REVENUE RULE 90-53

1990-2 C.B. 178, 1990-27 I.R.B. 8.

Internal Revenue Service
Revenue Ruling

FOREIGN TAX CREDIT; SOUTH AFRICA

Published: July 2, 1990

Section 901. - Taxes of Foreign Countries and of Possessions of United States

(See Also Sections 902, 952, 960.)

Foreign tax credit; South Africa. The foreign tax credit allowed under section 901 of the Code is denied for taxes paid on income derived in South Africa attributable to taxable years beginning after December 31, 1987. Income derived from sources inside South Africa is subpart F income. Rev. Rul. 87-35 supplemented.

Rev. Rul. 87-35, 1987-1 C.B. 182, lists countries the income from which is subject to certain special tax rules. This revenue ruling supplements that ruling in light of recent legislation.

SECTION 901

LAW AND ANALYSIS

Section 901 of the Internal Revenue Code allows U.S. taxpayers to claim a foreign tax credit for income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued under sections 902 and 960) to any foreign country or to any possession of the United States. Section 901(j) denies the credit for taxes paid on income derived in certain countries, which are listed in Rev. Rul. 87-35. Section 10231 of the Omnibus Budget Reconciliation Act of 1987, Pub. L. No. 100-203, 101 Stat. 1330 (1987), 1987-3 C.B. 1, added South Africa to the list of countries to which section 901(j) applies. For purposes of section 901(j), the term South Africa has the meaning given to it by paragraph (6) of section 3 of the Comprehensive Anti-Apartheid Act of 1986, Pub. L. 99-440, 100 Stat. 1086. This revenue ruling supplements Rev. Rul. 87-35 by adding South Africa to the list of countries in that ruling.

HOLDING

Section 901(j) describes the following countries:

Afghanistan North Korea
Albania People's Democratic Republic of Yemen
Angola South Africa
Cambodia Syria
Cuba Vietnam
Iran
Libya

SECTION 952

LAW AND ANALYSIS

The income of a foreign corporation with United States shareholders is generally not taxes to the shareholders until the income is repatriated. Section 951 of the Code, however, provides that this deferral of United States tax is not available to shareholders of controlled foreign corporations with certain types of income ('subpart F income'). Section 952(a)(5) of the Code provides that subpart F income includes income derived by a controlled foreign corporation from sources inside a foreign country while section 901(j) applies to that country. The countries to which section 901(j) applies are listed above.

HOLDING

Section 952(a)(5) applies to income derived from sources inside South Africa. Therefore, such income is subpart F income.

EFFECT ON OTHER REVENUE RULINGS

Rev. Rul. 87-35 is supplemented.

EFFECTIVE DATE

Rev. Rul. 89-44, 1989-1 C.B. 237, states that section 901(j)(2)(C) of the Code (which provides a special rule for South Africa) is effective for taxes paid or accrued with respect to income attributable to taxable years beginning after December 31, 1987. In accordance with that ruling (and in addition to any period during which section 901(j) would otherwise apply to South Africa), this revenue ruling applies during the period beginning January 1, 1988, and ending on the date the Secretary of State certifies to the Secretary of the Treasury that South Africa meets the requirements of section 311(a) of the Comprehensive Anti-Apartheid Act of 1986.

DRAFTING INFORMATION

The principal author of this revenue ruling is Thomas L. Ralph of the Office of Associate Chief Counsel (International). For further information regarding this revenue ruling contact Mr. Ralph at (202) 377-9059 (not a toll- free call).

Rev. Rul. 90-53, 1990-2 C.B. 178, 1990-27 I.R.B. 8.