Cuba removed from list for foreign tax credit, CFC purposes

Rev. Rul. 2016-8

The IRS today released an advance version of Rev. Rul. 2016-8 that removes Cuba from the list of countries subject to U.S. tax law restrictions denying a foreign tax credit for income taxes paid to Cuba and disallowing the deferral on income earned in Cuba through a controlled foreign corporation (CFC).

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Read text of Rev. Rul. 2016-8 [PDF 14 KB]

Background

  • Section 901(j)(1)(A) disallows a foreign tax credit for taxes paid or accrued to certain countries if the taxes are with respect to income attributable to a period during which the country is described in section 901(j)(2) ("sanction period"). 
  • Section 952(a)(5) provides that any income earned by a controlled foreign corporation (CFC) from sources within the sanctioned country during the “sanction period” is to be treated as subpart F income.  

In general, a section 901(j) country is a country with which the United States does not have diplomatic relations, or which the Secretary of State has designated as a country that repeatedly provides support for international terrorism. 

Rev. Rul. 2016-8

As indicated by today’s release, the Secretary of State has certified to the Treasury Secretary that Cuba is no longer described in section 901(j)(2)(A). Thus, Rev. Rul. 2016-8 removes Cuba from the list of sanctioned countries. The special rules under section 901(j) and section 952(a)(5) no longer apply to Cuba as of December 21, 2015.  

For transition rules applicable when a country ceases to be subject to sanctions, see Rev. Rul. 92-62.

Rev. Rul. 2005-3 listed the countries that were described in section 901(j)(2)(A). With the removal of Cuba, four countries remain subject to sanctions under section 901(j) are: Iran, North Korea, Sudan, and Syria.    

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