Par. 5. Add § 1.898(c)-1 under the undesignated center heading “ Miscellaneous Provisions” to read as follows:
(a) Overview. This section provides rules for allocating certain foreign taxes paid or accrued by a specified foreign corporation that is required to change its first taxable year beginning after November 30, 2025, pursuant to section 70352(c)(1)(C) of Public Law 119-21, 139 Stat. 72 (July 4, 2025), commonly known as the One, Big, Beautiful Bill Act (OBBBA). Paragraph (b) of this section provides definitions for purposes of this section. Paragraph (c) of this section generally identifies which foreign taxes of an affected corporation are allocated between the affected corporation's first required year and its succeeding taxable year. Paragraph (d) of this section provides ordering rules for allocating a specified foreign income tax under this section. Paragraph (e) of this section provides allocation methods for purposes of determining the amount of a specified foreign income tax allocated to the first required year and the succeeding taxable year and an election to not allocate specified foreign income taxes. Paragraph (f) of this section provides an election to allocate relevant succeeding year taxes between an affected corporation's first required year and its succeeding taxable year. Paragraph (g) of this section provides rules for the treatment of specified foreign income taxes and relevant succeeding year taxes under sections 905(c) and 986(a). Paragraph (h) of this section provides procedures for making the elections provided under paragraphs (c)(2), (e)(3) and (4), and (f) of this section. Paragraph (i) of this section provides examples illustrating the application of this section. Paragraph (j) of this section provides the applicability date.
(b) Definitions. The following definitions apply for purposes of this section.
Affected corporation means a specified foreign corporation (as defined in section 898(b)) that takes into account foreign income taxes under an accrual method of accounting and whose first taxable year beginning after November 30, 2025, ends pursuant to section 70352(c) of the OBBBA on the date prescribed by that section.
Affected partnership means a partnership that takes into account foreign income taxes under an accrual method of accounting and whose first taxable year beginning after November 30, 2025, is required to change due to one or more of its partners changing their first taxable year as required by section 70352(c) of the OBBBA.
Allocation percentage has the meaning set forth in paragraph (e)(1) of this section.
Creditable foreign tax expenditure (CFTE) has the meaning set forth in § 1.704-1(b)(4)(viii).
First required year means, with respect to an affected corporation or affected partnership, the first taxable year beginning after November 30, 2025.
Foreign net income tax means a foreign income tax (as defined in § 1.901-2(a)) that is computed based on items of income, gain, deduction, and loss that arise in a foreign taxable year.
Income group specific allocation percentage has the meaning set forth in paragraph (e)(3) of this section.
Relevant succeeding year tax has the meaning set forth in paragraph (f)(1) of this section.
Section 901 taxpayer means the taxpayer described § 1.901-2(f).
Specified distributive share of a CFTE has the meaning set forth in paragraph (c)(2) of this section.
Specified foreign income tax has the meaning set forth in paragraph (c)(1) of this section.
Succeeding taxable year means, with respect to an affected corporation or affected partnership, the taxable year immediately following the first required year.
United States shareholder has the meaning provided in section 951(b).
(c) Specified foreign income taxes —(1) In general. Except as provided in paragraph (e)(4) of this section, specified foreign income taxes are allocated between an affected corporation's first required year and its succeeding taxable year under this section. A specified foreign income tax is a foreign net income tax accrued without regard to this section by an affected corporation in its first required year for which the affected corporation is the section 901 taxpayer.
(2) Election to allocate specified distributive shares of CFTEs. An election may be made under this paragraph (c)(2) pursuant to the procedures of paragraph (h) of this section. If an election is in effect under this paragraph (c)(2), all specified distributive shares of CFTEs of an affected corporation are treated as specified foreign income taxes. A specified distributive share of a CFTE is an affected corporation's distributive share of a CFTE of an affected partnership if—
(i) The affected corporation takes into account its distributive share of the CFTE in its first required year;
(ii) The CFTE is a foreign net income tax; and
(iii) The affected partnership's first required year ends at the same time as the affected corporation's first required year.
