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Notice 2023-55: Temporary Relief for Applying the Final Foreign Tax Credit Regulations

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On July 21, 2023, the IRS released Notice 2023-55 (the Notice) announcing temporary relief for taxpayers in determining whether a foreign tax is eligible for a foreign tax credit. Subject to certain consistency requirements, taxpayers may apply this temporary relief to foreign taxes paid in tax years beginning on or after December 28, 2021, and ending on or before December 31, 2023 (the relief period). This temporary relief may permit taxpayers to credit certain foreign taxes that would otherwise not be creditable during the relief period.


On January 4, 2022, the Department of the Treasury and the IRS (collectively, the Treasury) published in the Federal Register TD 9959 (the 2022 FTC Final Regulations). The 2022 FTC Final Regulations contain arduous attribution* and cost recovery** requirements for purposes of determining the credibility of foreign income and in lieu of taxes.

The 2022 FTC Final Regulations along with proposed regulations (REG-112096-22) published in November of 2022 provide certain limited exceptions where, if certain requirements are met, the foreign taxes may be creditable despite not meeting all the requirements in the 2022 FTC Final Regulations. Despite these exceptions, in many situations, the general rule disallowing the foreign tax credit applies, in which case, the taxpayer may not claim a foreign tax credit for such foreign taxes under the 2022 FTC Final Regulations. For example, these rules could disallow the creditability of foreign taxes in the following fact patterns if no exception applies:

  1. A foreign country imposes a non-resident capital gains tax on the disposition of shares of a local country corporation.
  2. A foreign country imposes a withholding tax on fees for services performed by a non-resident outside the local country for a resident in the local country (e.g., withholding on technical services payments).
  3. A foreign country imposes a withholding tax on royalties paid to a non-resident by a resident in the local country where the local country sources the royalties based on the location of the payor.

The Notice states that Treasury continues to analyze issues related to the 2022 FTC Final Regulations and is considering proposing amendments to those regulations. As that analysis is ongoing, taxpayers may choose to apply the temporary relief in the Notice during the relief period. The temporary relief allows taxpayers to determine the creditability of foreign taxes under the former regulations under Section 901 and revised regulations under Section 903. Essentially, the relief permits taxpayers to determine the creditability of foreign income and in lieu of taxes without having to satisfy the attribution and cost recovery requirements in the 2022 FTC Final Regulations.

The Notice also affirms that gross basis taxes imposed on the gross receipts or gross income arising from the provision of digital services continue to not be creditable foreign taxes.


The Notice provides taxpayers favorable relief in determining the creditability of certain foreign taxes such as the foreign taxes described in the examples above. However, there could be certain limited situations where a taxpayer may want to continue to apply the 2022 FTC Final Regulations during the relief period.

Taxpayers should assess the impact of the optional relief provided in the Notice on their 2022 and 2023 tax returns and financial statements, including whether refund claims may be available due to a change of position already taken on an original filed tax return.

No relief is granted for foreign taxes paid in tax years outside the relief period, so taxpayers should also consider the potential continued application of the 2022 FTC Final Regulations in future tax periods and what action may need to be taken to ensure certain foreign taxes are creditable outside the relief period.

Please contact a member of the International Tax Services Practice if you would like additional information regarding the Notice or the foreign tax credit rules.

*The 2022 FTC Final Regulations added an attribution requirement that allows a credit for a foreign tax only if the country imposing the tax has sufficient nexus to the taxpayer’s activities or investment of capital that generates the income included in the tax base. According to Treasury, this result is consistent with the statutory purpose of the foreign tax credit to relieve double taxation of income through the United States ceding its own taxing rights only where the foreign country has the primary right to tax the income.

**The cost recovery requirement requires that the base of a foreign tax must permit the recovery of significant costs and expenses attributable, under reasonable principles, to the gross receipts included in the tax base.

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