Press Room
 

FROM THE OFFICE OF PUBLIC AFFAIRS

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July 27, 2004
JS-1840

Treasury and IRS Issue Regulations on the Foreign Tax Credit
Treatment of Charitable Contributions

Today Treasury and the IRS issued temporary and proposed regulations regarding the treatment of charitable deductions for foreign tax credit purposes.  The new rules adopt a simpler and more favorable method of allocating and apportioning charitable deductions than the methods in current regulations or in regulations that were proposed in 1991.  Generally, the new rules provide that a contribution that is deductible pursuant to the Internal Revenue Code is allocated and apportioned solely to U.S.-source income for foreign tax credit purposes.

"These new regulations provide clear rules for the treatment of charitable contributions," said Greg Jenner, Acting Assistant Secretary for Tax Policy.  "By adopting the straightforward approach of allocating contributions that are deductible for U.S. tax purposes to U.S.-source income, the regulations ensure that the incentives for charitable contributions work as intended."

A taxpayer generally may deduct a contribution made to a charitable organization provided that the contribution is to be used in the United States or one of its possessions for specified purposes.  Current regulations provide that, for foreign tax credit purposes, deductions for charitable contributions allowed under the Internal Revenue Code generally are ratably apportioned to U.S.- and foreign-source income on the basis of gross income.  In 1991, regulations were proposed that would have changed this ratable apportionment rule to a rule that generally would apportion the deduction for a charitable contribution based on where the contribution would be used.  The proposed and temporary regulations issued today would replace both the existing regulations and the regulations proposed in 1991. The temporary regulations are effective for charitable contributions made on or after July 28, 2004, and taxpayers may elect to apply the temporary regulations to all charitable contributions made during a taxable year ending on or after July 28, 2004.

  

 

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