On March 20, 2020, the Treasury Department published final regulations (Final Regulations) providing guidance on determining the creditability of foreign taxes following covered asset acquisitions (CAAs) under IRC Section 901(m). The Final Regulations are generally consistent with the prior temporary and proposed regulations published on December 7, 2016.

The Final Regulations include three categories of transactions that are treated as CAAs, in addition to those contained in the proposed regulations. These new categories are:

(1) Any transaction that is treated as (A) an asset acquisition for US income tax purposes and (B) an acquisition of an interest in a fiscally transparent entity for foreign income tax purposes

(2) Any transaction that is treated for US income tax purposes as an asset distribution from a partnership and causes an increase in the basis of either the distributed assets or the remaining partnership assets

(3) Any transaction treated as an asset acquisition for both US and foreign income tax purposes

The second and third categories apply only if US tax basis increases without a corresponding increase to foreign tax basis.

The Final Regulations also modify various definitions to effectively exempt CAAs to the extent members of the domestic IRC Section 901(m) payor or a member of the same consolidated group as the IRC Section 901(m) payor recognizes gains and losses with respect to the relevant foreign assets. Finally, the Final Regulations clarify that IRC Section 901(m) calculations should be made before the application of IRC Section 909 for CAAs involving foreign tax credit splitters.

The Final Regulations generally apply to CAAs occurring on or after the date the final regulations are published in the Federal Register.

A detailed Tax Alert is forthcoming.