(d) Ordering rules. The following ordering rules apply for allocating an affected corporation's specified foreign income taxes between the affected corporation's first required year and its succeeding taxable year.
(1) First, specified foreign income taxes are determined.
(2) Second, each specified foreign income tax is allocated and apportioned to income groups pursuant to the rules in this paragraph (d)(2). Section 1.861-20, as modified by § 1.960-1(d)(3)(ii)(B), is applied in the first required year to allocate and apportion the specified foreign income tax to the income groups described in § 1.960-1(d)(2) and the PTEP groups treated as income groups under § 1.960-1(d)(3)(ii)(B) in that year, except that the tentative gross tested income items described in § 1.951A-2(c)(7)(ii) are treated as income groups described in § 1.960-1(d)(2)(ii)(C). Whether any item meets the high-tax exception to foreign base company income in § 1.954-1(d) (high-tax exception) or the high-tax exclusion from tested income in § 1.951A-2(c)(7) (high-tax exclusion) in either the first required year or the succeeding taxable year is determined under paragraph (d)(4) of this section.
(3) Third, the allocation method provided in paragraph (e) of this section is applied to determine the amount of specified foreign income tax in each income group that is allocated to the first required year and the succeeding taxable year.
(4) Fourth, for all purposes of the Internal Revenue Code, except for sections 905(c) and 986(a), the amounts of a specified foreign income tax (assigned to the income groups determined under paragraph (d)(2) of this section) that are allocated to the first required year and the succeeding taxable year under paragraph (d)(3) of this section are treated as accruing in each respective year. Thus, for example, the amounts of a specified foreign income tax allocated to the first required year and the succeeding taxable year accrue in each respective year for purposes of computing the affected corporation's items of subpart F income and tested income under sections 952 and 951A (including whether any item meets the high-tax exception or the high-tax exclusion), earnings and profits, and taxes deemed paid under section 960(a), (b), or (d). The amount of a specified foreign income tax allocated to the succeeding taxable year is treated as accruing on the first day of the succeeding taxable year and is not allocated among, and considered paid by, two or more persons under § 1.901-2(f) by reason of events that occur in the succeeding taxable year.
(e) Allocation method —(1) In general. Subject to the special rules provided in paragraph (e)(2) of this section and the elections described in paragraphs (e)(3) and (4) of this section, the amount of a specified foreign income tax assigned to each income group allocated to the first required year is the specified foreign income tax assigned to that income group multiplied by a fraction (the allocation percentage), the numerator of which is the portion of taxable income, as determined under foreign law, that is attributable to the first required year under the principles of § 1.1502-76(b), and the denominator of which is the total taxable income, as determined under foreign law, for the foreign taxable year with respect to which the specified foreign income tax is imposed. The amount of a specified foreign income tax assigned to each income group remaining after the application of the preceding sentence is allocated to the succeeding taxable year.
(2) Special rules —(i) Allocation method for PTEP groups. The amount of a specified foreign income tax assigned to a PTEP group under paragraph (d)(2) of this section is allocated to the first required year. The numerator and the denominator of the allocation percentage is adjusted to exclude the foreign law taxable income on which that amount of specified foreign income tax is imposed.
(ii) Allocation method in the case of certain covered events. If an affected corporation is the section 901 taxpayer of a portion of a specified foreign income tax by reason of the application of § 1.901-2(f)(5), then the allocation percentage is adjusted as follows—
(A) In the case of an affected corporation whose period of existence or ownership (as determined under § 1.901-2(f)(5)) begins on or before the start of the first required year, the denominator of the allocation percentage is the total foreign law taxable income attributable to the affected corporation's period of existence or ownership (as determined under § 1.901-2(f)(5)).
(B) In the case of an affected corporation whose period of ownership (as determined under § 1.901-2(f)(5)) begins after the start of the first required year, the allocation percentage is deemed to be 100 percent.
