The IRS has filed ten corrections to its one-month-year foreign tax proposal, and one of them turns the last day of a partnership's year into the first
The rule everybody has been citing does not say what it was printed as saying. On Friday morning the IRS filed ten corrections to the proposed regulations on allocating foreign taxes across the one-month taxable year, published four weeks ago at 91 FR 48794.
Eight are housekeeping. Two are not.
The one that changes a test
On page 48803, in proposed section 1.898(c)-1(f)(1), the published text says that a distributive share of a creditable foreign tax expenditure from an affected partnership counts as a relevant succeeding year tax if the foreign taxable year it is imposed for "begins before the last day of the partnership's succeeding taxable year." The correction replaces "last" with "first."
That is close to a year's difference in reach. On the printed text, a foreign taxable year starting at almost any point during the succeeding year qualified. On the corrected text, it has to start before the succeeding year begins.
Two sentences earlier in the same paragraph, the equivalent test for the corporation itself already read "begins before the first day." The correction makes the partnership limb match the corporate one, which is the strongest indication available on the face of the documents that the printed version was the error rather than the policy.
The one that changes a cross-reference
On page 48800 the Regulatory Flexibility Act analysis reaches its conclusion by pointing at an election. Small entities face no significant economic impact, it reasons, because the rules let a taxpayer choose not to allocate at all, and the only extra cost falls on an entity that makes the election, estimated at 1.5 hours per response.
It cited that election as proposed section 1.898(c)-1(c)(4). It lives at 1.898(c)-1(e)(4).
The other eight
Page 48799 listed the conforming amendments and named section 1.442-2(b)(1)(i). The document's own amendatory instructions never touch any such section. Par. 4 amends section 1.441-2, on 52-53 week taxable years, and the correction changes the reference to match.
Paragraph (i)(8)(ii) on page 48805 referred to "paragraph g" and now refers to paragraph (d)(4). Two lines on the same page and the one following gain the words "an income group specific allocation." Paragraph (e)(2)(i) gains a plural verb. Paragraph (b) is corrected to point at a taxpayer described in section 1.901-2(f). In the worked example under section 1.960-3(e)(3)(ii)(B), spanning pages 48806 and 48807, a company called FC1 was twice referred to as FC.
The comment period is untouched. Written comments and requests for a public hearing are due on 17 September, the date set when the proposal was published, and a correction does not restart the clock. The notice is signed by Oluwafunmilayo A. Taylor, chief of the Publications and Regulations Section.
