CFR > Title 26 - Internal Revenue > CHAPTER I—INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY > SUBCHAPTER A—INCOME TAX (Parts 1–19) > PART 1—INCOME TAXES > 1.904(f)-2T—Recapture of overall foreign losses (temporary).

1.904(f)-2T—Recapture of overall foreign losses (temporary).

(a) and (b) [Reserved] For further guidance, see § 1.904(f)-2(a) and (b).
(c) recapture— (1) In general. In a year in which a taxpayer elects the benefits of section 901 or 30A, the amount of foreign source taxable income subject to recharacterization in a taxable year in which paragraph (a) of this section is applicable is the lesser of the aggregate amount of maximum potential recapture in all overall foreign loss accounts or fifty percent of the taxpayer's total foreign source taxable income. If the aggregate amount of maximum potential recapture in all overall foreign loss accounts exceeds fifty percent of the taxpayer's total foreign source taxable income, foreign source taxable income in each separate category with an overall foreign loss account is recharacterized in an amount equal to the section 904(f)(1) recapture amount, multiplied by the maximum potential recapture in the overall foreign loss account, divided by the aggregate amount of maximum potential recapture in all overall foreign loss accounts. The maximum potential recapture in any account is the lesser of the balance in that overall foreign loss account (after reduction of such accounts in accordance with § 1.904(f)-1(e)) or the foreign source taxable income for the year in the same separate category as the loss account. If, in any year, in accordance with section 164(a) and section 275(a)(4)(A), a taxpayer deducts rather than credits its foreign taxes, recapture is applied to the extent of the lesser of—
(i) The balance in the overall foreign loss account in each separate category; or
(ii) Foreign source taxable income minus foreign taxes in each separate category.
(c) (2) through (5) Example 3 [Reserved] For further guidance, see § 1.904(f)-2(c)(2) through (5) Example 3.

Code of Federal Regulations

Example 4. Y Corporation is a domestic corporation that does business in the United States and abroad. On December 31, 2007, the balance in Y's general category overall foreign loss account is $500, all of which is attributable to a loss incurred in 2007. Y has no other loss accounts subject to recapture. For 2008, Y has U.S. source taxable income of $400 and foreign source taxable income of $300 in the general category and $900 in the passive category. Under paragraph (c)(1) of this section, the amount of Y's general category income subject to recharacterization is the lesser of the aggregate maximum potential recapture or 50 percent of the total foreign source taxable income. In this case Y's aggregate maximum potential recapture is $300 (the lesser of the $500 balance in the general category overall foreign loss account or $300 foreign source income in the general category for the year), which is less than $600, or 50 percent of total foreign source taxable income ($1200 × 50%). Therefore, pursuant to paragraph (c) of this section, $300 of foreign source income in the general category is recharacterized as U.S. source income. The balance in Y's general category overall foreign loss account is reduced by $300 to $200 in accordance with § 1.904(f)-1(e)(2) .
(c) (5) Example 5 through (d) [Reserved] For further guidance, see § 1.904(f)-2(c)(5) Example 5 through § 1.904(f)-2(d).
(e) Effective/applicability date. This section applies to taxable years beginning after December 21, 2007.
(f) Expiration date. The applicability of this section expires on December 20, 2010.

Code of Federal Regulations

[T.D. 9371, 72 FR 72597, Dec. 21, 2007]