(3) Election to apply income group specific allocation method. An election may be made under this paragraph (e)(3) pursuant to the procedures of paragraph (h) of this section. If an election is in effect under this paragraph (e)(3), the amount of a specified foreign income tax assigned to each income group allocated to the affected corporation's first required year is the amount of specified foreign income tax assigned to that income group multiplied by a fraction (the income group specific allocation percentage), the numerator of which is the portion of foreign taxable income assigned under § 1.861-20 to the income group that is attributable to the first required year under the principles of § 1.1502-76(b) (using the closing of the books method described in § 1.1502-76(b)(2)(i)), and the denominator of which is the total foreign taxable income assigned under § 1.861-20 to the income group. Adjustments similar to the adjustments provided by paragraph (e)(2) of this section are made in the computation of the income group specific allocation percentage. The amount of specified foreign income tax assigned to each income group remaining after the application of the preceding sentences is allocated to the succeeding taxable year.
(4) Election to not allocate specified foreign income taxes. An election may be made under this paragraph (e)(4) pursuant to the procedures of paragraph (h) of this section. If an election is in effect under this paragraph (e)(4), the specified foreign income taxes of an affected corporation are taken into account in the affected corporation's first required year, and the affected corporation's relevant succeeding year taxes cannot be allocated under paragraph (f) of this section.
(f) Election to allocate relevant succeeding year taxes —(1) In general. An election may be made under this paragraph (f) pursuant to the procedures of paragraph (h) of this section. If an election is in effect under this paragraph (f), the relevant succeeding year taxes of an affected corporation are allocated between the affected corporation's first required year and its succeeding taxable year under this paragraph (f). A relevant succeeding year tax is a foreign net income tax accrued without regard to this section by the affected corporation in its succeeding taxable year for which the affected corporation is the section 901 taxpayer but only if the foreign taxable year with respect to which the tax is imposed begins before the first day of the affected corporation's succeeding taxable year. If the affected corporation is the section 901 taxpayer of a portion of a foreign net income tax by reason of the application of § 1.901-2(f)(5), then the foreign net income tax is a relevant succeeding year tax only if the affected corporation's period of ownership begins before the beginning of its succeeding taxable year. A relevant succeeding year tax includes an affected corporation's distributive share of a CFTE from an affected partnership that the affected corporation takes into account in its succeeding taxable year if the requirements of paragraphs (c)(2)(ii) and (iii) of this section are met and the foreign taxable year with respect to which the CFTE is imposed begins before the last day of the partnership's succeeding taxable year.
(2) Ordering rules. The ordering rules described in paragraph (d) of this section apply for allocating a relevant succeeding year tax between an affected corporation's first required year and its succeeding taxable year, except that in applying paragraph (d)(2) of this section, a relevant succeeding year tax is allocated and apportioned to income groups in the succeeding taxable year. A relevant succeeding year tax assigned to a PTEP group under paragraph (d)(2) of this section is allocated to the succeeding taxable year. The amount of a relevant succeeding year tax allocated to the first required year is treated as accruing on the last day of the affected corporation's first required year and is not allocated to and among, and therefore, not considered paid by, two or more persons under § 1.901-2(f) by reason of events that occur in the first required year.
(3) Allocation method. The income group specific allocation method described in paragraph (e)(3) of this section applies to determine the amount of a relevant succeeding year tax assigned to each income group allocated between an affected corporation's first required year and its succeeding taxable year.
(g) Application of sections 905(c) and 986(a). For purposes of sections 905(c) and 986(a), a specified foreign income tax accrues in the first required year, and a relevant succeeding year tax accrues in the succeeding taxable year, regardless of the allocation of the tax under this section. Therefore, for purposes of sections 905(c) and 986(a), the first required year is the year to which a specified foreign income tax relates, and the succeeding taxable year is the year to which a relevant succeeding year tax relates. Thus, for example, any change in the liability for a specified foreign income tax results in the following. First, the amount of the specified foreign income tax accrued (without regard to the application of this section) in the first required year is adjusted to reflect the change in liability. Second, the ordering rules of paragraphs (d)(1) through (3) of this section are applied based upon the adjusted amount of the specified foreign income tax. Third, paragraph (d)(4) of this section applies to the adjusted amounts of specified foreign income tax that are treated as accruing in the first required year and the succeeding taxable year by reason of the reapplication of paragraphs (d)(1) through (3) of this section.
