The First Shoe Drops: Notice 2010-92 Provides Guidance on Section 909's Application to Pre-2011 Taxes

You have until the end of December to make some decisions about Section 909. To be more precise, you have until the end of the relevant Section 902 corporation's 2010 taxable year, which might provide more time. Section 909, the foreign tax credit anti-splitting rule, applies to foreign taxes paid or accrued in 2010 or earlier, if those taxes are deemed paid under section 902 or 960 in taxable years beginning after 2010. (It also, of course, applies to foreign taxes paid or accrued in taxable years beginning after 2010.) In other words, foreign taxes currently present in the foreign tax pools of a Section 902 corporation (including a CFC)1 are subject to Section 909 if deemed paid under Section 902 or 960 in taxable years beginning after 2010, even if paid or accrued many years ago. But Section 909 does not apply to foreign taxes deemed paid before 2011 (i.e., before the relevant Section 909 corporation's 2011 tax year). So taxpayers have a decision to make: cause the foreign taxes in a Section 902 corporation's pools to be deemed paid before 2011 (and avoid Section 909's application to those taxes) or leave the foreign taxes in the Section 902 corporation's pools (and risk having Section 909 defer credit for those taxes—when they are otherwise deemed paid—until the related income is taken into account for U.S. tax purposes). Click on the attached pdf to read the full version of the article.