This page contains information about selected terms and concepts used in SOI's Corporate Foreign Tax Credit articles and tables.
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Adjustments to taxable income
Adjustments include the allocation of current-year foreign losses, recharacterization of income due to prior year loss allocations, adjustments related to overall foreign losses, including recapture of prior overall foreign losses, and allocations of current-year U.S. losses.
Prior to the American Jobs Creation Act of 2004, corporations could carry taxes paid in excess of the limitation back for up to two years or forward for up to 5 years. The American Jobs Creation Act of 2004 extended the carryover period to ten years and reduced the carryback period to one year, effective for tax years beginning after October 22, 2004. The statistics in these publications include only foreign taxes carried forward from prior years.
Certain distributions from a FSC or former FSC
This separate limitation category applied for tax years 1987 through 2006. It included distributions from a Foreign Sales Corporation (FSC) or former FSC out of earnings and profits attributable to foreign trade income and interest on carrying charges from a transaction that results in foreign trade income. A FSC was a company incorporated abroad and usually controlled by a U.S. person. A portion of the FSC “foreign trade income” was exempt from U.S. taxation. All FSC provisions were repealed in 2006.
Deductions from oil and gas extraction income
Although the amount of oil and gas income is included in gross income, this amount is also reported separately on Form 1118 (Schedule I, Reduction of Oil and Gas Extraction Taxes) because oil and gas extraction income is subject to special rules under Internal Revenue Code section 907, which effectively requires a separate limitation calculation for taxes related to oil and gas extraction income.
Deductions not allocable to specific types of income, interest
Interest expense that is not allocable to a particular class of income. Per Regulation Sections 1.861-17(d)(2) and (3), taxpayers could elect to apportion their interest deductions using a fair market value, tax book value, or adjusted tax book value of assets.
Deductions not allocable to specific types of income, other
These deductions included any expenses not allocable to a particular item or class of income and not included in the not allocable research and development or interest deductions. Common deductions included in this category were stewardship expenses, legal and accounting expenses, overhead costs, general and administrative expenses and advertising and marketing expenses.
Deductions not allocable to specific types of income, research and development
Research and development (R&D)deductions that cannot be allocated to a particular item or class of income. Per Regulation Section 1.861-17, the taxpayer could allocate R&D deductions using either a gross income or gross sales method.
Deductions not allocable to specific types of income, total
These deductions are expenses incurred by the taxpayer that cannot be attributable to a particular item or class of income and therefore must be allocated between domestic and foreign-source income. They are further allocated to each category of income. There are three categories of not allocable deductions: research and development, interest and other. Total deductions not allocable to specific types of income, however, exceeds the sum of the three categories because many taxpayers fail to report Schedule H, Apportionment of Deductions not Definitely Allocable.
Total definitely allocable plus total not allocable deductions.
Definitely allocable deductions, total
Depreciation, depletion, and amortization plus other expenses, services expenses and other definitely allocable deductions.
Depreciation, depletion, and amortization
Depreciation is a method of recovering the cost of investments in tangible assets that lose value as they are used to produce income. Depletion is a deduction allowed for the exhaustion of mines, oil and gas wells, other natural deposits, and timber. Amortization is a deduction for the recovery of the costs of long-lived intangible assets similar to the depreciation deduction to recover the costs of tangible assets.
Includes deemed foreign-source dividends as well as received foreign-source dividends. Certain types of income earned by controlled foreign corporations (CFCs) are recognized under Subpart F of the Internal Revenue Service Code as current-year income of the U.S. corporation, even if no income is actually received from the CFC in the current tax year. In such cases, the U.S. corporation is deemed to have received a pro-rata share of this income and required to report it as a deemed dividend on Form 1118.
Dividends received from IC-DISC's or former DISC's
Dividends received from an interest charge domestic international sales corporation (IC-DISC). An IC-DISC is a corporation whose “qualified export receipts” constitute at least 95 percent of its gross receipts and which can classify at least 95 percent of its assets as “qualified export assets”. A small portion of the IC-DISC’s income is deemed distributed to the shareholder. The rest is not subject to U.S. taxation until it is actually distributed, although interest on the tax must be paid annually.
Financial services income
This separate limitation income applied to tax years 1987 to 2006. It included all income, including “passive income” (see below) that is generated from banking, insurance, financing, or similar activities, and from certain types of insurance investments. Financial services income excluded “high withholding tax interest”(see below) and certain types of export financing interest.