(h) Election procedures. This paragraph (h) provides rules for making and revoking the elections described in paragraphs (c)(2), (e)(3) and (4), and (f) of this section.
(1) Persons making the election. An election is made by the controlling domestic shareholders (as defined in § 1.964-1(c)(5)) of the affected corporation for its first required year. An election made under paragraph (f) of this section is irrevocable.
(2) Consistency requirement. If an election is made with respect to an affected corporation, then the election applies to all United States shareholders of the affected corporation for its first required year and its succeeding taxable year.
(3) Manner —(i) In general. An election under paragraph (c)(2), (e)(3) or (4), or (f) of this section must be made in accordance with this paragraph (h)(3), and as the Secretary of the Treasury or the Secretary's delegate may provide in forms, instructions, publications, or other guidance.
(A) Election statement requirement. The controlling domestic shareholders must file the statement required under § 1.964-1(c)(3)(ii) with their timely filed (including extensions) original Federal income tax returns, or in the case of an election under paragraph (c)(2) or (e)(3) of this section, with their amended Federal income tax returns in accordance with paragraph (h)(3)(ii) of this section, for the taxable years of the controlling domestic shareholders in which or with which the affected corporation's first required year and succeeding taxable year end. The statement must be attached to the Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, filed with respect to the affected corporation and titled as follows:
( 1 ) “Section 898 Specified Distributive Shares of CFTEs Election Statement” for an election under paragraph (c)(2) of this section;
( 2 ) “Section 898 Income Group Specific Election Statement” for an election under paragraph (e)(3) of this section;
( 3 ) “Section 898 Non-Allocation Election Statement” for an election under paragraph (e)(4) of this section; and
( 4 ) “Section 898 Relevant Succeeding Year Tax Election Statement” for an election made under paragraph (f) of this section.
(B) Notice requirement. The controlling domestic shareholders making an election must provide any notices required under § 1.964-1(c)(3)(iii). For this purpose, a domestic shareholder under § 1.964-1(c)(3)(iii) includes any person known to be a domestic shareholder in the succeeding taxable year.
(ii) Election (or revocation) with an amended Federal income tax return. In the case of an election under paragraph (c)(2) or (e)(3) of this section, or a revocation of an election under paragraph (c)(2), (e)(3) or (4) of this section, made with an amended Federal income tax return—
(A) The election (or revocation) must be made on an amended Federal income tax return duly filed within 24 months of the due date (without regard to extensions) of the original Federal income tax return for the taxable year of each controlling domestic shareholder with or within which the affected corporation's first required year ends; and
(B) If a Federal income tax return for the taxable year of any controlling domestic shareholder with or within which the affected corporation's succeeding taxable year ends has already been filed, an amended Federal income tax return for that year must be filed consistent with the election or revocation of the election.
(i) Examples. The following examples illustrate the application of this section.
(1) Assumed facts. For purposes of the examples in this paragraph (i), unless otherwise indicated, the following facts are assumed:
(i) CFCX is a specified foreign corporation.
(ii) CFCX's first required year is from December 1, 2025, to December 31, 2025.
(iii) CFCX's succeeding taxable year is from January 1, 2026, to December 31, 2026.
(iv) CFCX takes into account foreign income taxes under an accrual method of accounting.
(v) The functional currency of all qualified business units is the u, and all foreign income taxes are denominated in the u.
