In 2023, the IRS provided taxpayers with requested relief from the 2022 final regulations via two Notices that drastically changed the rules on when foreign taxes are creditable for U.S. tax purposes. What had originally started as a focus to disallow credits for digital services taxes (DST) ended up with a major change to what was considered an allowable foreign tax credit. Here are highlights of the Notices below.
Notice 2023-55
This Notice started the relief process for taxable years 2022 and 2023. Additionally, the IRS was looking at amendments to the 2022 FTC Final Regulations to possibly apply the relief provisions to years after 2023. While the rules basically went back to older regulations, they did not provide relief for DST. If the IRS had stopped making changes to only DST, there probably would not have been the uproar from businesses when first proposed and then finalized.
Notice 2023-80
This Notice addressed the extension of the relief period and regulations to be proposed related to the crediting of foreign taxes that result from the adoption of the Pillar Two provisions (global 15% minimum tax).
The relief period is extended until further guidance withdrawing the temporary relief is issued (or any later date specified). This means the temporary relief runs from 2022 until modified by the IRS.
The guidance on Pillar Two taxes will include addressing terms such as the IIR (Income Inclusion Rule), the UTPR (Undertaxed Payment Rule), the QDMTT (Qualified Domestic Minimum Top-Up Tax) and the STTR (Subject To Tax Rule). These all refer to a tax imposed by a foreign tax law and are further described in the GloBE Model Rules. The regulations will describe what a final top-up tax (tested tax) is under U.S. tax requirements.
Moore Doeren Mayhew is tracking these changes and the temporary relief periods, as they impact many of our clients.
| IRS Document | Taxable Years Impacted | Provisions |
| Notice 2023-55 | 2022 and 2023 |
Definition of foreign income tax (former Reg. Sec. 1.901-2(a)) Reg. Sec. 1.903-1 (but without the attribution rule requirement). The Treasury and IRS are also considering amendments to the 2022 FTC final regulations, and whether and under what conditions to extend the temporary relief to tax years after 2023. |
| Notice 2023-80 | 2024+ (until terminated) |
Extend the temporary relief period until the IRS finalizes guidance. Discusses guidance to be issued as regulations related to Pillar Two taxes and how they will be creditable. |
Want to Know More?
If you would like to discuss any of these provisions and how they might impact your situation, please contact our international tax advisors today.