Foreign Tax Credit Baskets: OBBBA’s Impact on FTC Calculations

The FTC should prevent double taxation on income already taxed by another country. The FTC can only be applied to foreign income within the same statutory category. Form 1118 contains many baskets for separating income:

• 951A—GILTI
• Foreign branch
• Passive
• General
• 901(j)
• Income resourced by treaty

Once income is distributed by basket, deductions must be allocated and apportioned to each category. 

OBBBA modifications require foreign taxpayers to revisit these complex calculations. The rate for the deemed paid foreign tax credit for NCTI/GILTI increased from 80% to 90%. The sourcing rule for inventory includes products produced in the U.S. and sold through a foreign branch. And the 163(j) interest limitation is again calculated on EBIT (earnings before interest and taxes), excluding depreciation and amortization deductions from the calculation, rather than EBITDA. Tax advisers need to understand the implications of these changes on FTC income and categories to maximize this credit.

Listen as our panel of international tax experts details the composition of each foreign income basket, OBBBA legislation affecting income and expenses classification, and how categorization affects the utilization of this valuable credit.

I. Foreign tax credit baskets

II. 951A—GILTI

III. Foreign branch

IV. Passive

V. General

VI. 901(j)

VII. Income resourced by treaty

VIII. OBBBA legislation

IX. Allocating and apportioning expenses

X. Planning to maximize FTCs

The panel will cover these and other critical issues:

• Income allocation planning to preserve FTCs
• The impact of OBBBA on FTC calculations
• Allocating and apportioning expenses by branch
• Reporting income resourced by treaty

Learning Objectives

After completing this course, you will be able to:

• Understand the categories of income reported on Form 1118 for the FTC
• Differentiate between allocating and apportioning expenses
• Identify baskets of income
• Ascertain how OBBBA affects FTC calculations
• Recognize how the U.S. foreign tax reporting regime is structured
• Establish interest and other expense allocations

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite:

  Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

  
  

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).