Foreign branch income
This income is included in foreign-source gross income, but reported separately on Schedule F, Gross Income and Definitely Allocable Deductions for Foreign Branches.
Foreign dividend income from foreign taxes deemed paid (gross-up)
U.S. corporations that satisfy ownership and other requirements are permitted to take an indirect foreign tax credit for taxes paid on the profits from which dividends were distributed. Under Internal Revenue Code Section 78, these taxes are “deemed paid” by the U.S. corporations under Internal Revenue Code sections 902 and 960(a). Consequently, the dividend income is “grossed-up” by the amount of taxes deemed paid on the income from which the dividend was paid.
Foreign tax credit claimed
The total credit for foreign taxes reported on Form 1120, Corporation Income Tax Returns.
Foreign taxes available for credit, total
Total paid or accrued foreign taxes plus deemed paid taxes and carryover, less any reductions.
Foreign taxes available for credit, total paid, accrued, and deemed paid
Total paid or accrued foreign taxes plus deemed paid taxes.
Foreign taxes paid or accrued, total
The sum of foreign taxes withheld at source on dividends, interest, rents, royalties and license fees and foreign taxes paid or accrued on service, foreign branch, specifically allocable, or other income.
General business credit
The general business credit consists of a combination of several individual credits - investment credit, work opportunity credit, welfare-to-work credit, non-conventional source fuel credit, research credit, low-income housing credit, enhanced oil recovery credit, disabled access credit, renewable electricity production credit, Indian employment credit, credit for employer social security and Medicare taxes paid on certain employee tips, orphan drug credit, new markets credit, credit for small employer pension plan startup costs, credit for employer provided child care facilities and services, and credit for contributions to certain community development corporations, biodiesel fuels credit, and low sulfur diesel fuel production credit.
General limitation income
This separate limitation category contains all foreign income not included in any other separate limitation category.
Gross income, total
Total gross income from foreign sources. It is the sum of dividend, interest, rent, royalty, license fee, service and other income.
High withholding tax interest
This separate limitation category applied for tax years 1987 through 2006. It included interest income subject to a withholding tax of 5 percent or more, with the exception of interest received from the financing of certain export activities.
Includable income of controlled foreign corporations
Generally, the earnings and profits of a controlled foreign corporation (CFC) were subject to U.S. taxation only when the income was actually distributed to the U.S. shareholders or repatriated to the United States. The Subpart F provisions of the Code created an exception to this general rule by requiring that some types of foreign income be included in the income of the U.S. shareholders even if not distributed. The types of income involved are either passive investment income, income from sources thought especially easy to shift between tax jurisdictions, or income from sources contrary to public policy.
Income resourced by bilateral tax treaty
This separate limitation category includes certain dividends and income from U.S. owned foreign corporations that have been reclassified from being U.S.-source income to foreign-source income by the provisions of a U.S. income tax treaty.
Income subject to U.S. tax
This was generally the amount of income subject to tax at the corporate level.
Interest received from foreign sources.
Net income (less deficit)
This is the companies’ net profit or loss from taxable sources of income reduced by allowable deductions. Net income generally differs from “Income Subject to Tax” by the statutory special deductions allowed corporations.
Number of returns
The number of returns in the study, weighted to reflect the population.
Oil and gas extraction income
Although the amount of foreign-source oil and gas income is included in gross income, this amount is also reported separately on Form 1118 (Schedule I, Reduction of Oil and Gas Extraction Taxes) because oil and gas extraction income is subject to special rules under Internal Revenue Code section 907, which effectively requires a separate limitation calculation for taxes related to oil and gas extraction income.
Other definitely allocable deductions
Any definitely allocable deductions not included in depreciation, depletion, and amortization, other expense or services expenses. It includes reductions of foreign source net capital gain.
Other expenses related to rent, royalty and licensing income from sources outside the U.S.
Any other foreign source gross income not included in dividend, interest, rents, royalties and license fees, or service income. It includes any other gross income from foreign branches as well as pass-through entities. It also includes exchange gain or loss recognized under IRC sections 986(c) or 987 (3) on a distribution or remittance of previously taxed income.
Other taxes paid or accrued on branch income
Foreign taxes paid or accrued on foreign branch income.
Other taxes paid or accrued on other income
Foreign taxes paid or accrued on income other than rent, royalties, and license fees, service, foreign branch or specifically allocable income.
Other taxes paid or accrued on service income
Foreign taxes paid or accrued on income, including compensation, commissions, fees, etc., for technical, managerial, engineering, construction, scientific or similar services outside the United States.
