Treasury Regulations · 26 CFR
§ 1.902-3. Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid with respect to accumulated profits of taxable years of the foreign corporation beginning before January 1, 1987.
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 902
Cite as 26 CFR § 1.902-3
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- April 18, 1977 by T.D. 7481
- Last amended
- September 22, 2021 by T.D. 9954
- Issued under
- 26 U.S.C. § 902
- Length
- 5,233 words · about 23 min to read
- Defines
- 4 terms
- Cross-references
- cites 13 Code sections and 9 regulations; cited by 4
On February 10, 1976, foreign corporation B pays a dividend out of its accumulated profits for 1975 to foreign corporation A. On February 16, 1976, the date on which it receives the dividend, A Corporation owns 40 percent of the voting stock of B Corporation. Both corporations use the calendar year as the taxable year. On June 1, 1976, A Corporation sells its stock in B Corporation. On January 17, 1977, A Corporation pays a dividend out of its accumulated profits for 1976 to domestic corporation M. M Corporation owns 30 percent of the voting stock of A Corporation on January 20, 1977, the date on which it receives the dividend. M Corporation uses a fiscal year ending on April 30 as the taxable year. On February 16, 1976, A Corporation satisfies the 10-percent stock ownership requirement referred to in paragraph (a)(3) of this section with respect to B Corporation, and on January 20, 1977, M Corporation satisfies the 10-percent stock-ownership requirement referred to in paragraph (a)(2) of this section with respect to A Corporation. The 5-percent requirement of this paragraph (c)(1) is also satisfied since 30 percent (the percentage of voting stock owned by M Corporation in A Corporation on January 20, 1977), when multiplied by 40 percent (the percentage of voting stock owned by A Corporation in B Corporation on February 16, 1976), equals 12 percent. Accordingly, for its taxable year ending on April 30, 1977, M Corporation is entitled to a credit for a portion of the foreign income taxes paid, accrued, or deemed to be paid, by A Corporation for 1976; and for 1976 A Corporation is deemed to have paid a portion of the foreign income taxes paid or accrued by B Corporation for 1975.
On February 27, 1975, foreign corporation C pays a dividend out of its accumulated profits for 1974 to foreign corporation B. On March 3, 1975, the date on which it receives the dividend, B Corporation owns 50 percent of the voting stock of C Corporation. On February 10, 1976, B Corporation pays a dividend out of its accumulated profits for 1975 to foreign corporation A. On February 16, 1976, the date on which it receives the dividend, A Corporation owns 40 percent of the voting stock of B Corporation. All three corporations use the calendar year as the taxable year. On January 17, 1977, A Corporation pays a dividend out of its accumulated profits for 1976 to domestic corporation M. M Corporation owns 30 percent of the voting stock of A Corporation on January 20, 1977, the date on which it receives the dividend. M Corporation uses a fiscal year ending on April 30 as the taxable year. On February 16, 1976, A Corporation satisfies the 10-percent stock ownership requirement referred to in paragraph (a)(3) of this section with respect to B Corporation, and on January 20, 1977, M Corporation satisfies the 10-percent stock-ownership requirement referred to in paragraph (a)(2) of this section with respect to A Corporation. The 5-percent requirement of paragraph (c)(1) of this section is also satisfied since 30 percent (the percentage of voting stock owned by M Corporation in A Corporation on January 20, 1977), when multiplied by 40 percent (the percentage of voting stock owned by A Corporation in B Corporation on February 16, 1976), equals 12 percent. On March 3, 1975, B Corporation satisfies the 10 percent stock ownership requirement referred to in paragraph (a)(4) of this section with respect to C Corporation. The 5-percent requirement of this paragraph (d)(1) is also satisfied since 12 percent (the percentage of voting stock arrived at in applying the 5-percent requirement of paragraph (c)(1) of this section with respect to the dividends received by A Corporation from B Corporation on February 16, 1976), when multiplied by 50 percent (the percentage of voting stock owned by B Corporation in C Corporation on March 3, 1975), equals 6 percent. Accordingly, for its taxable year ending on April 30, 1977, M Corporation is entitled to a credit for a portion of the foreign income taxes paid, accrued, or deemed to be paid, by A Corporation for 1976; for 1976 A Corporation is deemed to have paid a portion of the foreign income taxes paid, accrued, or deemed to be paid, by B Corporation for 1975; and for 1975 B Corporation is deemed to have paid a portion of the foreign income taxes paid or accrued by C Corporation for 1974.
