903. Credit for taxes in lieu of income, etc., taxes
For purposes of this part and of sections 164(a) and 275(a), the term "income, war profits, and excess profits taxes" shall include a tax paid in lieu of a tax on income, war profits, or excess profits otherwise generally imposed by any foreign country or by any possession of the United States.
904. Limitation on credit
(a) Limitation. -- The total amount of the credit taken under section 901(a) shall not exceed the same proportion of the tax against which such credit is taken which the taxpayer's taxable income from sources wihtout the United States (but not in excess of the taxpayer's entire taxable income) bears to his entire taxable income for the same taxable year.
(b) Taxable incime for purpose of computing limitation. --
(1) Personal exemptions. -- For purposes of subsection (a), the taxable income in the case of an individual, estate, or trust shall be computed without any deduction for personal exemptions under section 151 or 642(b).
(2) Capital gains. -- For purposes of this section --
(A) In general. -- Taxable income from sources outside the United Sttes shall include gain from the sale or exchange of capital assets only to the extent of foreing source capital gain net income.
(B) Special rules where capital gain rate differential. -- In teh case of any taxable year for which there is a capital gain rate differential --
(i) in lieu of applying subparagraph (A), the taxable income from sources outside the United States hslal include gain form the sale or exchange of capital assets only in an amount equal to foreign source capital gain net income reduced by the rate differntial portion of foreign source net captial gain,
(ii) the entire taxable income shall include gain from the sale or exchange of capital assets only in an amount equal to capital gain net income reduced by the rate differential portion of net capital gian, and
(iii) for purposes of determining taxable income from sources outside the United States, any net capital loss (and any amount which is a short-term capital loss under section 1212(a)) from sources outside the United States to the extent taken into account in determining capital gain net income for the taxable year shall be reduced by an amount equal to the rate differential protion of the excess of net capital gain from sources wihtin the United States over net capital gain.
(3) Definitions. -- For purposes of this subsection --
(A) Foreign source capital gain net income. -- The term "foreign source capital gain net income" means the lesser of --
(i) capital gain net income from sources without the United States, or
(ii) capital gain net income.
(B) Foreign source net capital gain. -- The term "foreign source net capital gain" means the lesser of --
(i) net capital gain from sources without the United States, or
(ii) net capital gain.
(C) Section 1231 gains. -- The term "gain from the sale or exchange of capital assets" includes any gain so treated under section 1231.
(D) Capital gain rate differential. -- There is a copital gain rate differential for any taxable year if --
(i) in the case of a taxpayer other than a corporation, subsection (h) of section 1 applies to such taxable year, or
(ii) in the case of a corporation, any rate of tax imposed by section 11, 511, or 831(a) or (b) (whichever applies) exceeds the alternative rate of tax under section 1201(a) (determined without regard to the last sentence of section 11(b)(1)).
(E) Rate differential portion. --
(i) In general. -- The rate differential portion of foreign source net capital gain, net capital gain, or the excess of net capital gain from sources within the United States over net capital gain, as the case may be, is the same proportion of such amount as --
(I) the excess of the highest applicable tax rate over the alternative tax rate, bears to
(II) the highest applicable tax rate.
(ii) Highest applicable tax rate. -- For purposes of clause (i), the term "highest applicable tax rate" means --
(I) in the case of a taxpayer other than a corporation, the highest rate of tax set forth in subsection (a), (b), (c), (d), or (e) of section 1 (whichever applies), or
(II) in the case of a corporation, the highest rate of tax specified in section 11(b).
(iii) Alternative tax rate. -- For purposes of clause (i), the term "alternative tax rate" means --
(I) in the case of a taxpayer other than a corporation, the alternative rate of tax determined under section 1(h), or
(II) in the case of a corporation, the alternative rate of tax under section 1201(a).
(4) Coordination with section 936. -- For purposes of subsection (a), int eh case of a corporation, the taxable income shall not include any portion thereof taken into account for puposes of the credit (if any) allowed by section 936.
(c) Carryback and carryover of excess tax paid. -- Any amount by which all taxes paid or accrued to foreign countries or possessions of the United States for any taxable year for which the taxpayer chooses to have the benefits of this subpart exceed the limitation under subsection (a) shall be deemed taxes paid or accrued to foreign countries or possessionf of the United States in the second preceding taxable year, in the first preceding taxable year, and in the first, second, third, fourth, or fifth succeeding taxable years, in that order and to the extent not deemed taxes paid or accrued in a prior taxable year, in the amount by which the limitation under subsection (a) for such preceding or succeeding taxable year and the amount of the taxes for any taxable year earlier than the current taxable year which shall be deemed to have been paid or accrued in such preceding or subsequent taxable year (whether or not the taxpayer chooses to have the benefits of this subpart with respect to such earlier taxable year). Such amount deemed paid or accrued in any year may be avilaed of only as a tax credit and not as a deduction and only if the taxpayer for such year chooses to have benefits of this subpart as to taxes paid or accrued for that year to foreign countries or possessions of the United States.
(d) Separate application of section with respect to certain categories of income. --
(1) In general. -- The provisions of subsections (a), (b), and (c) and sections 902, 907, and 960 shall be applied separately with respect to each of the following items of income:
(A) passive income,
(B) high withholding tax interest,
(C) financial services income,
(D) shipping income,
(E) in the case of a corporation, dividends from each noncontrolled section 902 corporation,
(F) dividends from a DISC or former DISC (as defined in section 992(a)) to the extent such dividends are treated as income from sources without the United States,
(G) taxable income attributable to foreign trade income (within the meaning of section 923(b)),
(H) distributions from a FSC (or a former FSC) out of earnings and profits attributable to foreign trade income (wihtin the meaning of section 923(b)) or interest or carrying charges (as defined in section 927(d)(1)) derived from a transaction which results in foreign trade income (as defined in section 923(b)) and
(I) income other than income described in any of the preceding subparagraphs.
(2) Definitions and special rules. -- For purposes of this subsection --
(A) Passive income. --
(i) In general. -- Except as otherwise provided in this subparagraph, the term "passive income" means any income received or accrued by any person which is of a king which would be foreign personal holding company income (as defined in section 954(c)).
(ii) Certain amounts included. -- Except as provided in clause (iii), the term "passive income" includes any amount includible in gross income under section 551 or, except as provided in subparagraph (E)(iii) or paragraph (3)(I), section 1293 (relating to certain passive foreign investment companies).
(iii) Exceptions. -- The term "passive income" shall not include --
(I) any income described in a subparagraph of paragraph (1) other than subparagraph (A),
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