(2) Example 1: Specified foreign income taxes —(i) Facts. CFCX is subject to tax in Country X on the basis of its items of income, gain, deduction, and loss for its Country X taxable year, and the Country X tax is a foreign income tax within the meaning of § 1.901-2(a). CFCX's Country X taxable year is the calendar year. CFCX accrues Country X tax of 7,200u in its first required year. An election under paragraph (e)(4) of this section is not in effect.
(ii) Analysis. The 7,200u of Country X tax is a specified foreign income tax under paragraph (c)(1) of this section because it is a foreign net income tax that is accrued by CFCX, an affected corporation, in CFCX's first required year, and CFCX is the section 901 taxpayer of the tax. Accordingly, the 7,200u of Country X tax is allocated between CFCX's first required year and its succeeding taxable year under this section.
(3 ) Example 2: Specified distributive share of CFTEs —(i) Facts —(A) Partnership W and Partnership Y. CFCX owns 40 percent and 60 percent interests, respectively, in the profits and capital of two foreign business entities: Partnership W, an entity classified as a partnership for Federal income tax purposes that is organized and operates in Country W, and Partnership Y, an entity classified as a partnership for Federal income tax purposes that is organized and operates in Country Y. The remaining interests (60 percent and 40 percent, respectively) in the profits and capital of Partnership W and Partnership Y are owned by persons unrelated to CFCX. Partnership W and Partnership Y each take into account foreign income taxes under an accrual method of accounting. Partnership W and Partnership Y are subject to tax in their countries on the basis of their items of income, gain, deduction, and loss for their foreign taxable year. The Country W tax and the Country Y tax are foreign income taxes within the meaning of § 1.901-2(a). Each partnership's foreign taxable year is the calendar year. Partnership W's U.S. taxable year has always been the calendar year.
(B) Distributive shares of CFTEs. For its U.S. taxable year beginning on January 1, 2025, and ending on December 31, 2025, Partnership W accrues Country W tax of 10,000u. For its first required year ending on December 31, 2025, CFCX's distributive share of the Country W tax is 4,000u. For its taxable years beginning before November 30, 2025, Partnership Y's U.S. taxable year ended on November 30. Under section 706(b), Partnership Y is required to change its first taxable year beginning after November 30, 2025, due to CFCX changing its first taxable year beginning after November 30, 2025, by reason of the repeal of section 898(c)(2). For its U.S. taxable year ending on December 31, 2025, Partnership Y accrues Country Y tax of 10,000u. For its first required year ending on December 31, 2025, CFCX's distributive share of the Country Y tax is 6,000u. An election under paragraph (c)(2) of this section is in effect.
(ii) Analysis —(A) Country W tax. CFCX's 4,000u distributive share of Country W tax is not allocated between CFCX's first required year and its succeeding taxable year under this section. CFCX's 4,000u distributive share of Country W tax is not a specified distributive share of a CFTE because Partnership W is not an affected partnership as defined in paragraph (b) of this section. Partnership W is not an affected partnership because Partnership W was not required to change its taxable year under section 706(b) due to one or more of its partners changing their first taxable year beginning after November 30, 2025, by reason of the repeal of section 898(c)(2). Accordingly, even though an election is in effect under paragraph (c)(2) of this section, CFCX's 4,000u distributive share of the Country W tax is not treated as a specified foreign income tax. Therefore, CFCX's 4,000u distributive share of the Country W tax is not allocated under this section and continues to be taken into account in CFCX's first required year.
(B) Country Y tax. CFCX's 6,000u distributive share of Country Y tax is allocated between CFCX's first required year and its succeeding taxable year under the rules of this section because it is a specified distributive share of a CFTE, and an election is in effect under paragraph (c)(2) of this section. Partnership Y is an affected partnership under paragraph (b) of this section because it takes into account foreign income taxes under an accrual method of accounting and is required to change its taxable year under section 706(b) due to its partners changing their first taxable year beginning after November 30, 2025, by reason of the repeal of section 898(c)(2). Further, the Country Y tax is a foreign net income tax, CFCX takes into account its distributive share of the Country Y tax in its first required year, and Partnership Y's first required year ends at the same time (December 31, 2025) as CFCX's first required year.