Throughout 1978, domestic corporation M owns all the one class of stock of foreign corporation A. Both corporations use the calendar year as the taxable year. Corporation A has accumulated profits, pays foreign income taxes, and pays dividends for 1978 as summarized below. For 1978, M Corporation is deemed, under paragraph (b)(2) of this section, to have paid $20 of the foreign income taxes paid by A Corporation for 1978 and includes such amount in gross income under section 78 as a dividend, determined as follows:
| Gains, profits, and income of A Corp. | $100 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 40 |
| Accumulated profits | 100 |
| Foreign income taxes paid on or with respect to accumulated profits (total foreign income taxes) | 40 |
| Accumulated profits in excess of foreign income taxes | 60 |
| Dividends paid to M Corp | 30 |
| Foreign income taxes of A Corp. deemed paid by M Corp. under section 902(a) ($40 × $30/$60) | 20 |
The facts are the same as in example 1, except that M Corporation also owns all the one class of stock of foreign corporation B which also uses the calendar year as the taxable year. Corporation B has accumulated profits, pays foreign income taxes, and pays dividends for 1978 as summarized below. For 1978, M Corporation is deemed under paragraph (b)(2) of this section, to have paid $20 of the foreign income taxes paid by A Corporation for 1978 and to have paid $50 of the foreign income taxes paid by B Corporation for 1978, and includes $70 in gross income as a dividend under section 78, determined as follows:
| Gains, profits and income | $200 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 100 |
| Accumulated profits | 200 |
| Foreign income taxes paid by B Corp. on or with respect to accumulated profits | 100 |
| Accumulated profits in excess of foreign income taxes | 100 |
| Dividends paid to M Corp | 50 |
| Foreign income taxes of B Corporation deemed paid by M Corporation under section 902(a) ($100 × $50/$100) | 50 |
For 1978, domestic corporation M owns all the one class of stock of foreign corporation A, which in turn owns all the one class of stock of foreign corporation B. All corporations use the calendar year as the taxable year. For 1978, M Corporation is deemed under paragraph (b)(2) of this section to have paid $50 of the foreign income taxes paid, or deemed under paragraph (c)(2) of this section to be paid, by A Corporation for such year and includes such amount in gross income as a dividend under section 78, determined as follows upon the basis of the facts assumed:
| B Corp. (second-tier corporation): | |
| Gains, profits, and income | $300 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 120 |
| Accumulated profits | 300 |
| Foreign income taxes paid by B Corp. on or with respect to its accumulated profits (total foreign income taxes) | 120 |
| Accumulated profits in excess of foreign income taxes | 180 |
| Dividends paid on December 31, 1978 to A Corp. | 90 |
| Foreign income taxes of B Corp. deemed paid by A Corp. for 1978 under section 902(b)(1) ($120 × $90/$180) | 60 |
| A Corp. (first-tier corporation): | |
| Gains, profits, and income: | |
| Business operations | 200 |
| Dividends from B Corp. | 90 |
| Total | 290 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 40 |
| Accumulated profits | $290 |
| Foreign income taxes paid by A Corp. on or with respect to its accumulated profits (total foreign income taxes) | 40 |
| Accumulated profits in excess of foreign income taxes | 250 |
| Foreign income taxes paid, and deemed to be paid, by A Corp. for 1978 on or with respect to its accumulated profits for such year ($60 + $40) | 100 |
| Dividends paid on December. 31, 1978, to M Corp. | 125 |
| M Corp. (domestic shareholder): | |
| Foreign income taxes of A Corp. deemed paid by M Corp. for 1978 under section 902(a) ($100 × $125/$250) | 50 |
| Foreign income taxes included in gross income of M Corp. under section 78 as a dividend received from A Corp. | 50 |
