Rev. Rul. 87-35, 1987-1 C.B. 182.

LIMITATIONS ON BENEFITS AVAILABLE

Published:  1987

Section 911. - Citizens or Residents of the United States Living Abroad, 26 CFR 1.911-1: Partial exclusion for earned income from foreign sources within a foreign country and foreign housing costs

(Also Sections 901, 902, 952, 960; 1.901-1, 1.902-1, 1.952-1, 1.960-1.)

  Limitations on benefits available. Countries are listed where income exclusions are limited. Countries are also listed for which sections 901(j) and 952(a) of the Code change the foreign tax credit rules and the definition of Subpart F income.

ISSUE

  Tax benefits generally available to United States taxpayers living or doing business in a foreign country are limited for some countries. This revenue ruling lists the countries for which section 911(d)(8) of the Internal Revenue code of 1986 limits the income exclusions otherwise available under section 911 of the Code to individuals living abroad. It also lists the countries for which sections 901(j) and 952(a) change the foreign tax credit rules and the definition of subpart F income otherwise applicable to taxpayers doing business abroad.

SECTION 911

LAW AND ANALYSIS

  Section 911(a) of the Code allows 'foreign earned income' and 'housing cost amounts,' as defined in sections 911(b) and (c), to be excluded from the gross income of a 'qualified individual.' Section 911(d)(1) defines a 'qualified individual' as a citizen (or, in some cases, a resident) of the United States whose tax home is in a foreign country and who meets the section's requirement of residence or presence in the foreign country for a specified time.

  Section 911(d)(8) of the Code, as amended by section 1233(b) of the Tax Reform Act of 1986, provides that, if travel with respect to any foreign country (or any transaction in connection with such travel) is subject to regulations that have been adopted pursuant to the Trading With the Enemy Act,

50 U.S.C. App. sections 1-44 (1982), or the International Emergency Economic Powers Act, 50 U.S.C. sections 1701-1706 (1982), and the regulations include provisions generally prohibiting citizens and residents of the United States from engaging in transactions related to travel to, from, or within a foreign country, then, as long as the prohibition is effective: (1) foreign earned income does not include income from sources within that country attributable to services performed during that period; (2) housing expenses do not include any expenses for housing in that country, or for housing of the taxpayer's spouse or dependents in another country while the taxpayer is present in that country; and (3) an individual is not treated as a bona fide resident of, or as present in, a foreign country for any day during which the individual was present in that country. These limitations do not apply if the taxpayer's activities do not violate the regulations described above. The following regulations currently meet the description in section 911(d)(8) for the countries parenthetically indicated: 31 C.F.R. section 500.201 (1986) (Cambodia, North Korea, and Vietnam); 31 C.F.R. section 515.301 (1985) (Cuba); 31 C.F.R. section 550.203 (1986) (Libya).

HOLDING

  The following foreign countries are currently subject to the limitations of section 911(d)(8):
  Cambodia
  Cuba
  Libya
  North Korea
  Vietnam
SECTION 901
LAW AND ANALYSIS
  Section 901 of the Code provides a credit against United States income tax for foreign income, war profits, and excess profits taxes paid or accrued to a foreign country or a United States possession. Sections 902 and 960 provide corporations an indirect section 901 credit for a share of foreign taxes paid by certain foreign subsidiaries. Section 904 provides that the credit allowed under section 901 is computed separately with regard to specified types of income.
  Section 901(j)(1)(A) of the Code, as amended by section 8041 of the Omnibus Budget and Reconciliation Act of 1986, provides that a foreign tax credit is not allowed under section 901(a) for foreign taxes paid or accrued (or deemed paid under section 902 or 960) to any country if the income giving rise to the tax is attributable to a period during which the country is described in section 901(j)(2)(A). Section 901(j)(1)(3) provides that section 904(a), (b), and (c), section 902, and section 960 will be applied separately to income from sources within such a country attributable to that period. A foreign country attributable to that period. A foreign country is described in section 901(j)(2)(A) if (1) the United States does not recognize its government, unless it is otherwise eligible to purchase defense articles or services under the Arms Export Control Act; (2) the United States has severed diplomatic relations with the country; (3) the United States has not severed diplomatic relations with the country but does not conduct such relations; or (4) the Secretary of State has, pursuant to section 6(j) of the Export Administration Act of 1979, as amended, designated the country as one which repeatedly provides support for acts of international terrorism. Based on information supplied by the Department of State, the following countries currently meet the description in section 901(j)(2)(A): Afghanistan, Albania, Angola, Cambodia, Cuba, Iran, Libya, North Korea, the People's Democratic Republic of Yemen, Syria, and Vietnam.
HOLDING
  The following countries are currently described by section 901(j):
Afghanistan  Libya
Albania      North Korea
Angola       People's Democratic
Cambodia     Republic of Yemen
Cuba         Syria
Iran         Vietnam
SECTION 952
LAW AND ANALYSIS
  United States shareholders of a foreign corporation are generally not subject to United States tax on the foreign corporation's income until the income is repatriated. Section 951 of the Code provides, however, that his deferral of United States tax does not apply to certain kinds of income ('subpart F income ') earned by a controlled foreign corporation. Section 952(a)(5) provides that subpart F income includes income derived from sources within a foreign country by a controlled foreign corporation while section 901(j) applies to that country.
HOLDING
  Income derived from sources within the following foreign countries is currently subject to section 952(a)(5);
Afghanistan  Libya
Albania      North Korea
Angola       People's Democratic
Cambodia     Republic of Yemen
Cuba         Syria
Iran         Vietnam

Rev. Rul. 87-35, 1987-1 C.B. 182