(4) Example 3: Allocation of relevant succeeding year taxes —(i) Facts. The facts are the same as in paragraph (i)(2)(i) of this section ( Example 1 ), except as follows. CFCX accrues 6,000u of Country X tax in its Country X taxable year beginning on January 1, 2026, and ending on December 31, 2026. CFCX also wholly owns DEZ, a disregarded entity that is organized and operated in Country Z. DEZ is subject to tax in Country Z on the basis of its items of income, gain, deduction, and loss for its Country Z taxable year, and the Country Z tax is a foreign income tax within the meaning of § 1.901-2(a). DEZ's Country Z taxable year begins on April 1, 2025, and ends on March 31, 2026. CFCX accrues 5,000u of Country Z tax in its succeeding taxable year. An election is in effect under paragraph (f) of this section.
(ii) Analysis. Because an election is in effect under paragraph (f) of this section, the relevant succeeding year taxes of CFCX are allocated between its first required year and its succeeding taxable year. The 6,000u of Country X tax is not a relevant succeeding year tax under paragraph (f)(1) of this section because the Country X taxable year with respect to which the tax is imposed did not begin before January 1, 2026. The 5,000u of Country Z tax is a relevant succeeding year tax under paragraph (f)(1) of this section because it is a foreign net income tax accrued in CFCX's succeeding taxable year, for which CFCX is the section 901 taxpayer, and the Country Z taxable year with respect to which the 5,000u of Country Z tax is imposed began before January 1, 2026. Accordingly, the 5,000u of Country Z tax is allocated between CFCX's first required year and its succeeding taxable year under paragraph (f) of this section.
(5) Example 4: § 1.901-2(f)(5) and relevant succeeding year taxes —(i) Facts. The facts are the same as in paragraph (i)(4)(i) of this section ( Example 3 ) except as follows. CFCX acquires the interests in DEZ on February 1, 2026. Applying the principles of § 1.1502-76(b), and using the ratable allocation method under § 1.1502-76(b), CFCX is allocated and is treated as paying under § 1.901-2(f)(5), 833u (5,000u x (2 months of foreign law taxable income over 12 months of foreign law taxable income)) of the Country Z tax that accrues on March 31, 2026.
(ii) Analysis. The 833u of Country Z tax is not a relevant succeeding year tax. While the Country Z taxable year began before January 1, 2026, CFCX's period of ownership of DEZ did not begin before January 1, 2026. Therefore, no portion of the 833u of Country Z tax is allocated to CFCX's first required year.
(6) Example 5: Application of § 1.861-20 and allocation of specified foreign income tax —(i) Facts. The facts are the same as in paragraph (i)(2)(i) of this section ( Example 1 ). In addition, CFCX's total taxable income under Country X law for the Country X taxable year ending on December 31, 2025, is 45,000u. Applying the principles of § 1.1502-76(b), 3,750u of this income is attributable to CFCX's first required year. Under § 1.861-20, the 7,200u of Country X tax is allocated and apportioned to the income groups under paragraph (d)(2) of this section as follows: 5,400u to general category tentative gross tested income attributable to the CFC tested unit (CFC income group) and 1,800u to the general category foreign base company services income group (FBCServ income group).
(ii) Analysis. Pursuant to the ordering rules in paragraph (d) of this section, the 7,200u of Country X tax is allocated and apportioned to the income groups under paragraph (d)(2) of this section before applying the allocation method under paragraph (e)(1) of this section to determine the amount of the Country X tax that is allocated to CFCX's first required year and succeeding taxable year under paragraph (d)(3) of this section. The allocation method applies as follows. The amount of CFCX's taxable income under Country X law that is attributable to the first required year (3,750u) is divided by the total taxable income for the Country X taxable year (45,000u), which results in an allocation percentage of 8.33 percent. The amount of Country X tax in each income group that is allocated to the first required year is determined by applying the allocation percentage to the amount of the specified foreign income tax in each income group. Therefore, the following amounts of the Country X tax are allocated to the first required year: 450u, which is assigned to the CFC income group (8.33 percent of 5,400u); and 150u, which is assigned to the FBCServ income group (8.33 percent of 1,800u). The remaining amount of Country X tax in each income group is allocated to CFCX's succeeding taxable year as follows: 4,950u, assigned to the CFC income group (5,400u-450u) and 1,650u, assigned to the FBCServ income group (1,800u-150u).
