Treasury Regulations · 26 CFR
§ 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.
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 § 1.902-4
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- October 18, 1979 by T.D. 7649
- Last amended
- unknown by T.D. 8708
- Issued under
- 26 U.S.C. § 902
- Length
- 1,498 words · about 7 min to read
- Cross-references
- cites 2 Code sections and 3 regulations; cited by 2
M, a domestic corporation owns all of the one class of stock of foreign corporation A. Both corporations use the calendar year as the taxable year. A Corporation pays a dividend to M Corporation on January 1, 1977, partly out of its accumulated profits for calendar year 1976 and partly out of its accumulated profits for calendar year 1975. For 1975 A Corporation qualified as a less developed country corporation under the former section 902(d) (as in effect on December 31, 1975). M Corporation is deemed under paragraphs (a) and (b) of this section to have paid $63 of foreign income taxes paid by A Corporation on or with respect to its accumulated profits for 1976 and 1975 and M Corporation includes $36 of that amount in gross income as a dividend under section 78, determined as follows upon the basis of the facts assumed:
| Gains, profits, and income of A Corp. for 1976 | $120.00 |
| Foreign income taxes imposed on or with respect to such gains, profits, and income | 36.00 |
| Accumulated profits | 120.00 |
| Foreign income taxes paid by A Corp. on or with respect to its accumulated profits (total foreign income taxes) | 36.00 |
| Accumulated profits in excess of foreign income taxes | 84.00 |
| Dividend to M Corp. out of 1976 accumulated profits | 84.00 |
| Foreign income taxes of A for 1976 deemed paid by M Corp. ($84/$84 × $36) | 36.00 |
| Foreign income taxes included in gross income of M Corp. under section 78 as a dividend from A Corp | 36.00 |
| Gains, profits, and income of A Corp. for 1975 | $257.14 |
| Foreign income taxes imposed on or with respect to such gains, profits, and income | 77.14 |
| Accumulated profits (under section 902(c)(1)(B) as in effect prior to amendment by the Tax Reform Act of 1976) | 180.00 |
| Foreign income taxes paid by A Corp. on or with respect to its accumulated profits ($77.14 × $180/$257.14) | 54.00 |
| Dividend to M Corp. out of accumulated profits of A Corp. for 1975 | 90.00 |
| Foreign income taxes of A Corp. for 1975 deemed paid by M Corp. (under section 902(a)(2) as in effect prior to amendment by the Tax Reform Act of 1976) ($54 × $90/$180) | 27.00 |
| Foreign income taxes included in gross income of M Corp. under section 78 as a dividend from A Corp | 0 |
The facts are the same as in example 1, except that the distribution from A Corporation to M Corporation on January 1, 1977, was from accumulated profits of A Corporation for 1976. A Corporation's accumulated profits for 1976 were made up of income from its trade or business, and a dividend paid by B, a second-tier corporation in 1976. The dividend from B Corporation to A Corporation was from accumulated profits of B Corporation for 1975. A Corporation would have qualified as a less developed country corporation for 1976 under the former section 902(d) (as in effect on December 31, 1975). M Corporation is deemed under paragraphs (b) and (c) of this section to have paid $543 of the foreign taxes paid or deemed paid by A Corporation on or with respect to its accumulated profits for 1976, and M Corporation includes $360 of that amount in gross income as a dividend under section 78, determined as follows upon the basis of the facts assumed:
| Total gains, profits, and income of A Corp. for 1976 | $1,500 |
| Gains and profits from business operations | 1,200 |
| Gains and profits from dividend A Corp. received in 1976 from B Corp. out of accumulated profits of B Corp. for 1975 | 300 |
| Foreign taxes imposed on or with respect to such profits and income | 450 |
| Foreign taxes paid by A Corp. attributable to gains and profits from A Corp.'s business operations | 360 |
| Foreign taxes paid by A Corp. attributable to dividend from B Corp. in 1976 | 90 |
| Dividends from A Corp. to M Corp. on Jan. 1, 1977 | 1,050 |
| Portion of dividend attributable to gains and profits of A Corp. from business operations. ($1,200/$1,500 × $1,050) | 840 |
| Portion of dividends attributable to gains on profits of A Corp. from dividend from B Corp. ($300/$1,500 × $1,050) | 210 |
(a) Amount of foreign taxes of A Corp. deemed paid by M Corp. on A Corp.'s gains and profits for 1976 from business operations.
| Gains, profits, and income of A Corp. from business operations | $1,200 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 360 |
| Accumulated profits | 1,200 |
| Foreign income taxes paid by A Corp. on or with respect to its accumulated profits (total foreign income taxes) | 360 |
| Accumulated profits in excess of foreign income taxes | 840 |
| Dividend to M Corp | 840 |
| Foreign taxes of A Corp. deemed paid by M Corp. ($360 × $840/$840) | 360 |
| Foreign taxes included in gross income of M Corp. under section 78 as a dividend | 360 |
(b) Amount of foreign taxes of A Corp. deemed paid by M Corp. on portion of the dividend attributable to B Corp.'s accumulated profits for 1975.
| B Corp. (second-tier corporation): | |
| Gains, profits, and income for calendar year 1975 | $1,000 |
| Foreign income taxes imposed on or with respect to gains, profits, and income | 400 |
| Accumulated profits (under section 902(c)(1)(B) as in effect prior to amendment by the Tax Reform Act of 1976) | 600 |
| Foreign income taxes paid by B Corp. on or with respect to its accumulated profits ($400 × $600/$1,000) | 240 |
| Dividend to A Corp. in 1976 | 300 |
| Foreign taxes of B Corp. for 1975 deemed paid by A Corp. (under section 902(b)(1)(B) as in effect prior to amendment by the Tax Reform Act of 1976) ($240 × $300/$600) | 120 |
| A Corp. (first-tier corporation): | |
| Gains, profits, and income for 1976 attributable to dividend from B Corp.'s accumulated profits for 1975 | 300 |
| Foreign income taxes imposed on or with respect to such gains, profits, and income | 90 |
| Accumulated profits (under section 902(c)(1)(B) as in effect prior to amendment by the Tax Reform Act of 1976) | 210 |
| Foreign taxes paid by A Corp. on or with respect to such accumulated profits ($90 × $210/$300) | 63 |
| Foreign income taxes paid and deemed to be paid by A Corp. for 1976 on or with respect to such accumulated profits ($120 + $63) | 183 |
| Dividend paid to M Corp. attributable to dividend from B Corp. out of accumulated profits for 1975) | 210 |
| Foreign taxes of A Corp. deemed paid by M Corp. (under section 902(a)(2) as in effect prior to amendment by the Tax Reform Act of 1976) ($183 × $210/$210) | 183 |
| Amount included in gross income of M Corp. under section 78 | 0 |
[T.D. 7649, 44 FR 60087, Oct. 18, 1979. Redesignated and amended by T.D. 8708, 62 FR 927, 940, Jan. 7, 1997]
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
Regulations it cites
- § 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.
- § 1.902-1 Credit for domestic corporate shareholder of a foreign corporation for foreign income taxes paid by the foreign corporation.
- § 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.
Cited by 2 other regulations
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.
- Date not givenAmended by T.D. 8708 (62 FR 927)
- Issued by T.D. 7649 (44 FR 60087)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Foreign tax credit
Nearby sections
- § 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.
- § 1.904-3 Carryback and carryover of unused foreign tax by spouses making a joint return.