Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 72-26

1972-1 C.B. 214

Sec. 901
Sec. 904

IRS Headnote

A resident alien employed by the Jamaican Government in the United States is not entitled to a foreign tax credit for the Jamaica income taxes withheld from his salary if his total taxable income is from United States sources.

Full Text

Rev. Rul. 72-26

Advice has been requested whether a taxpayer, a resident alien of the United States, is entitled to a credit on his United States Federal income tax return for the amount of the income taxes paid to the Government of Jamaica under the circumstances described below.

The taxpayer is a Jamaican national and a permanent resident of the United States. He is employed in New York by the Government of Jamaica in the Jamaican Mission to the United Nations. Under the terms of his employment, Jamaica income tax was deducted from his pay check by his employer for the year 1970. Since 1968, the taxpayer has been taxed by the United States on items from United States sources other than his salary from the Government of Jamaica which is exempted from United States tax by Article X (2) of the Income Tax Convention between the United States and Jamaica as compensation paid by the Government of Jamaica for services rendered to it in the discharge of its governmental functions. The taxpayer did not pay or accrue taxes with respect to any other foreign country or to any possession of the United States for any taxable year. The Income Tax Convention between the United Kingdom and the United States as modified through August 19, 1957, was extended to Jamaica effective January 1, 1959. T.D. 6437, C.B. 1960-1, 767. When Jamaica became an independent country, it assumed all international obligations between the United Kingdom and the United States including such convention. The convention as extended continues in force with respect to Jamaica. As a resident alien of the United States, the taxpayer is entitled to the benefits of the tax treaty or of the Internal Revenue Code of 1954, whichever is the more favorable.

Article XIII(1) of the Convention as amended by Supplementary Protocol between the United States and the United Kingdom and Northern Ireland on August 19, 1957, C.B. 1958-2, 1078, provides in pertinent part that, subject to section 901 to 905 of the Code as in effect on January 1, 1956, Jamaican tax shall be allowed as a credit against United States tax.

Section 901(b)(3) of the Code, as in effect on January 1, 1956, provided, in part, that in the case of an alien resident of the United States the amount of any income, war profits, and excess profits taxes paid or accrued during the taxable year to any foreign country shall be allowed as a foreign tax credit under subsection (a) if the foreign country of which such alien resident is a citizen or subject, in imposing such taxes, allows a similar credit to citizens of the United States residing in such country.

Section 901(b)(3) of the Code, as presently in effect, is the same as above except that it omits the similar credit requirement that is now limited to certain alien residents as provided in section 901(c) of the Code.

Section 904(a) of the Code, as in effect on January 1, 1956, provided that the amount of the credit in respect to the tax paid or accrued to any country shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable income from sources within such country (but not in excess of the taxpayer's entire taxable income) bears to his entire taxable income for the same taxable year. Section 904(b) of the Code provided that the taxable income of an individual, for purposes of computing the limitation under subsection (a) shall be computed without any deductions for personal exemptions under section 151 or 642(b) of the Code.

Section 904(a) of the Code as presently in effect provides, not only for an election as to the per-country limitation (as is permitted in the convention as noted above) but also for an overall limitation. However, since the applicable statute as in effect on January 1, 1956, did not provide for an overall limitation and the taxpayer did not pay or accrue taxes to any other foreign country for any taxable year, the overall limitation is not applicable in the instant case.

From the above, the maximum foreign tax credit allowable to the taxpayer against United States income tax under the per-country limitation would be computed as follows:

Jamaica source taxable income / total taxable income from all sources X tentative United States income tax = maximum foreign tax credit

Since the taxpayer's taxable income consisted entirely of United States source income, the numerator of the limiting fraction is zero. (If the taxpayer had received income from sources within Jamaica which was taxed by the United States, he would have been entitled to a foreign tax credit for Jamaican income taxes as limited under the above per-country limitation formula.)

Accordingly, under the stated facts the taxpayer would not be entitled to a foreign tax credit for the taxable year 1970 for income taxes paid to Jamaica.