26 U.S.C. § 901 — Taxes of foreign countries and of possessions of United States

**(a) Allowance of credit** If the taxpayer chooses to have the benefits of this subpart, the tax imposed by this chapter shall, subject to the limitation of section 904, be credited with the amounts provided in the applicable paragraph of subsection (b) plus, in the case of a corporation, the taxes deemed to have been paid under section 960. Such choice for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by this chapter for such taxable year. The credit shall not be allowed against any tax treated as a tax not imposed by this chapter under section 26(b). **(b) Amount allowed** Subject to the limitation of section 904, the following amounts shall be allowed as the credit under subsection (a): (1) **Citizens and domestic corporations** — In the case of a citizen of the United States and of a domestic corporation, the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or to any possession of the United States; and (2) **Resident of the United States or Puerto Rico** — In the case of a resident of the United States and in the case of an individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any possession of the United States; and (3) **Alien resident of the United States or Puerto Rico** — In the case of an alien resident of the United States and in the case of an alien individual who is a bona fide resident of Puerto Rico during the entire taxable year, the amount of any such taxes paid or accrued during the taxable year to any foreign country; and (4) **Nonresident alien individuals and foreign corporations** — In the case of any nonresident alien individual not described in section 876 and in the case of any foreign corporation, the amount determined pursuant to section 906; and (5) **Partnerships and estates** — In the case of any person described in paragraph (1), (2), (3), or (4), who is a member of a partnership or a beneficiary of an estate or trust, the amount of his proportionate share of the taxes (described in such paragraph) of the partnership or the estate or trust paid or accrued during the taxable year to a foreign country or to any possession of the United States, as the case may be. Under rules or regulations prescribed by the Secretary, in the case of any foreign trust of which the settlor or another person would be treated as owner of any portion of the trust under subpart E but for section 672(f), the allocable amount of any income, war profits, and excess profits taxes imposed by any foreign country or possession of the United States on the settlor or such other person in respect of trust income. **(c) Similar credit required for certain alien residents** Whenever the President finds that— (1) a foreign country, in imposing income, war profits, and excess profits taxes, does not allow to citizens of the United States residing in such foreign country a credit for any such taxes paid or accrued to the United States or any foreign country, as the case may be, similar to the credit allowed under subsection (b)(3), (2) such foreign country, when requested by the United States to do so, has not acted to provide such a similar credit to citizens of the United States residing in such foreign country, and (3) it is in the public interest to allow the credit under subsection (b)(3) to citizens or subjects of such foreign country only if it allows such a similar credit to citizens of the United States residing in such foreign country, the President shall proclaim that, for taxable years beginning while the proclamation remains in effect, the credit under subsection (b)(3) shall be allowed to citizens or subjects of such foreign country only if such foreign country, in imposing income, war profits, and excess profits taxes, allows to citizens of the United States residing in such foreign country such a similar credit. **(d) Treatment of dividends from a DISC or former DISC** For purposes of this subpart, dividends from a DISC or former DISC (as defined in section 992(a)) shall be treated as dividends from a foreign corporation to the extent such dividends are treated under part I as income from sources without the United States. **(e) Foreign taxes on mineral income** (1) **Reduction in amount allowed** — Notwithstanding subsection (b), the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country or possession of the United States with respect to foreign mineral income from sources within such country or possession which would (but for this paragraph) be allowed under such subsection shall be reduced by the amount (if any) by which— (A) the amount of such taxes (or, if smaller, the amount of the tax which would be computed under this chapter with respect to such income determined without the deduction allowed under section 613), exceeds (B) the amount of the tax computed under this chapter with respect to such income. (2) **Foreign mineral income defined** — For purposes of paragraph (1), the term “foreign mineral income” means income derived from the extraction of minerals from mines, wells, or other natural deposits, the processing of such minerals into their primary products, and the transportation, distribution, or sale of such minerals or primary products. Such term includes, but is not limited to 11 So in original. Probably should be followed by a comma. that portion of the taxpayer’s distributive share of the income of partnerships attributable to foreign mineral income. **(f) Certain payments for oil or gas not considered as taxes** Notwithstanding subsection (b) and section 960, the amount of any income, or profits, and excess profits taxes paid or accrued during the taxable year