Rev. Rul. 71-454

Advice has been requested as to the statute of limitations applicable to recomputation of a minimum distribution under section 963 of the Internal Revenue Code of 1954 when foreign income taxes have been adjusted under the circumstances described below.

M, a domestic corporation and a United States shareholder within the meaning of section 951(b) of the Code, elected to receive a minimum distribution under section 963 of the Code from a chain of controlled foreign corporations for its taxable year ending December 31, 1967. M complied with the special rules under sections 1.963-4(b) and (c) of the Income Tax Regulations which provides for determining earnings and profits and foreign income taxes and foreign tax credit rules. M filed its Federal income tax return and paid its tax for 1967 on March 15, 1968, and claimed a foreign tax credit on that return.

On June 1, 1971, the foreign income taxes paid by the controlled foreign corporations for the taxable year ending December 31, 1967 were adjusted by the foreign tax authorities.

Section 1.963-1(b)(7) of the regulations defines the term "foreign income taxes" for the purpose of section 963 of the Code and the regulations thereunder as income, war profits, and excess profits taxes, and taxes included in the term "income, war profits, and excess profits taxes" by reason of section 903 of the Code, paid or accrued to a foreign country or possession of the United States and taken into account for purposes of sections 901 through 905 of the Code. Except in determining the foreign tax credit under section 901 of the Code, the term shall not include any tax which is deemed paid by a foreign corporation under section 902(b) of the Code.

Section 6501(a) of the Code provides, in pertinent part, that the period of assessment of income taxes expires at the end of three years after the return was filed.

However, section 6501(c)(5) of the Code provides an exception to the general rule by providing, in part, that section 905(c) of the Code shall apply in the case where there is an adjustment to foreign tax credit for income tax purposes.

Section 905(c) of the Code provides that if accrued taxes when paid differ from the amounts claimed as credits by the taxpayer, or if any tax paid is refunded in whole or in part, the taxpayer shall notify the Commissioner, who shall redetermine the amount of the tax for the year or years affected. The amount of tax due on such redetermination, if any, shall be paid by the taxpayer on notice and demand by the district director or the amount of tax overpaid, if any, shall be credited or refunded to the taxpayer in accordance with section 6511 of the Code.

Section 6511(d)(3)(A) of the Code provides that if the claim for credit or refund relates to an overpayment attributable to any taxes paid or accrued to any foreign country or to any possession of the United States for which credit is allowed against the tax imposed by subtitle A of the Code in accordance with the provisions of section 901 of the Code or the provisions of any treaty to which the United States is a party, in lieu of the three year period of limitations prescribed in section 6511(a) of the Code, the period shall be 10 years from the date prescribed by law for filing the return for the year with respect to which the claim is made.

The term "foreign income taxes" used throughout the regulations under section 963 of the Code means taxes which are paid or accrued to a foreign country or United States possession and taken into account for purposes of section 901 through 905 of the Code. Section 905(c) of the Code provides in effect that there is no statute of limitations for the redetermination of the amount of Federal income taxes due upon adjustment of foreign income taxes by foreign tax authorities if the taxpayer overpaid the foreign tax and as a consequence received a refund but, there is a 10-year period of limitations for such redetermination if the taxpayer has underpaid the foreign tax and desires to increase the amount of its foreign tax credit.

Accordingly, in the instant case, the minimum distribution elected by M for the taxable year 1967 may be recomputed to reflect adjustments by foreign tax authorities of foreign income taxes claimed as a credit on the 1967 return (1) at any time in cases where the adjustment resulted in a refund of foreign taxes, and (2) at any time within the period expiring at the end of 10 years from the date M filed its 1967 Federal income tax return in cases where the adjustment resulted in a further payment of foreign taxes.