Rev. Rul. 75-268

Advice has been requested concerning the taxable year that is determinative of the period for making or changing the choice to claim a foreign tax credit under section 901 of the Internal Revenue Code of 1954 under the circumstances described below.

The taxpayer, a United States citizen, had earned income from foreign sources for his calendar taxable year 1968. On his 1968 Federal income tax return the taxpayer claimed neither a deduction nor a credit for the foreign income taxes paid in 1968. The taxpayer filed his return on April 15, 1969. In 1968 the taxpayer properly excluded all of the foreign earned income from his gross income under section 911 of the Code. For 1969 and all subsequent years the taxpayer timely filed his returns.

In February 1973, within 3 years after the filing of his 1969 return, the taxpayer filed a claim for refund for 1969. The recomputed tax liability for 1969 included a claimed credit for foreign taxes paid in 1968 and carried forward to 1969 under the provisions of section 904(d) of the Code.

Section 904(d) of the Code provides, in part, that where taxes paid to any foreign country for any taxable year beginning after 1957 exceed the amount allowable as a credit under the applicable limitation under section 904(a), the excess may be carried back to the 2 preceding years and carried forward to the 5 succeeding years under certain limitations and conditions not relevant here.

The second sentence of section 901(a) of the Code provides that the choice to have the benefit of the foreign tax credit for any taxable year may be made or changed at any time before the expiration of the period prescribed for making a claim for credit or refund of the tax for such taxable year. Section 6511(a) provides, in part, that claims for credit or refund of an overpayment of any tax in respect of which tax the taxpayer is required to file a return shall be filed by the taxpayer within 3 years from the time the return was filed or 2 years from the time the tax was paid, whichever of such periods expires the later.

Rev. Rul. 72-126, 1972-1 C.B. 217, holds, in part, that foreign income tax paid by a nonresident United States citizen in a taxable year in which his entire income was exempt from United States tax under section 911(a)(1) of the Code may be carried back and carried over as a foreign tax credit under section 904(d).

The specific issue in the instant case is whether the taxpayer has made a timely election to claim a foreign tax credit under section 901(a) of the Code.

S. Rep. No. 1393, 86th Cong., 2d Sess., 9 (1960), 1960-2 C.B. 874, 884, states, in part, that in applying the second sentence of section 901(a) of the Code in a case where a carryback or carryover of taxes is involved, the taxable year that is determinative of the period for making the choice between a credit and a deduction is the taxable year from which the excess taxes may be carried (and not the taxable years to which they may be carried). In addition, the excess taxes for such taxable years may not be used as a credit in another taxable year to which carried unless the taxpayer chose to take a credit (rather than a deduction) for such other taxable year within the period prescribed by the second sentence of section 901(a) for making the choice for such other taxable year.

The import of the above Congressional interpretation is that the period of limitations prescribed by the second sentence of section 901(a) of the Code for making or changing a foreign tax credit election is determined with reference to the year for which the taxes were paid or accrued and not to the carryover year.

Accordingly, because the taxpayer failed to claim a foreign tax credit for 1968 within 3 years from the date his return was filed for such year, he may not carryover or carryback any unused foreign taxes from such year under section 904(d) of the Code.

Rev. Rul. 72-126 is amplified to provide that the election to claim a foreign tax credit was made within the prescribed statutory period for the year in which the foreign taxes were paid or accrued.