Tax Alert

Foreign Tax Changes Coming

(Aug. 19, 2010)


President Obama signed into law the Education Jobs and Medicaid Assistance Act of 2010 (EJMA) on Aug. 10, 2010. This act makes several changes to the foreign tax credit.

Effective in 2011, the act:

  • Creates a new limit on the amount of foreign tax credits that are deemed paid with respect to Internal Revenue Code (IRC) Section 956, “Investment of Earnings in U.S. Property,” on acquisitions of U.S. property after Dec. 31, 2010;
  • Eliminates the ability to use foreign tax credits when foreign income is not subject to U.S. tax as a result of covered asset acquisitions after Dec. 31, 2010;
  • Prevents splitting foreign taxes from the related foreign income for tax years beginning after Dec. 31, 2010;
  • Modifies the rules for apportioning interest expense for tax years beginning after Aug. 10, 2010;
  • Terminates the special rules for interest and dividends received from persons meeting the 80 percent foreign business requirement for tax years beginning after Dec. 31, 2010;
  • Provides a separate limit for foreign taxes for income resourced under an income tax treaty for tax years beginning after Aug. 10, 2010; and
  • Limits the amount of foreign earnings and profits that can be treated as dividends in a constructive redemption for stock acquisitions after Aug. 10, 2010.

In addition, the act makes a technical correction to Section 513 of the Hiring Incentives to Restore Employment Act. The EJMA provides that the statute of limitations isn’t tolled for taxpayers who fail to file certain required information on cross-border transactions or report certain foreign assets under IRC Section 6501(c)(8), provided the failure was due to a reasonable cause.

View the Joint Committee Summary of the new law.

For more information on how this might affect you, please contact John Kelleher at 630.586.5274 or john.kelleher@crowehorwath.com, Mike Granberg at 630.586.5163 or mike.granberg@crowehorwath.com, or any Crowe Horwath LLP tax professional.




Under U.S. Treasury rules issued in 2005, we must inform you that any advice in this communication to you was not intended or written to be used, and cannot be used, to avoid any government penalties that may be imposed on a taxpayer.

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