Throughout 1978, domestic corporation M owns 50 percent of the voting stock of foreign corporation A, not a less developed country corporation. A Corporation has owned 40 percent of the voting stock of foreign corporation B, since 1970; B Corporation has owned 30 percent of the voting stock of foreign corporation C, since 1972. B Corporation, uses a fiscal year ending on June 30 as its taxable year; all other corporations use the calendar year as the taxable year. On February 1, 1977, B Corporation receives a dividend from C Corporation out of C Corporation's accumulated profits for 1976. On February 15, 1977, A Corporation receives a dividend from B Corporation out of B Corporation's accumulated profits for its fiscal year ending in 1977. On February 15, 1978, M Corporation receives a dividend from A Corporation out of A Corporation's accumulated profits for 1977. For 1978, M Corporation is deemed under paragraph (b)(2) of this section to have paid $81.67 of the foreign income taxes paid, or deemed under paragraph (c)(2) of this section to be paid, by A Corporation on or with respect to its accumulated profits for 1977, and M Corporation includes that amount in gross income as a dividend under section 78, determined as follows upon the basis of the facts assumed:
| C Corp. (third-tier corporation): | |
| Gains, profits, and income for 1976 | $2,000.00 |
| Foreign income taxes imposed on or with respect to such gains, profits, and income | 800.00 |
| Accumulated profits | 2,000.00 |
| Foreign income taxes paid by C Corp. on or with respect to its accumulated profits (total foreign income taxes) | 800.00 |
| Accumulated profits in excess of foreign income taxes | 1,200.00 |
| Dividends paid on Feb. 1, 1977 to B Corp | 150.00 |
| Foreign income taxes of C Corp. for 1976 deemed paid by B Corp. for its fiscal year ending in 1977 ($800 × $150/$1,200) | 100.00 |
| B Corp. (second-tier corporation): | |
| Gains, profits, and income for fiscal year ending in 1977: | |
| Business operations | 850.00 |
| Dividends from C Corp | 150.00 |
| Total | 1,000.00 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 200.00 |
| Accumulated profits | 1,000.00 |
| Foreign income taxes paid by B Corp. on or with respect to its accumulated profits (total foreign income taxes) | $200.00 |
| Accumulated profits in excess of foreign income taxes | 800.00 |
| Foreign income taxes paid, and deemed to be paid, by B Corp. for its fiscal year on or with respect to its accumulated profits for such year ($100 + $200) | 300.00 |
| Dividends paid on February 15, 1977 to A Corp | 120.00 |
| Foreign income taxes of B Corp. for its fiscal year deemed paid by A Corp. for 1977 ($300 × $120/$800) | 45.00 |
| A Corp. (first-tier corporation): | |
| Gains, profits, and income for 1977: | |
| Business operations | 380.00 |
| Dividends from B Corp | 120.00 |
| Total | 500.00 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 200.00 |
| Accumulated profits | 500.00 |
| Foreign income taxes paid by A Corp. on or with respect to its accumulated profits (total foreign income taxes) | 200.00 |
| Accumulated profits in excess of foreign taxes | 300.00 |
| Foreign income taxes paid, and deemed to be paid, by A Corp. for 1977 on or with respect to its accumulated profits for such year ($45 + $200) | 245.00 |
| Dividends paid on Feb. 15, 1978 to M Corp | 100.00 |
| M Corp. (domestic shareholder): | |
| Foreign income taxes of A Corp. for 1977 deemed paid by M Corp. for 1978 under section 902(a)(1) ($245 × $100/$300) | 81.67 |
| Foreign income taxes included in gross income of M Corp. under section 78 as a dividend received from A Corp | 81.67 |
[T.D. 7481, 42 FR 20125, Apr. 18, 1977, as amended by T.D. 7490, 42 FR 30497, June 15, 1977; T.D. 7649, 44 FR 60086, Oct. 18, 1979. Redesignated and amended by T.D. 8708, 62 FR 927, 940, Jan. 7, 1997; 62 FR 7155, Feb. 18, 1997; T.D. 9849, 84 FR 9236, Mar. 14, 2019; T.D. 9954, 86 FR 52614, Sept. 22, 2021]
Terms defined here
Where the text says “the term … means”. Select a term to jump to its definition.
