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Foreign Tax Credit Baskets: Categorizing Income, Maximizing the FTC, Allocating and Apportioning Expenses

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, November 17, 2022

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This webinar will take an in-depth look at the categories of income reported on Form 1118 for the foreign tax credit. Our knowledgeable panel will explain how these baskets influence the ultimate calculation of the foreign tax credit, the allocation and apportionment of expenses by category, carryovers and carrybacks, and the impact of recent legislation on these baskets.

Description

The foreign tax credit should prevent double taxation on income already taxed by another country. The credit limitations are calculated based on separate income categories on Form 1118. Originally there were two categories, passive and general. Form 1118 now contains many more baskets for income:

  • 951A--GILTI
  • Foreign branch
  • Passive
  • General
  • 901(j)
  • Income resourced by treaty

The foreign tax credit has separate limitations based on the category of income. No foreign tax credit is allowed for Section 901(j) income, income from sanctioned countries. In addition to annual limitations, categorization affects the carryback and carryforward of unused credits. Generally, credits can be carried back one year or forward 10; however, GILTI credits must be used in the year of inclusion. Separate Forms 1118 are required for each category of income.

Once the income is distributed by basket, deductions must be allocated and apportioned to each category. Recent legislation has increased the complexity of these calculations. Tax advisers need to understand the foreign tax credit categories to maximize this credit.

Listen as our panel of international tax experts details the composition of each foreign income basket, recent legislation affecting income and expenses classification, and how categorization affects the utilization of this valuable credit.

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Outline

  1. Foreign tax credit baskets
  2. 951A--GILTI
  3. Foreign branch
  4. Passive
  5. General
  6. 901(j)
  7. Income resourced by treaty
  8. Recent legislation
  9. Allocating and apportioning expenses
  10. Planning to maximize FTCs

Benefits

The panel will cover these and other critical issues:

  • Income allocation planning to preserve foreign tax credits
  • Identifying foreign branches and foreign branch income
  • Allocating and apportioning expenses by branch
  • Reporting income re-sourced by treaty

Faculty

Lazarus, Daphny
Daphny Lazarus
Attorney
Fenwick & West

Ms. Lazarus regularly advises on a broad range of domestic and international tax matters, with an emphasis on the tax...  |  Read More

Maguina, Alexis
Alexis M. Maguina
Attorney
Fenwick & West

Mr. Maguina focuses his practice on a broad range of domestic and international tax matters, such as mergers and...  |  Read More

Murwanto, Kenneth
Kenneth Murwanto
Senior Manager, International Tax
RSM US

Mr. Murwanto leads the firm’s international tax practice in Orange County and the international tax reform...  |  Read More

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