(7) Example 6: Income group specific allocation method —(i) Facts. The facts are the same as in paragraph (i)(6)(i) of this section ( Example 5 ), except as follows. An election is made under paragraph (e)(3) of this section to use the income group specific allocation method. In applying § 1.861-20 under paragraph (d)(2) of this section, 33,750u of CFCX's taxable income under Country X law is assigned to the CFC income group, and 11,250u of CFCX's taxable income under Country X law is assigned to the FBCServ income group. Applying the principles of § 1.1502-76(b) and using a closing of the books method under § 1.1502-76(b) to the items of Country X income, gain, deduction, and loss assigned to each income group, 2,250u of CFCX's Country X taxable income assigned to the CFC income group is attributable to the first required year, and 1,125u of CFCX's Country X taxable income assigned to the FBCServ income group is attributable to the first required year.
(ii) Analysis —(A) Tax assigned to the CFC income group. The income group specific allocation method applies as follows. Under § 1.861-20, 5,400u of the Country X tax is assigned to the CFC income group. The amount of CFCX's Country X taxable income assigned to the CFC income group that is attributable to the first required year (2,250u) is divided by CFCX's total Country X taxable income assigned to that income group for the Country X taxable year (33,750u), which results in a specific income group allocation percentage of 6.66 percent. Therefore, 360u of Country X tax assigned to the CFC income group is allocated to the first required year. The remaining amount of Country X tax assigned to the CFC income group (5,040u) is allocated to the succeeding taxable year.
(B) Tax assigned to the FBCServ income group. Under § 1.861-20, 1,800u of Country X tax is assigned to the FBCServ income group. The amount of CFCX's Country X taxable income assigned to this income group that is attributed to the first required year (1,125u) is divided by CFCX's total Country X taxable income assigned to that income group for the Country X taxable year (11,250u), which results in a specific income group allocation percentage of 10 percent. Therefore, 180u of Country X tax assigned to the FBCServ income group is allocated to the first required year. The remaining amount of Country X tax assigned to the FBCServ income group (1,620u) is allocated to the succeeding taxable year.
(8) Example 7: Application of the high-tax exclusion —(i) Facts. The facts are the same as in paragraph (i)(7)(i) of this section ( Example 6 ), except as follows. An election under § 1.951A-2(c)(7)(viii) is in effect with respect to CFCX for the first required year. Under § 1.951A-2(c)(7)(ii), CFCX has two tentative gross tested income items: 3,000u in the CFC income group and 2,000u of general category tentative gross tested income attributable to the DEZ tested unit. CFCX accrues no expenses in its first required year other than the specified foreign income tax.
(ii) Analysis. Under paragraph (g) of this section, the portion of the Country X tax allocated to the first required year is treated as the amount of Country X tax accrued in that taxable year for all purposes of the Code except sections 905(c) and 986(a). Therefore, in determining whether any of CFCX's tentative gross tested income items meet the high-tax exclusion, 360u of Country X tax is treated as accrued in the first required year and allocated and apportioned to the CFC income group, the statutory grouping to which 3,000u of gross income is assigned. If an election under § 1.951A-2(c)(7)(viii) is in effect with respect to CFCX for the succeeding taxable year, the 5,040u of Country X tax assigned to the CFC income group would be taken into account in the same manner in that year.
(j) Applicability date. This section applies to taxable years of specified foreign corporations beginning after November 30, 2025.