In a letter to Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig, ATR President Grover Norquist expressed support for guidance related to the foreign tax credit and guidance implementing changes made by the Tax Cuts and Jobs Act.
As the letter notes:
“The transition rule for FTC carryforwards in Prop. Regs. 1.904-2(j)(1)(ii) creates an efficient transition and follows the precedent set following by the Tax Reform Act of 1986 (TRA) and other laws. As the rulemaking process continues, this provision should be maintained in a final rule.
This rule automatically allocates pre-2018 general income FTC carryforwards into the post 2017 general category basket and allows unused carryforwards to be reallocated into the foreign branch basket. This rule promotes investment and economic growth and allows a streamlined transition to the new tax code.”
The Tax Cuts and Jobs Act was a comprehensive overhaul of the U.S. international tax system. The TCJA also modified foreign tax credits, making it necessary for REG-105600-18 to assist with a seamless transition to the new tax code. As the letter states:
“Prior to TCJA, FTCs were divided into two baskets – a general category income basket and passive category income basket. While the passive income basket was unchanged, the general category income basket was split into three baskets.
Under the new system, credits that would have previously been allocable to the general branch are now allocable to either general income, foreign branch, or GILTI baskets. The TCJA did not address the treatment of pre-2018 general limitation FTC carryforwards; this issue was left to be determined through rulemaking.”
ATR strongly supports this FTC transition rule and the administration should maintain the transition rule provision in the final FTC rule.