New Developments in the Foreign Tax Credit: The Treasury Department Attempts to Define and Income Tax

Nitschke, David F. | January 1, 1980

In order to alleviate the double taxation of income earned overseas by United States taxpayers, the Internal Revenue Code contains aforeign tax credit. This provision, which enables a taxpayer to credit certain foreign taxes he haspaid or accrued, has been reinterpreted recently by the Depart- ment of the Treasury. In this article, Mr. Nitschke discusses several 1978 revenue rulings andproposed regulations issued in 1979 that have altered the definition of aforeign tax that qualifies as an “income tax” and, thereby, have reduced signficantly the kind offorein taxes eligible for the credit. Upon examination ofprior rulings and case law, Mr. Nitschke concludes that the Treasury’s attempt to redfine an “income tax” has resulted in an inflexible rule that is neither supported by precedent nor underlying policy considerations.