Case: Taxpayer Not Permitted to Recharacterize All Gain from CFC Stock Sale as Foreign Source Income, Foreign Tax Credit Denied (T.C.) (IRC §904)

Gain recognized on the sale of stock in a controlled foreign corporation (CFC) is recharacterized under I.R.C. §904(f)(3) as foreign-sourced income only to the extent necessary to recapture an overall foreign loss (OFL) account balance, the U.S. Tax Court held. In 2010, Taxpayer had an OFL beginning account balance of $474 million, and during that year sold all of its stock in a CFC, realizing a gain of approximately $3.25 billion. On its 2010 return, Taxpayer reported $438 million of the gain as dividend income under §1248, and treated the remaining $2.8 billion of gain as foreign-source income which, in ...