denial of foreign tax credit with respect to foreign income not subject to united states taxation by reason of covered asset acquisitions

denial of foreign tax credit with respect to foreign income not subject to united states taxation by reason of covered asset acquisitionsSec. 212. (a) In General.—Section 901 of the Internal Revenue Code of 1986 is amended by redesignating subsection (m) as subsection (n) and by inserting after subsection (l) the following new subsection:“(m) Denial of Foreign Tax Credit With Respect to Foreign Income Not Subject to United States Taxation by Reason of Covered Asset Acquisitions.—“(1) In general.—In the case of a covered asset acquisition, the disqualified portion of any foreign income tax determined with respect to the income or gain attributable to the relevant foreign assets—“(A) shall not be taken into account in determining the credit allowed under subsection (a), and“(B) in the case of a foreign income tax paid by a section 902 corporation (as defined in section 909(d)(5)), shall not be taken into account for purposes of section 902 or 960.“(2) Covered asset acquisition.—For purposes of this section, the term ‘covered asset acquisition’ means—“(A) a qualified stock purchase (as defined in section 338(d)(3)) to which section 338(a) applies,“(B) any transaction which—“(i) is treated as an acquisition of assets for purposes of this chapter, and“(ii) is treated as the acquisition of stock of a corporation (or is disregarded) for purposes of the foreign income taxes of the relevant jurisdiction,“(C) any acquisition of an interest in a partnership which has an election in effect under section 754, and“(D) to the extent provided by the Secretary, any other similar transaction.“(3) Disqualified portion.—For purposes of this section—“(A) In general.—The term ‘disqualified portion’ means, with respect to any covered asset acquisition, for any taxable year, the ratio (expressed as a percentage) of—“(i) the aggregate basis differences (but not below zero) allocable to such taxable year under subparagraph (B) with respect to all relevant foreign assets, divided by124 STAT. 2397“(ii) the income on which the foreign income tax referred to in paragraph (1) is determined (or, if the taxpayer fails to substantiate such income to the satisfaction of the Secretary, such income shall be determined by dividing the amount of such foreign income tax by the highest marginal tax rate applicable to such income in the relevant jurisdiction).“(B) Allocation of basis difference.—For purposes of subparagraph (A)(i)—“(i) In general.—The basis difference with respect to any relevant foreign asset shall be allocated to taxable years using the applicable cost recovery method under this chapter.“(ii) Special rule for disposition of assets.—Except as otherwise provided by the Secretary, in the case of the disposition of any relevant foreign asset—“(I) the basis difference allocated to the taxable year which includes the date of such disposition shall be the excess of the basis difference with respect to such asset over the aggregate basis difference with respect to such asset which has been allocated under clause (i) to all prior taxable years, and“(II) no basis difference with respect to such asset shall be allocated under clause (i) to any taxable year thereafter.“(C) Basis difference.—“(i) In general.—The term ‘basis difference’ means, with respect to any relevant foreign asset, the excess of—“(I) the adjusted basis of such asset immediately after the covered asset acquisition, over“(II) the adjusted basis of such asset immediately before the covered asset acquisition.“(ii) Built-in loss assets.—In the case of a relevant foreign asset with respect to which the amount described in clause (i)(II) exceeds the amount described in clause (i)(I), such excess shall be taken into account under this subsection as a basis difference of a negative amount.“(iii) Special rule for section 338 elections.—In the case of a covered asset acquisition described in paragraph (2)(A), the covered asset acquisition shall be treated for purposes of this subparagraph as occurring at the close of the acquisition date (as defined in section 338(h)(2)).“(4) Relevant foreign assets.—For purposes of this section, the term ‘relevant foreign asset’ means, with respect to any covered asset acquisition, any asset (including any goodwill, going concern value, or other intangible) with respect to such acquisition if income, deduction, gain, or loss attributable to such asset is taken into account in determining the foreign income tax referred to in paragraph (1).“(5) Foreign income tax.—For purposes of this section, the term ‘foreign income tax’ means any income, war profits, or excess profits tax paid or accrued to any foreign country or to any possession of the United States.124 STAT. 2398“(6) Taxes allowed as a deduction, etc.—Sections 275 and 78 shall not apply to any tax which is not allowable as a credit under subsection (a) by reason of this subsection.“(7) Regulations.—The Secretary may issue such regulations or other guidance as is necessary or appropriate to carry out the purposes of this subsection, including to exempt from the application of this subsection certain covered asset acquisitions, and relevant foreign assets with respect to which the basis difference is de minimis.”.(b) Effective Date.—(1) In general.—Except as provided in paragraph (2), the amendments made by this section shall apply to covered asset acquisitions (as defined in section 901(m)(2) of the Internal Revenue Code of 1986, as added by this section) after December 31, 2010.(2) Transition rule.—The amendments made by this section shall not apply to any covered asset acquisition (as so defined) with respect to which the transferor and the transferee are not related if such acquisition is—(A) made pursuant to a written agreement which was binding on January 1, 2011, and at all times thereafter,(B) described in a ruling request submitted to the Internal Revenue Service on or before July 29, 2010, or(C) described on or before January 1, 2011, in a public announcement or in a filing with the Securities and Exchange Commission.(3) Related persons.—For purposes of this subsection, a person shall be treated as related to another person if the relationship between such persons is described in section 267 or 707(b) of the Internal Revenue Code of 1986.