FROM THE OFFICE OF PUBLIC AFFAIRS

September 27, 2004
JS-1960

Special Foreign Tax Credit Restrictions No Longer Applicable To Iraq

Today the Treasury Department announced that the special foreign tax credit restrictions of section 901(j) of the Internal Revenue Code no longer apply to income and taxes attributable to Iraq.

U.S. tax rules generally allow taxpayers a credit against U.S. income tax for taxes paid to a foreign country. Special rules in sections 901(j) and 952(a)(5) generally deny foreign tax credits and impose other restrictions in the case of income attributable to countries with which the United States does not conduct diplomatic relations or which have been identified as sponsors of international terrorism. Revenue Ruling 95-63 provides a list of countries that have been identified as meeting the specified criteria and that are, therefore, subject to these restrictions. The restrictions of section 901(j) and related provisions cease to apply with respect to a particular country if the Secretary of State certifies to the Secretary of the Treasury that the country no longer meets the criteria in that section.

The Department of State has certified that Iraq is no longer a country described in Section 901(j)(2)(A) of the Internal Revenue Code, effective June 28, 2004. Accordingly, as of that date, the denial of foreign tax credits and other restrictions of sections 901(j) and related provisions do not apply to income and taxes attributable to Iraq.

Treasury and the IRS intend to update Rev. Rul. 95-63 to reflect this development.

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