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How to allocate state income taxes between U.S.‐ and foreign‐source income
Author(s) -
Kozub Robert M.
Publication year - 1990
Publication title -
journal of corporate accounting and finance
Language(s) - English
Resource type - Journals
eISSN - 1097-0053
pISSN - 1044-8136
DOI - 10.1002/jcaf.3970020209
Subject(s) - adjusted gross income , gross income , income tax , state income tax , order (exchange) , economics , international taxation , business , public economics , passive income , labour economics , monetary economics , finance , tax reform
Due to the reductions in federal income tax rates, many corporations find themselves with excess foreign tax credits. In order to use the foreign tax credits, corporations attempt to maximize foreign‐source income and to minimize expenses allocated to foreign‐source income. Allocation of expenses between U.S.‐ and foreign‐source income is governed by Treas. Reg. Sections 1.861‐;8 and 1.861.8T. The allocation methods for state income tax expense are complex. Each method results in a different amount of state income taxes being allocated to foreign‐source income. This article discusses the intricacies of three allocation methods, which should be considered when selecting a method.