to any foreign country in connection with the purchase and sale of oil or gas extracted in such country is not to be considered as tax for purposes of section 275(a) and this section if— (1) the taxpayer has no economic interest in the oil or gas to which section 611(a) applies, and (2) either such purchase or sale is at a price which differs from the fair market value for such oil or gas at the time of such purchase or sale. **(g) Certain taxes paid with respect to distributions from possessions corporations** (1) **In general** — For purposes of this chapter, any tax of a foreign country or possession of the United States which is paid or accrued with respect to any distribution from a corporation— (A) to the extent that such distribution is attributable to periods during which such corporation is a possessions corporation, and (B) (i) if a dividends received deduction is allowable with respect to such distribution under part VIII of subchapter B, or (ii) to the extent that such distribution is received in connection with a liquidation or other transaction with respect to which gain or loss is not recognized, shall not be treated as income, war profits, or excess profits taxes paid or accrued to a foreign country or possession of the United States, and no deduction shall be allowed under this title with respect to any amount so paid or accrued. (2) **Possessions corporation** — For purposes of paragraph (1), a corporation shall be treated as a possessions corporation for any period during which an election under section 936 (as in effect on the day before the date of the enactment of the Tax Technical Corrections Act of 2018) applied to such corporation, during which section 931 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1976) applied to such corporation, or during which section 957(c) (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986) applied to such corporation. **(h) Repealed. Pub. L. 110–172, § 11(g)(9), Dec. 29, 2007, 121 Stat. 2490]** **(i) Taxes used to provide subsidies** Any income, war profits, or excess profits tax shall not be treated as a tax for purposes of this title to the extent— (1) the amount of such tax is used (directly or indirectly) by the country imposing such tax to provide a subsidy by any means to the taxpayer, a related person (within the meaning of section 482), or any party to the transaction or to a related transaction, and (2) such subsidy is determined (directly or indirectly) by reference to the amount of such tax, or the base used to compute the amount of such tax. **(j) Denial of foreign tax credit, etc., with respect to certain foreign countries** (1) **In general** — Notwithstanding any other provision of this part— (A) no credit shall be allowed under subsection (a) for any income, war profits, or excess profits taxes paid or accrued (or deemed paid under section 960) to any country if such taxes are with respect to income attributable to a period during which this subsection applies to such country, and (B) subsections (a), (b), and (c) of section 904 and section 960 shall be applied separately with respect to income attributable to such a period from sources within such country. (2) **Countries to which subsection applies** (A) *In general* — This subsection shall apply to any foreign country— (i) the government of which the United States does not recognize, unless such government is otherwise eligible to purchase defense articles or services under the Arms Export Control Act, (ii) with respect to which the United States has severed diplomatic relations, (iii) with respect to which the United States has not severed diplomatic relations but does not conduct such relations, or (iv) which the Secretary of State has, pursuant to section 6(j) 22 See References in Text note below. of the Export Administration Act of 1979, as amended, designated as a foreign country which repeatedly provides support for acts of international terrorisms. (B) *Period for which subsection applies* — This subsection shall apply to any foreign country described in subparagraph (A) during the period— (i) beginning on the later of— (I) January 1, 1987, or (II) 6 months after such country becomes a country described in subparagraph (A), and (ii) ending on the date the Secretary of State certifies to the Secretary of the Treasury that such country is no longer described in subparagraph (A). (3) **Taxes allowed as a deduction, etc.** — Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection. (4) **Regulations** — The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, including regulations which treat income paid through 1 or more entities as derived from a foreign country to which this subsection applies if such income was, without regard to such entities, derived from such country. (5) **Waiver of denial** (A) *In general* — Paragraph (1) shall not apply with respect to taxes paid or accrued to a country if the President— (i) determines that a waiver of the application of such paragraph is in the national interest of the United States and will expand trade and investment opportunities for United States companies in such country; and (ii) reports such waiver under subparagraph (B). (B) *Report* — Not less than 30 days before the date on which a waiver is granted under this paragraph, the President shall report to Congress— (i) the intention to grant such waiver; and (ii) the reason for the determination under subparagraph (A)(i). **(k) Minimum holding period for certain taxes on dividends** (1) **Withholding taxes** (A) *In general* — In no event shall a credit be allowed under subsection (a) for any withholding tax on a dividend with respect to stock in a