Other taxes paid or accrued on specifically allocable income (section 863(b))
Internal Revenue Code section 863 provides special rules for determining taxable income from sources outside the United States with respect to gross income derived partly from within and partly from outside the United States.
This separate limitation category is comprised of dividends, interest (except interest subject to a high withholding tax—see above), rents, royalties, annuities, and net capital gains, as well as commodity transactions not connected with the active conduct of a trade or business. Passive income subject to a foreign tax rate that exceeds the highest applicable U.S. tax rate is excluded from this separate limitation category and included in general limitation income.
Reduction for certain foreign taxes
Some foreign taxes are not eligible for the foreign tax credit. These include the following: certain foreign taxes paid on foreign mineral income when the corporation claims a deduction for percentage depletion, foreign taxes specifically attributable to participation or cooperation with an unsanctioned international boycott, and certain foreign taxes paid on foreign oil related income. The total taxes available for credit may also be reduced by a penalty for failure to report information required by IRC section 6038(a) for foreign controlled corporations or partnerships.
Regular and alternative minimum tax
The sum of the regular tax and the alternative minimum tax. Regular tax is the amount of a corporation’s total tax liability calculated at the regular corporate tax rates. The alternative minimum tax (AMT) is a tax designed to ensure that at least a minimum amount of tax was paid in spite of the legitimate use of income exclusions, deductions, and credits. In effect, it provides a second tax system that curtailed or eliminated many of the means of reducing taxes for large corporations allowed in the regular tax system and taxed the resulting “alternative” taxable income at a reduced rate.
Rents, royalties, and license fees
Rents, royalties, and license fees received from foreign sources.
Expenses associated with foreign-source income, including compensation, commissions, fees, etc., for technical, managerial, engineering, construction, scientific or similar services outside the United States.
Gross foreign-source income, including compensation, commissions, fees, etc., for technical, managerial, engineering, construction, scientific or similar services outside the United States.
This separate limitation category applied for tax years 1987 through 2006. It included the following: (1) all income from the use (or leasing for use) of a vessel or aircraft in foreign commerce, (2) income from services directly related to the use of a vessel or aircraft, (3) gains on the sale or exchange of a vessel or aircraft used in the performance of such services, and (4) income generated from other space and oceanic activities not included elsewhere.
Taxable income (less loss) after adjustments
Foreign-source taxable income is adjusted, when applicable, by the allocation of current-year foreign losses, recharacterization of income due to prior year loss allocations, adjustments related to overall foreign losses, including recapture of prior overall foreign losses, and allocations of current-year U.S. losses.
Taxable income (less loss) before adjustments
Gross income (less loss) less deductions from sources outside the United States, including U.S. possessions. It is included in the taxable income of U.S. corporations.
Taxes deemed paid
U.S. corporations that satisfy ownership and other requirements are permitted to take an indirect foreign tax credit for taxes paid on the profits from which dividends were distributed. Under Internal Revenue Code Section 78, these taxes are “deemed paid” by the U.S. corporations under Internal Revenue Code sections 902 and 960(a).
Taxes withheld at source on dividends
Taxes withheld by foreign sources on dividend income.
Taxes withheld at source on interest income
Taxes withheld by foreign sources on interest income.
Taxes withheld at source on rents, royalties, and license fees
Taxes withheld by foreign sources on rents, royalties, and license fees.
Total assets are those reported in the end-of-year balance sheet in the corporations' books of account. Total assets are net amounts after reduction by accumulated depreciation, accumulated amortization, accumulated depletion, and the reserve for bad debts.
Total receipts is the sum of the following items: business receipts, interest; interest on government obligations (state and local), rents, royalties, net capital gains (excluding long-term gains from regulated investment companies), net gain, noncapital assets, dividends received from domestic corporations, dividends received from foreign corporations (excluding certain taxable income from related foreign corporations only constructively received); and other receipts.
U.S. income tax after credits
A corporation’s U.S. tax liability after all credits have been deducted.
U.S. income tax before credits, total
A corporation’s U.S. tax liability before any credits have been deducted.
U.S. possessions tax credit
The Puerto Rico and possession tax credit was terminated for corporations with tax years beginning after December 31, 1995. However, companies were eligible for a credit against U.S. income tax for some or all of the tax on income earned in possessions. Special phase-out rules apply in the case of existing credit claimants. After 2005, the credit was completely repealed for all corporations.