Washington -- The Treasury Department has issued a revenue ruling that exempts Iraq from restrictions with regard to foreign tax credits.
The Treasury's ruling follows a June 28 decision by the State Department that officially removed Iraq from a roster of countries that are subject to the special foreign tax credits of the Internal Revenue Service code.
Domestic tax law, with few exceptions, allows taxpayers a credit against their U.S. income tax for taxes paid to a foreign country. However, special rules in sections 901(j) and 952(a)(5) have denied foreign tax credits and imposes several restrictions if taxpayer income is attributable to countries with whom the U.S. does not conduct diplomatic relations or have been identified as sponsors of terrorism.The tax restrictions are no longer applicable however, when the Secretary of State certifies to the Secretary of the Treasury that the country in question no longer fits the above-mentioned criteria.
