NEW LAW CHANGES FOREIGN TAX CREDIT RULES

Foreign Tax Credit Baskets. Beginning in 2007, the foreign tax credit limitation categories of income are reduced from nine to two - passive income and general category income. Note: Taxes paid or accrued in a tax year beginning before 2007 and carried to 2007 or later years are treated as if the new rule applied when the taxes were paid or accrued.

Foreign Tax Credit Carryforward/Carryback. The foreign tax credit carryforward period is extended to 10 years (from five) and the carryback period is reduced to one year (rather than two). The extension of the carryforward period is effective for excess credits that are carried to a tax year ending after the date of enactment. The one year carryback period is effective for excess credits arising in tax years beginning after the date of enactment.

Foreign Tax Credit and AMT. The current 90% limitation on the use of foreign tax credits against corporate AMT is repealed beginning in 2005.

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