Cuba Income and US Tax Benefits

Cuba Income

Removal Of Restrictions For Cuba Income

The IRS has just released Revenue Ruling 2015-08 that removes restrictions for claiming the foreign tax credit for income taxes paid on Cuba income. In addition, the previous tax rule disallowing Cuba income deferral for income earned through a Controlled Foreign Corporation (CFC) has also been removed.

Taxes Imposed By Sanctioned Countries

Sections 901, 902, and 960 of the Code generally allow U.S. taxpayers to claim a foreign tax credit for income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued) to any foreign country or to any possession of the United States. The foreign tax credit is subject to various limitations and restrictions under section 901.

Section 901(j)(1) imposes restrictions in the case of income and taxes attributable to certain countries. Section 901(j)(1)(A) denies the credit for taxes paid or accrued (or deemed paid or accrued under section 902 or 960) to any country described in section 901(j)(2)(A) if the taxes are with respect to income attributable to a period during which section 901(j) applies. Previously Cuba was on the list of restricted countries in which the foreign tax credit was disallowed.

In addition, section 952(a)(5) provides that subpart F income includes Cuba income derived by a controlled foreign corporation from any foreign country during any period during which section 901(j) applies to that foreign country; in other words income deferral is not allowed.

The special rules under sections 901(j) and 952(a)(5) cease to apply to a country when the Secretary of State certifies to the Secretary of the Treasury that such country is no longer described in section 901(j)(2)(A).

Based on the certification by the Secretary of State, Revenue Ruling 2016-08 states the date on which Cuba ceased to be described in section 901(j)(2)(A). The ending date of such description was declared as December 21, 2015 and modifies an earlier revenue ruling from 2005. You can claim a foreign tax credit for the taxes paid or accrued to that country on the Cuba income for the period that begins after the end of the sanction period.

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