Details of Public Law 119-21, section 70311 , One Big Beautiful Bill Act

This provision modifies the computation of taxable income for purposes of calculating the foreign tax credit (FTC) limitation (Internal Revenue Code (IRC) section 904(b)) on net controlled foreign corporation (CFC) tested income, other than passive category income, included in a United States (U.S.) shareholder’s gross income for the taxable year (IRC section 904(d)(1)(A)). For purposes of this provision, a U.S. shareholder of any CFC is required to include in their gross income their share of net CFC tested income for the taxable year (IRC section 951A). Net CFC tested income is the U.S. shareholders excess (if any) of their aggregate pro rata share of CFC tested income for the taxable year, over the U.S shareholders CFC tested loss for the taxable year (IRC section 951A(b)).

This provision requires a U.S. shareholder to allocate and apportion certain deductions to foreign sourced net CFC tested income, except for interest expense and research and experimental expenditures. These deductions include any deduction allowed under the foreign derived deduction eligible income on net CFC tested income (IRC section 250(a)(1)(B)), state and local, foreign, income, war profits, and excess profits taxes (IRC section 164(a)(3)) or any other deduction directly allocable to their share of foreign sourced income.

This provision also amends IRC sections 904 and 951A related to the treatment of certain categories of foreign sourced income.