SECTION 2. BACKGROUND

.01 Section 909

Section 211 of the legislation commonly referred to as the Education Jobs and Medicaid Assistance Act (“EJMAA”), enacted on August 10, 2010 (P.L. 111–226, 124 Stat. 2389 (2010)), added section 909 to the Code to address situations where foreign income taxes have been separated from the related income. Section 909(a) provides that if there is a foreign tax credit splitting event with respect to a foreign income tax paid or accrued by a taxpayer, such tax shall not be taken into account for federal tax purposes before the taxable year in which the related income is taken into account by the taxpayer. Section 909(b) provides special rules with respect to a “section 902 corporation,” which is defined in section 909(d)(5) as any foreign corporation with respect to which one or more domestic corporations meets the ownership requirements of section 902(a) or (b) (a “section 902 shareholder” of the relevant section 902 corporation). If there is a foreign tax credit splitting event with respect to a foreign income tax paid or accrued by a section 902 corporation, the tax shall not be taken into account for purposes of section 902 or 960, or for purposes of determining earnings and profits under section 964(a), before the taxable year in which the related income is taken into account by such section 902 corporation or a section 902 shareholder. Thus, the tax is not added to the section 902 corporation’s pool of “post-1986 foreign income taxes” (as defined in section 902(c)(2) and §1.902–1(a)(8)), and its pool of “post-1986 undistributed earnings” (as defined in section 902(c)(1) and §1.902–1(a)(9)) is not reduced by such tax. Accordingly, section 909 suspends foreign income taxes paid or accrued by a section 902 corporation at the level of the payor section 902 corporation. In the case of a partnership, section 909(a) and (b) apply at the partner level, and, except as otherwise provided by the Secretary, a similar rule applies in the case of an S corporation or trust. Section 909(c)(1).

December 27, 2010 917 2010–52 I.R.B.

(b) Any pre-2011 taxes that were paid or accrued in connection with a pre-2011 splitter arrangement identified in section 4 of this notice (“pre-2011 split taxes”) but that were deemed paid under section 902(a) or 960 on or before the last day of the section 902 corporation’s last pre-2011 taxable year;

(c) Any pre-2011 split taxes if either (1) the payor section 902 corporation took the related income into account in a pre-2011 taxable year or (2) a section 902 shareholder took the related income into account on or before the last day of the section 902 corporation’s last pre-2011 taxable year; and

(d) Any pre-2011 split taxes paid or accrued by a section 902 corporation in taxable years of such section 902 corporation beginning before January 1, 1997 (because it is unlikely that material amounts of foreign income taxes described in that paragraph were accumulated and not previously deemed paid).

To the extent that the section 902 corporation paid or accrued pre-2011 split taxes that are not described in paragraphs (a) through (d) above, section 909 will apply to such pre-2011 split taxes for purposes of applying sections 902 and 960 in post-2010 taxable years of the section 902 corporation. Accordingly, these taxes will be removed from the section 902 corporation’s pools of post-1986 foreign income taxes and suspended under section 909 as of the first day of the section 902 corporation’s first post-2010 taxable year.