IRS Practice Unit: Allocation, Apportionment of Deductions for Foreign Tax Credit (IRC §904)

General rules and processes of allocating and apportioning individual taxpayer’s most common expenses, losses and other deductions, reported on Form 1116, lines 2 through 4, against foreign source gross income (FSGI) in determining the foreign tax credit (FTC) limitation, the IRS Large Business and International Concept Unit outlined in a practice unit released May 20. The limitation is determined by taking the ratio of foreign source taxable income (FSTI) to worldwide taxable income (WWTI) and is applied to U.S. tax on worldwide income, the IRS stated. The FTC limitation is computed separately for each separate category of foreign income described ...