Today, the IRS and Treasury issued final regulations on foreign tax credit splitting events under Sections 909 and 704.  These final regulations adopt, with some modifications, temporary regulations issued on February 9, 2012.  The final regulations make modifications and clarifications to the rules set out in the temporary regulations.

  • Splitter Arrangements:  The final regulations make clarifying changes to the definition of splitter arrangements and to interim mechanical rules for tracking split taxes and related income. 
  • Mechanical Rules:  The final regulations do not otherwise address mechanical issues, which are still under consideration and will be addressed in future guidance.
  • Reverse Hybrid Splitter Arrangements:  The final regulations add two examples that clarify how to determine the related income amount with respect to split taxes from a reverse hybrid splitter arrangement.
  • Loss-Sharing Splitter Arrangements:  With respect to shared losses, the final regulations modify the definition of a “usable shared loss.” 
  • Hybrid Instrument Splitter Arrangements:  The final regulations make clarifications with respect to hybrid instrument splitter arrangements.
  • Transactions Described in Section 381:  The final regulations make clarifications with respect to taking related income into account as a result of a transaction described in Section 381.