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26 U.S.C. § 78 — Gross up for deemed paid foreign tax credit

submitted 64 years ago by Pub. L. 87-834 to r/title-26-INTERNAL-REVENUE-CODE · 91 words · no verdicts yet

in plain englishAI-generated · not legal advice

A U.S. corporation claiming the foreign tax credit must add back certain deemed-paid foreign taxes to its income. Those added-back taxes count as a dividend from the foreign corporation for most tax purposes. This doesn't apply under sections 245 and 245A.

If a U.S. (domestic) corporation chooses to claim the benefits of the foreign tax credit rules, it has to do a "gross-up." Here's the calculation, step by step: start with the amount of foreign taxes that corporation is treated as having paid under section 960(a) and (d), for that tax year. When figuring that amount, ignore the phrase "90 percent of" that would otherwise appear in section 960(d)(1). Whatever that amount comes to is then treated, for most purposes of the tax code, as if it were a dividend the domestic corporation actually received from the foreign corporation. The one carve-out: this dividend treatment does not apply for purposes of sections 245 and 245A.
the actual law source: uscode.house.gov ↗public domain

If a domestic corporation chooses to have the benefits of subpart A of part III of subchapter N (relating to foreign tax credit) for any taxable year, an amount equal to the taxes deemed to be paid by such corporation under subsections (a) and (d) of section 960 (determined without regard to the phrase “90 percent of” in subsection (d)(1) thereof) for such taxable year shall be treated for purposes of this title (other than sections 245 and 245A) as a dividend received by such domestic corporation from the foreign corporation.

Source credit: (Added Pub. L. 87–834, § 9(b), Oct. 16, 1962, 76 Stat. 1001; amended Pub. L. 94–455, title X, § 1033(b)(1), Oct. 4, 1976, 90 Stat. 1628; Pub. L. 115–97, title I, § 14301(c)(1), Dec. 22, 2017, 131 Stat. 2222; Pub. L. 119–21, title VII, § 70312(a)(2), July 4, 2025, 139 Stat. 203.)

history & why it existsrecord from the source credit
  • 1962Enacted · Pub. L. 87-834 · 76 Stat. 1001
  • 1976Amended · Pub. L. 94-455 · 90 Stat. 1628
  • 2017Amended · Pub. L. 115-97 · 131 Stat. 2222
  • 2025Amended · Pub. L. 119-21 · 139 Stat. 203

A history note hasn’t been published yet. The record shows enactment by Pub. L. 87-834 on 1962-10-16.

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