January 30, 1991
TO: TAX COMMITTEE NO. 2-91
RE: INSTITUTE SUBMISSIONS ON IRS FORM 1116, COMPUTATION
OF FOREIGN TAX CREDIT
__________________________________________________________
Attached are two letters submitted by the Institute
regarding proposals to simplify the reporting of foreign tax
credits by shareholders in regulated investment companies
("RICs"). In the first letter, to the Office of Management and
Budget and the Internal Revenue Service, the Institute proposes
that RIC shareholders whose foreign tax credits are derived
solely from their RIC investments be allowed to aggregate their
reporting of foreign tax credits and provide all information on a
total investment basis. Currently, the IRS Form for computing
and reporting foreign tax credits (Form 1116) requires that
foreign tax credits be reported separately for each country in
which foreign taxes are paid. Separate reporting for income
derived from and taxes paid to each country can be very
burdensome. The example in the letter illustrates that filling
out the Form is extremely complex when the RIC invests in more
than one country.
The second letter is to several Internal Revenue Service
and Treasury personnel with responsibilities in the foreign tax
credit area. The Institute proposes to simplify foreign tax
credit reporting by exempting from certain foreign tax credit
limitations imposed by section 904 any person claiming a foreign
tax credit of less than $100 derived solely from RIC investments.
As the examples indicate, this proposal would relieve over 90
percent of all shareholders in RICs investing abroad from the
obligation to file the Form 1116, and allow them to place the
amount of the foreign tax credit directly onto their Form 1040.
We will keep you informed of further developments.
David J. Mangefrida, Jr.
Assistant General Counsel
Attachments