§ 1.960-6 - Overpayments resulting from increase in limitation for taxable year of exclusion.

§ 1.960-6 Overpayments resulting from increase in limitation for taxable year of exclusion.

(a) Amount of overpayment. If an increase in the limitation under section 960(bc)(1) and § 1.960-4 for a taxable year of exclusion exceeds the tax (determined before allowance of any credits against tax) imposed by chapter 1 of the Code for such year, the amount of such excess shall be deemed an overpayment of tax for such year and shall be refunded or credited to the taxpayer in accordance with chapter 65 (section 6401 and following) of the Code.

(b) IllustrationExample. The application of this section may be illustrated by the following example:

Example.

Domestic corporation N

(1) Facts. USP, a domestic corporation, owns all of the one class of stock of CFC, a controlled foreign corporation

A

. Both corporations use the calendar year as the taxable year, and the functional currency of CFC is the U.

For 1978, A Corporation

S. dollar. For Year 1, CFC has total income of $100,

000

000x on which it pays foreign income taxes of $20,

000

000x. All of

A Corporation

CFC's earnings and profits for

1978

Year 1 of $80,

000

000x are attributable to an amount which is required under section 951(a) to be included in

N Corporation

USP's gross income for

1978

Year 1 because such income is general category foreign base company services income of CFC. By reason of such income inclusion

N Corporation

USP is deemed for

1978

Year 1 to have paid under section 960(a)

(1)

, and is required under section 78 to include in gross income for such year, the $20,

000

000x ($20,

000

000x × $80,

000

000x/$80,

000

000x) of foreign income taxes paid by

A Corporation

CFC for such year.

Corporation N

USP also derives $100,

000

000x of taxable income from sources within the United States for

1978

Year 1. For

1979

Year 2,

N Corporation

USP has

$25

$4,

000

000x of taxable income, all of which is derived from sources within the United States. No part of

A Corporation

CFC's earnings and profits for

1979

Year 2 is attributable to an amount required under section 951(a) or section 951A(a) to be included in

N Corporation

USP's gross income. During

1979

Year 2,

A Corporation

CFC makes one distribution consisting of its $80,

000

000x earnings and profits for

1978

Year 1, all of which is excluded under section 959(a)(1) from

N Corporation

USP's gross income for

1979

Year 2, and from which distribution foreign income taxes of

$10

$1,

000

000x are withheld. For

1978

Year 1 and

1979

Year 2,

N Corporation

USP claims the foreign tax credit under section 901,

determined by applying

subject to the

overall

limitation

under

of section 904.

(

a)(

2) Analysis. The

United States tax of N Corporation

U.S. tax liability of USP is determined as follows for such years, assuming a corporate tax rate of

22 percent, a surtax of 26 percent and a surtax exemption of $25,000:

1978

Taxable income of N Corporation

21%:

Table 1 to Paragraph (b)(2)

Year 1
Taxable income of USP:
U.S. sources		$100,000.00x
Sources without the U.S.:
Amount required to be included in

N Corporation

USP's gross income under section 951(a)	$80,000.00x
Foreign income taxes deemed paid by

N Corporation

USP under section 960(a)

(1)

and included in

N Corporation

USP's gross income under section 78 ($20,

000

000x × $80,

000

000x/$80,

000

000x)	20,000.00x	100,000.00x
Total taxable income		200,000.00x
U.S. tax payable for

1978

Year 1:
U.S. tax before credit ( [$200,

000

000x ×

0.22] + [$175

21%] )

42,000

× 0.26])89,500

.00x

Credit: Foreign income taxes of $20,

000

000x, but not to exceed

overall

limitation of

$44

$21,

750

000x (

$89

$42,

500

000x × $100,

000

000x/$200,

000

000x)		20,000.00x
U.S. tax payable

69,500

1979

22,000.00x

Table 2 to Paragraph (b)(2)

Year 2
Taxable income of

N Corporation

USP, consisting of income from U.S. sources

$25

$4,

000

000x

U.S. tax before credit (

$25

$4,

000

000x ×

0.22)5,500 Section 904(a)(2) overall limitation for 1979

21%)		840x
Section 904 limitation for Year 2:
Limitation for

1979

Year 2 before increase under section 960(

b

c)(1) (

$5,500

$840x × $0/

$25

$4,

000

000x)		0
Plus: Increase in

overall

section 904 limitation for

1979

Year 2 under section 960(

b

c)(1):
Amount by which

1978 overall

Year 1 limitation was increased by reason of inclusion in

N Corporation

USP's gross income under section 951(a) for

1978

Year 1 (

$44

$21,

750 −

000x-[

$41

$21,

500

000x × $0/$100,

000

000x])

$44

$21,

750

000x
Less: Foreign income taxes allowed as a credit for

1978

Year 1 which were allowable solely by reason of such section 951(a) inclusion ($20,

000−$0

000x-$0)

20,

000

000x
Balance

24

1,

750

000x
But: Such balance not to exceed foreign income taxes paid by

N Corporation

USP for

1979

Year 2 with respect to $80,

000

000x distribution excluded under section 959(a)(1) (

$10

$1,

000

000x tax withheld)

10

1,

00010,000 Overall limitation for 197910,000

000x	1,000x
Limitation for Year 2		1,000x
U.S. tax payable for

1979

Year 2:
U.S. tax before credit (

$25

$4,

000

000x ×

0.22)5,500

21%)		840x
Credit: Foreign income taxes of

$10

$1,

000

000x, but not to exceed

overall

limitation of

$10

$1,

000 for 197910,000

000x for Year 2		1,000x
U.S. tax payable		None
Overpayment of tax for

1979

Year 2:
Increase in limitation under section 960(

b

c)(1) for

197910,000

Year 2		1,000x
Less: Tax imposed for

1979

Year 2 under chapter 1 of the Code

5,500

	840x
Excess treated as overpayment

4,500

160x

[T.D. 7120, 36 FR 10859, June 4, 1971, as amended by T.D. 7649, 44 FR 60089, Oct. 18, 1979; T.D. 9882, 84 FR 69119, Dec. 17, 2019]