corporation if— (i) such stock is held by the recipient of the dividend for 15 days or less during the 31-day period beginning on the date which is 15 days before the date on which such share becomes ex-dividend with respect to such dividend, or (ii) to the extent that the recipient of the dividend is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. (B) *Withholding tax* — For purposes of this paragraph, the term “withholding tax” includes any tax determined on a gross basis; but does not include any tax which is in the nature of a prepayment of a tax imposed on a net basis. (2) **Deemed paid taxes** — In the case of income, war profits, or excess profits taxes deemed paid under section 853 or 960 through a chain of ownership of stock in 1 or more corporations, no credit shall be allowed under subsection (a) for such taxes if— (A) any stock of any corporation in such chain (the ownership of which is required to obtain credit under subsection (a) for such taxes) is held for less than the period described in paragraph (1)(A)(i), or (B) the corporation holding the stock is under an obligation referred to in paragraph (1)(A)(ii). (3) **45-day rule in the case of certain preference dividends** — In the case of stock having preference in dividends and dividends with respect to such stock which are attributable to a period or periods aggregating in excess of 366 days, paragraph (1)(A)(i) shall be applied— (A) by substituting “45 days” for “15 days” each place it appears, and (B) by substituting “91-day period” for “31-day period”. (4) **Exception for certain taxes paid by securities dealers** (A) *In general* — Paragraphs (1) and (2) shall not apply to any qualified tax with respect to any security held in the active conduct in a foreign country of a business as a securities dealer of any person— (i) who is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934, (ii) who is registered as a Government securities broker or dealer under section 15C(a) of such Act, or (iii) who is licensed or authorized in such foreign country to conduct securities activities in such country and is subject to bona fide regulation by a securities regulating authority of such country. (B) *Qualified tax* — For purposes of subparagraph (A), the term “qualified tax” means a tax paid to a foreign country (other than the foreign country referred to in subparagraph (A)) if— (i) the dividend to which such tax is attributable is subject to taxation on a net basis by the country referred to in subparagraph (A), and (ii) such country allows a credit against its net basis tax for the full amount of the tax paid to such other foreign country. (C) *Regulations* — The Secretary may prescribe such regulations as may be appropriate to carry out this paragraph, including regulations to prevent the abuse of the exception provided by this paragraph and to treat other taxes as qualified taxes. (5) **Certain rules to apply** — For purposes of this subsection, the rules of paragraphs (3) and (4) of section 246(c) shall apply. (6) **Treatment of bona fide sales** — If a person’s holding period is reduced by reason of the application of the rules of section 246(c)(4) to any contract for the bona fide sale of stock, the determination of whether such person’s holding period meets the requirements of paragraph (2) with respect to taxes deemed paid under section 960 shall be made as of the date such contract is entered into. (7) **Taxes allowed as deduction, etc.** — Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection. **(l) Minimum holding period for withholding taxes on gain and income other than dividends etc.** (1) **In general** — In no event shall a credit be allowed under subsection (a) for any withholding tax (as defined in subsection (k)) on any item of income or gain with respect to any property if— (A) such property is held by the recipient of the item for 15 days or less during the 31-day period beginning on the date which is 15 days before the date on which the right to receive payment of such item arises, or (B) to the extent that the recipient of the item is under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property. This paragraph shall not apply to any dividend to which subsection (k) applies. (2) **Exception for taxes paid by dealers** (A) *In general* — Paragraph (1) shall not apply to any qualified tax with respect to any property held in the active conduct in a foreign country of a business as a dealer in such property. (B) *Qualified tax* — For purposes of subparagraph (A), the term “qualified tax” means a tax paid to a foreign country (other than the foreign country referred to in subparagraph (A)) if— (i) the item to which such tax is attributable is subject to taxation on a net basis by the country referred to in subparagraph (A), and (ii) such country allows a credit against its net basis tax for the full amount of the tax paid to such other foreign country. (C) *Dealer* — For purposes of subparagraph (A), the term “dealer” means— (i) with respect to a security, any person to whom paragraphs (1) and (2) of subsection (k) would not apply by reason of paragraph (4) thereof, and (ii) with respect to any other property, any person with respect to whom such property is described in section 1221(a)(1). (D) *Regulations* — The Secretary may prescribe such regulations as may be appropriate to carry out this paragraph, including regulations to prevent the abuse of the exception provided by this paragraph and to treat other taxes as qualified taxes. (3) **Exceptions** — The Secretary may by regulation provide that paragraph (1) shall not apply to property where the Secretary determines that the application of