Can someone explain Treasury Regulation 1.960-2 on Foreign Income Taxes deemed paid under IRC 960?

Thanks for explaining! So would it be correct to say that 1.960-2 is basically a formula for figuring out what portion of foreign taxes paid by a CFC can be claimed as a credit by the US shareholder? And it's specifically for Subpart F and GILTI situations?

Yes, that's exactly right. The regulation provides the methodology for determining what portion of foreign taxes paid by a CFC can be claimed as a foreign tax credit by the US shareholder. It applies to both Subpart F income and GILTI inclusions. The calculation gets pretty intricate because you need to allocate the foreign taxes among different categories of income and apply various limitations, but the fundamental purpose is to provide relief from double taxation while ensuring the credit is properly limited to specific types of foreign income.

Does it work for other international tax provisions too? I'm drowning in PFIC calculations right now and could use some clarity.

I'm skeptical about tools like this tbh. How accurate is it really? Foreign tax credits are incredibly complex and I've seen automated systems miss important nuances before. Does it catch things like high-tax exceptions and tested income calculations?

Absolutely works for PFIC rules too - I used it specifically for the excess distribution calculations and it saved me hours of confusion. The explanations include references back to the actual code sections so you can verify everything. For complex FTC calculations, it's been surprisingly accurate in my experience. It breaks down the different income baskets, explains the high-tax exceptions, and walks through the tested income calculations step by step. It's not just spitting out answers but actually explaining the logic behind each part of the calculation, which helped me understand rather than just follow steps blindly.

How does this actually work? Do they just call the IRS for you? I'm confused how they can get through when nobody else can.

This sounds like BS honestly. The IRS international division barely answers their own internal calls, let alone gets on the phone with practitioners about technical regulations. Even if you did get through, most agents wouldn't be qualified to give guidance on something as complex as 1.960-2 calculations. I'll believe it when I see it.

They use some kind of system that navigates the IRS phone tree and waits on hold for you. When an agent picks up, you get a call connecting you to them. It's basically like having someone else wait on hold instead of you. You'd be surprised - I actually got connected to someone in the Large Business & International Division who was knowledgeable about deemed paid credits. It's not that they don't exist - they're just nearly impossible to reach through normal channels. I was skeptical too, which is why I was shocked when I actually got through to someone who could speak intelligently about the regulation.

That Excel approach sounds really helpful! Would you be willing to share a sanitized version of that template? I'm trying to create something similar but want to make sure I'm setting it up correctly.

I can't share the actual file for confidentiality reasons, but I can describe the basic structure. I have columns for each relevant CFCs and rows that calculate: The CFC's total E&P for the year, then the portion that's Subpart F and the portion that's GILTI. Below that, I list the total foreign taxes paid by the CFC. Then I compute the deemed paid taxes by multiplying the foreign taxes by the ratio of included income (Subpart F or GILTI) to total E&P. Don't forget that for GILTI inclusions under 960(d), you only get 80% of the deemed paid taxes. And everything needs to be tracked by separate income baskets too!

Thanks for pointing that out! I've been confused because some of the materials I'm looking at seem to describe different systems. So post-TCJA we're not using the pooling method anymore? Is there a good source you'd recommend that covers the current rules?