Foreign Tax Credits: Fundamentals

Summary

This practice note discusses the Foreign Tax Credit (FTC) rules for corporations. You find the FTC in I.R.C. Sections 901 through 907 and 960. To help you understand and calculate the foreign tax credit, this practice note will explore the following key tests to qualify for the FTC: (1) tax must be imposed on the taxpayer, (2) the taxpayer must have paid or accrued the tax, (3) the tax must be a legal and actual foreign tax liability, and (4) the tax must be an income tax (or a tax instead of an income tax). This practice note will conclude with a discussion of IRS Form 1118, Foreign Tax Credit – Corporations, and its related compliance procedures.