paragraph (1) to such property is not necessary to carry out the purposes of this subsection. (4) **Certain rules to apply** — Rules similar to the rules of paragraphs (5), (6), and (7) of subsection (k) shall apply for purposes of this subsection. (5) **Determination of holding period** — Holding periods shall be determined for purposes of this subsection without regard to section 1235 or any similar rule. **(m) Denial of foreign tax credit with respect to foreign income not subject to United States taxation by reason of covered asset acquisitions** (1) **In general** — In the case of a covered asset acquisition, the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to the relevant foreign assets— (A) shall not be taken into account in determining the credit allowed under subsection (a), and (B) in the case of a foreign income tax paid by a foreign corporation, shall not be taken into account for purposes of section 960. (2) **Covered asset acquisition** — For purposes of this section, the term “covered asset acquisition” means— (A) a qualified stock purchase (as defined in section 338(d)(3)) to which section 338(a) applies, (B) any transaction which— (i) is treated as an acquisition of assets for purposes of this chapter, and (ii) is treated as the acquisition of stock of a corporation (or is disregarded) for purposes of the foreign income taxes of the relevant jurisdiction, (C) any acquisition of an interest in a partnership which has an election in effect under section 754, and (D) to the extent provided by the Secretary, any other similar transaction. (3) **Disqualified portion** — For purposes of this section— (A) *In general* — The term “disqualified portion” means, with respect to any covered asset acquisition, for any taxable year, the ratio (expressed as a percentage) of— (i) the aggregate basis differences (but not below zero) allocable to such taxable year under subparagraph (B) with respect to all relevant foreign assets, divided by (ii) the income on which the foreign income tax referred to in paragraph (1) is determined (or, if the taxpayer fails to substantiate such income to the satisfaction of the Secretary, such income shall be determined by dividing the amount of such foreign income tax by the highest marginal tax rate applicable to such income in the relevant jurisdiction). (B) *Allocation of basis difference* — For purposes of subparagraph (A)(i)— (i) *In general* — The basis difference with respect to any relevant foreign asset shall be allocated to taxable years using the applicable cost recovery method under this chapter. (ii) *Special rule for disposition of assets* — Except as otherwise provided by the Secretary, in the case of the disposition of any relevant foreign asset— (I) the basis difference allocated to the taxable year which includes the date of such disposition shall be the excess of the basis difference with respect to such asset over the aggregate basis difference with respect to such asset which has been allocated under clause (i) to all prior taxable years, and (II) no basis difference with respect to such asset shall be allocated under clause (i) to any taxable year thereafter. (C) *Basis difference* (i) *In general* — The term “basis difference” means, with respect to any relevant foreign asset, the excess of— (I) the adjusted basis of such asset immediately after the covered asset acquisition, over (II) the adjusted basis of such asset immediately before the covered asset acquisition. (ii) *Built-in loss assets* — In the case of a relevant foreign asset with respect to which the amount described in clause (i)(II) exceeds the amount described in clause (i)(I), such excess shall be taken into account under this subsection as a basis difference of a negative amount. (iii) *Special rule for section 338 elections* — In the case of a covered asset acquisition described in paragraph (2)(A), the covered asset acquisition shall be treated for purposes of this subparagraph as occurring at the close of the acquisition date (as defined in section 338(h)(2)). (4) **Relevant foreign assets** — For purposes of this section, the term “relevant foreign asset” means, with respect to any covered asset acquisition, any asset (including any goodwill, going concern value, or other intangible) with respect to such acquisition if income, deduction, gain, or loss attributable to such asset is taken into account in determining the foreign income tax referred to in paragraph (1). (5) **Foreign income tax** — For purposes of this section, the term “foreign income tax” means any income, war profits, or excess profits tax paid or accrued to any foreign country or to any possession of the United States. (6) **Taxes allowed as a deduction, etc.** — Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection. (7) **Regulations** — The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection, including to exempt from the application of this subsection certain covered asset acquisitions, and relevant foreign assets with respect to which the basis difference is de minimis. **(n) Cross reference** (1) For deductions of income, war profits, and excess profits taxes paid to a foreign country or a possession of the United States, see sections 164 and 275. (2) For right of each partner to make election under this section, see section 703(b). (3) For right of estate or trust to the credit for taxes imposed by foreign countries and possessions of the United States under this section, see section 642(a). (4) For reduction of credit for failure of a United States person to furnish certain information with respect to a foreign corporation or partnership controlled by him, see section 6038.