AICPA makes recommendations to IRS on foreign tax credit rules

The American Institute of CPAs sent a comment letter Tuesday to the Internal Revenue Service about the IRS’s proposed regulations providing guidance about changes in the foreign tax credit in the wake of the Tax Cuts and Jobs Act.

The AICPA’s comments mostly focused on clarifying the proper foreign tax credit basket assignment for various categories of income and expenses in six areas:

• Determination of stock basis;
• Allocation and apportionment of research and experimentation expenses;
• Characterizing the stock of a noncontrolled 10-percent corporation;
• Attributing current-year taxes to a controlled foreign corporation’s earnings and profits;
• Modify the definition of an “exempt asset” relating to assets that generate foreign-derived intangible income; and,
• Clarify when a withholding tax imposed on a disregarded dividend is related to a Subpart F or tested income group.

“It is unclear from the proposed regulations under what circumstances a withholding tax imposed on a disregarded distribution to a CFC owner is related to a Subpart F or tested income group,” AICPA Tax Executive Committee chair Annette Nellen wrote in the letter.

Separately on Tuesday, the AICPA released its revised Technical Question and Answer 8100.03 to provide nonauthoritative guidance to auditors when auditing and reporting on an entity’s prior-period financial statements, about using the auditing standards and form of the auditor’s report that are in effect at the time the audit is performed. The document offers the example of upcoming standards that are anticipated to be issued on auditor reporting and on financial statement audits of employee benefit plans subject to the Employment Retirement Income Security Act.