Final loss allocation regs. result in increased FTC limitations.

• Jurisdiction: United States
• Author: Kral, Mark E.
• Date: 01 April 1999

The IRS has issued long-awaited proposed, final and temporary regulations on the allocation of loss recognized on the disposition of stock and other personal property. These regulations also clarify the allocation and computations of foreign tax credits (FTCs). The general effect of these new rules is to permit U.S. taxpayers to claim more FTCs currently, primarily because certain items of loss are no longer considered to reduce foreign-source income.

Background

Before this updated guidance, Prop. Regs. Sec. 1.865-1 contained the most current guidance, calling for a loss incurred on the sale of other personal property to be allocated based on that property's income. Prop. Regs. Sec. 1.865-2 provided that losses incurred with the stock's sale were generally allocated to the seller's residence, with a series of antitaxpayer exceptions; this was inconsistent with the generally favorable treatment accorded losses on sale or disposition of stock. In International Multifoods Corp., 108 TC 579 (1997), the Tax Court supported the proposed regulations that the loss on stock sales is generally sourced to the seller's residence.

The IRS had also issued proposed regulations in 1992, which amended the regulations under Sec. 904 that determine whether passive income is...