Sourcing of capital losses under Sections 861, 865, and 904: October 17, 1996.

On October 17, 1996, Tax Executives Institute submitted the following comments on proposed regulations under sections 861, 865, and 904 of the Internal Revenue Code, relating to the allocation of loss on the disposition of stock and for purposes of computing high-taxed income. The comments were prepared under the aegis of the Institute's International Tax Committee, whose chair is Joseph S. Tann, Jr. of Ameritech Corporation. The following members of the committee materially contributed to the development of the Institute's submission: William H. Barnard of Exxon Corp., Richard M. Goldberg of Salomon Inc., and David P. Robichaud of BellSouth Corporation.

On July 5, 1996, the U.S. Department of the Treasury and the Internal Revenue Service issued proposed regulations under sections 861, 865, and 904 of the Internal Revenue Code, relating to the allocation of loss on the disposition of stock and for purposes of computing high-taxed income. The proposed regulations were published in the Federal Register on July 8, 1996 (61 Fed. Reg. 35696) and in the Internal Revenue Bulletin on September 3, 1996 (1996-36 I.R.B. 8).(1)

Background

Tax Executives Institute is the principal association of corporate tax executives in North America. Our 5,000 members represent more than 2,700 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works - one that is administrable and that taxpayers can comply with in a cost-efficient manner.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations relating to the allocation of loss on the disposition of stock.

Comments

The United States imposes tax on a taxpayer's worldwide income, and the U.S.-source rules play an important role in the computation of a taxpayer's foreign tax credit limitation. The limitation is applied to carry out the underlying purpose of the credit - to eliminate what otherwise would be anti-competitive double taxation of...