Brief highlights of Notice 2010-92


Section 909 of the Internal Revenue Code provides that when a foreign tax credit splitting event occurs with respect to foreign taxes, the foreign taxes will not be taken into account for US tax purposes until the related income is taken into account for US purposes by the US taxpayer or, in the case of a Section 902 or 960 'deemed paid' credit, by either the Section 902 corporation(1) that paid or accrued the foreign tax or a US corporation with sufficient ownership to claim a Section 902 credit with respect to that corporation (a Section 902 shareholder). A foreign tax credit-splitting event occurs when related income is taken into account by a 'covered person', which essentially means a person related to the taxpayer

When Section 909 was enacted, one obvious concern for taxpayers was its effective date: Section 909 applies not only to foreign taxes paid or accrued after 2010, but also to foreign taxes paid or accrued in 2010 or earlier if those taxes are deemed to be paid after 2010. In other words, foreign taxes currently residing in a Section 902 corporation's foreign tax pools are subject to Section 909 if deemed paid under Section 902 or 960 after 2010, even if paid or accrued many years ago. The Internal Revenue Service (IRS) and Treasury were under considerable pressure to issue guidance before 2011 in order to give taxpayers time to consider whether to 'pull up' foreign taxes from their Section 902 corporations' tax pools by the end of December 2010 to avoid the effective date. On December 6 2010 they issued the first instalment of that eagerly anticipated guidance in Notice 2010-92.

Brief highlights of Notice 2010-92

Notice 2010-92 essentially provides that foreign taxes paid or accrued by a Section 902 corporation in its pre-2011 taxable years will not be subject to Section 909 unless all four of the following criteria are met:

  • The taxes relate to one of four types of transaction or structure;
  • The taxes were not deemed paid by a US taxpayer under Sections 902(a) or 960 before the Section 902 corporation's first post-2010 year;
  • The related income has not been taken into account by the Section 902 corporation or one of its Section 902 shareholders before the Section 902 corporation's first post-2010 year; and
  • The taxes were paid or accrued in taxable years of the Section 902 corporation beginning after 1996.

The four types of transaction or structure listed in the notice as potentially making a pre-2011 foreign tax subject to Section 909 are relatively narrow and specific. They consist of:

  • structures in which a reverse hybrid (an entity treated as a corporation for US tax purposes, but as a pass-through entity by the relevant foreign country) is owned by a Section 902 corporation;
  • foreign consolidated group structures, but only:

"to the extent that the taxpayer did not allocate the foreign consolidated tax liability among the members of the foreign consolidated group based on each member's share of the consolidated taxable income included in the foreign tax base under the principles of § 1.901-2(f)(3) [the joint and several liability rule of the current final regulations on legal liability]";

  • group relief or other loss sharing, but only if the shared loss is associated with a hybrid debt instrument that is disregarded for US tax purposes; and
  • hybrid instruments that are treated as debt for US tax purposes but as equity for foreign tax purposes, or vice versa, but only with respect to pre-2011 foreign taxes associated with the amount that is deductible for US but not for foreign purposes (or which is deductible for foreign tax purposes, but does not give rise to income for US purposes).

For pre-2011 taxes of a Section 902 corporation that are not exempted from Section 909 by Notice 2010-92, Section 909 takes effect in 2011 for the purposes of applying Sections 902 and 960 to post-2010 years of the Section 902 corporation. In other words, it applies for the purposes of determining foreign tax credits for taxes deemed paid by a Section 902 shareholder for post-2010 years of a Section 902 corporation. If not exempted by the notice, pre-2011 foreign taxes from foreign tax credit splitting events will be removed from the Section 902 corporation's foreign tax pools, starting with the corporation's first post-2010 year.


The IRS has now provided guidance that taxpayers can use to decide whether to cause pre-2010 taxes to be deemed paid under Sections 902 or 960 before the end of a Section 902 corporation's last pre-2011 tax year. Notice 2010-92 lists a relatively limited set of circumstances in which pre-2011 taxes will be subject to Section 909, but pre-2011 foreign taxes that are not excluded by the notice and are associated with foreign tax credit-splitting events will be excluded from tax pools beginning with the Section 902 corporation's first post-2010 year. Therefore, taxpayers do not have long to determine whether to 'pull up' those foreign taxes before 2011. The notice indicates that further guidance on Section 909 will be forthcoming, and that future rules for post-2010 foreign taxes may differ from the rules that Notice 2010-92 applies to pre-2011 taxes.






(1) For the purposes of Section 909, a 'Section 902 corporation' means "any foreign corporation with respect to which one or more domestic corporations meets the ownership requirements of subsection (a) or (b) of section 902". The term therefore includes a controlled foreign corporation.


For further information on this topic please contact Rebecca Rosenberg at Caplin & Drysdale by telephone (+1 202 862 5000), fax (+1 202 429 3301) or email (

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