxation issues in order to establish whether the taxes paid in the foreign country where they live are creditable. ACA believes that this is an unrealistic and unfair expectation to place on individuals, especially considering the foreign language proficiency they would require. Many non-resident taxpayers will require the advice and support of tax return preparers who have a comprehensive understanding of both the U.S. tax system and that of the jurisdiction where they reside, at inordinate expense.
On July 21st, the US Treasury announced temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit under U.S. tax law. This temporary relief applies to taxes paid or accrued in tax years 2022 and 2023. Under this temporary relief, taxpayers may choose to apply the regulations that were in effect before the 2022 foreign tax credit regulations to determine if a foreign tax is eligible for a foreign income tax credit. This relief applies to foreign taxes paid or accrued in taxable years beginning on or after December 28, 2021, and ending on or before December 31, 2023.
ACA will continue to monitor this issue with the US Treasury and update the community.