Reference no: EM133562447

Question

The U.S. allows a foreign tax credit to its citizens with foreign income who meet certain requirements, as a means to prevent double taxation of foreign income. One of those requirements is that the taxpayer taking the credit show that the foreign levy with its predominant character being that of an "income tax in the U.S. sense." Per Reg. Section 1.901-2(a)(2)(i), to prove that a levy meets this standard, the payment must be a compulsory payment to a foreign government which is intended as such. Assume that you work for the U.S. House Ways and Means Committee, and the Committee is revising the foreign levy rule. The Committee wants ideas for a new such rule that would replace the existing rule. Please come up with a new rule that is different than the existing rule, and explain why that rule would be a good one to replace the existing rule.