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 Rev. Rul. 54-15

1954-1 C.B. 129

Sec. 905

IRS Headnote

The credit for taxes paid to a foreign country or a possession of the United States allowable under section 131(a) of the Internal Revenue Code will be limited in application only as expressly provided in section 131(b) of the Code.

G.C.M. 26062, C.B. 1949-2, 110, revoked; G.C.M. 25723, C.B. 1948-2, 131, reinstated.

Full Text

Rev. Rul. 54-15

Reconsideration has been given to G.C.M. 26062, C.B. 1949-2, 110, and G.C.M. 25723, C.B. 1948-2, 131, in the light of the Tax Court Memorandum Opinion in the case of James H. Brace v. Commissioner , entered August 27, 1952.

In G.C.M. 25723, supra , it was held that section 131(a) of the Revenue Act of 1934 (now sec. 131(a) of the Internal Revenue Code), allowing credit for taxes paid to a foreign country or a possession of the United States, should be limited in application only as expressly provided in section 131(b). This ruling was modified in G.C.M. 26062, supra , to limit the amount of income tax paid to a foreign country or possession of the United States for which credit could be taken, subject to the limitations of section 131(b), to that portion of the income tax paid to the foreign country or possession of the United States which was attributable to income taxed both in the foreign country or possession of the United States and in the United States.

Section 131(b) of the Internal Revenue Code provides, in part, as follows:

(1) The amount of the credit in respect of the tax paid or accrued to any country shall not exceed, in the case of a taxpayer other than a corporation, the same proportion of the tax against which such credit is taken, which the taxpayer's net income from sources within such country bears to his entire net income for the same taxable year , * * * Italics supplied

In the case of James H. Brace, supra , the taxpayer was a citizen of the United States but a resident of Canada. He had income from Canadian sources, part of which was excluded from Federal income tax under section 116(a) of the Code. The Commissioner denied the taxpayer credit under section 131 of the Code for that portion of Canadian taxes allocable to excluded earned income. The Tax Court decided the case in favor of the taxpayer relying on the cases of I. B. Dexter et ux. v. Commissioner , 47 B.T.A. 285, acquiescence C.B. 1948-2, 1, and Helvering v. Edward J. Nell , 139 Fed.(2d) 865, which cases constituted the basis for G.C.M. 25723, supra . In reaching its decision the Tax Court stated:

In the ten years which have intervened since the decisions in the Dexter and Nell cases, supra , the Congress has had innumerable opportunities to correct any error of interpretation if one was made by the Dexter and Nell cases. Needless to say, no such action has occurred. * * *

*

We see no good purpose in questioning such longstanding precedents as the Dexter and Nell cases. On their authority, petitioner's position must be sustained.

In view of the foregoing, it is held that the credit for taxes paid to a foreign country or a possession of the United States allowable under section 131(a) of the Internal Revenue Code will be limited in application only as expressly provided in section 131(b) of the Code. Accordingly, G.C.M. 26062, C.B. 1949-2, 110 is hereby revoked and G.C.M. 25723, C.B. 1948-2, 131, reinstated.