The Internal Revenue Service has followed up on the Obama administration’s opening of diplomatic relations with Cuba by releasing a new revenue ruling that removes certain restrictions on income earned in Cuba.
The previously applicable restrictions denied a foreign tax credit for income taxes paid to Cuba and disallowed deferral on income earned in Cuba through a controlled foreign corporation.
The Code generally allow U.S. taxpayers to claim a foreign tax credit for income, war profits, and excess profits taxes paid or accrued (or deemed paid or accrued) to any foreign country or to any possession of the United States. But the foreign tax credit is subject to various limitations and restrictions under section 901(j)(1), which imposes restrictions in the case of income and taxes attributable to certain countries. Section 952(a)(5) provides that subpart F income includes income derived by a controlled foreign corporation from any foreign country during any period during which section 901(j) applies to that foreign country.