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 902 Repealed
- § 861 Income from sources within the United States
- § 903 Credit for taxes in lieu of income, etc., taxes
- § 316 Dividend defined
- § 901 Taxes of foreign countries and of possessions of United States
- § 78 Gross up for deemed paid foreign tax credit
- § 904 Limitation on credit
- § 907 Special rules in case of foreign oil and gas income
- § 960 Deemed paid credit for subpart F inclusions
- § 963 Repealed
- § 441 Period for computation of taxable income
- § 905 Applicable rules
- § 6038 Information reporting with respect to certain foreign corporations and partnerships
Regulations it cites
- § 1.301-1 Rules applicable with respect to distributions of money and other property.
- § 1.960-3 Foreign income taxes deemed paid under section 960(b).
- § 1.78-1 Gross up for deemed paid foreign tax credit.
- § 1.901-3 Reduction in amount of foreign taxes on foreign mineral income allowed as a credit.
- § 1.964-1 Determination of the earnings and profits of a foreign corporation.
- § 1.861-3 Dividends and income inclusions under sections 951, 951A, and 1293 and associated section 78 dividends.
- § 1.905-2 Conditions of allowance of credit.
- § 1.902-4 Rules for distributions attributable to accumulated profits for taxable years in which a first-tier corporation was a less developed country corporation.
- § 1.902-1 Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid by the foreign corporation.
Cited by 4 other regulations
- § 1.902-0 Outline of regulations provisions for section 902.
- § 1.902-1 Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid by the foreign corporation.
- § 1.902-2 Treatment of deficits in post-1986 undistributed earnings and pre-1987 accumulated profits of a first- or lower-tier corporation for purposes of computing an amount of foreign taxes deemed paid under § 1.902-1.
- § 1.902-4 Rules for distributions attributable to accumulated profits for taxable years in which a first-tier corporation was a less developed country corporation.
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 9954 (86 FR 52614)
- Amended by T.D. 9849 (84 FR 9236)
- Amended (62 FR 7155)
- Date not givenAmended by T.D. 8708 (62 FR 927)
- Amended by T.D. 7649 (44 FR 60086)
- Amended by T.D. 7490 (42 FR 30497)
- Issued by T.D. 7481 (42 FR 20125)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Foreign tax credit
Nearby sections
- § 1.901(m)-8 Miscellaneous.
- § 1.902-0 Outline of regulations provisions for section 902.
- § 1.902-1 Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid by the foreign corporation.
- § 1.902-2 Treatment of deficits in post-1986 undistributed earnings and pre-1987 accumulated profits of a first- or lower-tier corporation for purposes of computing an amount of foreign taxes deemed paid under § 1.902-1.
- § 1.902-3 Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid with respect to accumulated profits of taxable years of the foreign corporation beginning before January 1, 1987.
- § 1.902-4 Rules for distributions attributable to accumulated profits for taxable years in which a first-tier corporation was a less developed country corporation.
- § 1.903-1 Taxes in lieu of income taxes.
- § 1.904-1 Limitation on credit for foreign income taxes.
- § 1.904-2 Carryback and carryover of unused foreign tax.