The recently enacted 2010 Education and Jobs Act imposes restrictions on the use of foreign tax credits (FTC) that multinationals use to mitigate their US tax liabilities. As such, it helps states fund the shortfall of Medicaid and education, funding jobs for 100,000 teachers and first responders. In general, the new Act's foreign tax provisions attempt to:

1. Implement a matching rule where a FTC is available only when the income to which the FTC related is actually taxed by the US;
2. Provide for the separate application of FTC limitations to items resourced under international treaties;
3. Limit foreign taxes to the maximum that could be claimed if the dividend did not "hopscotch" over the intermediary subsidiaries;
4. Provide a new limitation involving redemptions by foreign subsidiaries;
5. Modify the affiliation rules for purposes or rules allocating interest expense;
6. Modify the treatment of interest and dividends paid by 80/20 companies;
7. Limit the extensions of the three year assessment period for failure to disclose certain foreign transactions.

If you would like more details about these changes or any other aspect of the new lay, please do not hesitate to call.

If you have any questions regarding the information in this article, or have any other issues you would like to discuss, please feel free to contact the DZH Phillips tax department at 415.781.2500 or email cpas@dzhphillips.com.