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Allocating and Apportioning Foreign Tax Credit Expenses

Section 904 Limitation, Categories of Income, Statutory and Residual Groupings

A live 110-minute CPE webinar with interactive Q&A

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Thursday, May 8, 2025

1:00pm-2:50pm EDT, 10:00am-11:50am PDT

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This webinar will walk international tax practitioners through allocating and apportioning foreign tax credit expenses. Our panel of astute foreign tax advisers will provide illustrative examples of these complex calculations for practitioners working with international taxpayers subject to U.S. tax.

Description

The foreign tax credit is a lucrative credit that provides relief from double taxation of foreign income. The Section 904 limitation employs a ratio of foreign source taxable income to worldwide taxable income to ensure U.S. taxpayers utilize the credit only to the extent of their foreign source income. Taxpayers with excess credits may want to increase their foreign source income to maximize their foreign tax credits. To do this, expenses allocated and apportioned would need to be minimized.

Allocating and apportioning expenses is an arduous process. In order to calculate the credit, expenses must be spread among classes of gross income. Specific classes of income include, for example, compensation for services, gross business income, interest, and rents. First, expenses are allocated to a class of income when the deduction is "definitely related." To be definitely related, an expense must be incurred (1) as a result of or incident to an activity or (2) in connection with property from which the class of income is or could be derived. Deductions can be definitely related even if there is no income in a particular class during the taxable year.

Expenses that are not definitely related to a class of gross income must be divided into statutory and residual groupings. The taxpayer can choose an appropriate method to apportion expenses; however, the preferred method must represent a factual relationship between the expense and the relative income.

To further complicate the calculation, there are also specific rules for allocating and apportioning certain expenses including interest, R&E, and state taxes. International tax practitioners need to understand the nuances of the foreign tax credit calculation and the Section 904 limitation to maximize this valuable credit.

Listen as our panel of international tax experts breaks down the complexities of allocating and apportioning foreign tax credit expenses and offers tips to extract the maximum credit and minimize tax for multinational taxpayers.

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Outline

  1. Foreign tax credit limitations and rules
  2. Section 904 limitation
  3. Classes of income
  4. Allocating expenses
  5. Apportioning expenses
  6. Special categories of expenses
  7. Examples

Benefits

The panel will cover these and other critical issues:

  • Calculating the Section 904 limitation on foreign tax credits
  • Determining which expenses are definitely related to specific categories of income
  • Dividing expenses into statutory and residual groups
  • Selecting an appropriate apportionment method
  • Allocating and apportioning R&E, interest, state taxes, and other specific deductions

Faculty

Benayoun, Andre
Andre Benayoun, J.D., BBA
Managing Director
CBIZ Advisors

Mr. Benayoun is a Managing Director who specializes in consulting around international taxation for inbound and...  |  Read More

Dudley, Ryan
Ryan Dudley, CPA, CA, CTA, MIT
Managing Director
CBIZ Advisors

Mr. Dudley, is a Managing Director in the Firm’s International Tax group, specializes in...  |  Read More

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