Federal Register: IRS, Treasury, and VA Notices

IRS Targets Foreign Tax Credit Reporting (TD 7918)

The IRS is soliciting comments on the paperwork burden associated with claiming foreign tax credits, specifically for "dual capacity taxpayers," as detailed in Treasury Decision 7918. The agency is seeking feedback as part of its obligations under the Paperwork Reduction Act of 1995.

The key announcement pertains to the requirement that taxpayers file a statement electing to use the "safe harbor formula" when calculating their foreign tax credit.

• The Delta: The IRS is maintaining the requirement for taxpayers to file a specific statement electing the 'safe harbor formula'.

• The Context: Understanding the safe harbor requires understanding the concept of a "dual capacity taxpayer." A Dual Capacity Taxpayer is someone who pays both a tax and a levy or royalty to a foreign government. For example, a company extracting oil in a foreign country might pay both income taxes and a royalty based on the amount of oil extracted. Section 901 of the Internal Revenue Code allows a U.S. taxpayer to claim a credit for foreign taxes paid, but determining what portion of payments to a foreign government truly constitutes a creditable tax can be complex when the taxpayer also receives a specific economic benefit from that government.

  To simplify this calculation, Treasury Regulations Section 1.901-2A(e) provides an elective Safe Harbor Formula. This formula allows dual capacity taxpayers to determine the portion of a foreign levy that qualifies as a creditable tax. Electing the safe harbor allows a deduction for the "specific economic benefit amount" (the portion of the levy paid in exchange for the benefit) from the total amount paid to the foreign government, arriving at a "qualifying amount" that is approximately equal to the amount of general income tax the taxpayer would have paid if they were not a dual capacity taxpayer.

• Stakeholders: This announcement is primarily relevant to corporate tax practitioners dealing with foreign levies and needing to determine the creditability of those payments. Specifically, those who utilize, or are considering utilizing, the safe harbor election.

• Action: Taxpayers wishing to comment on the information collection burden related to TD 7918 should submit written comments by March 10, 2026. Comments can be directed to Andres Garcia at the IRS or via email at pra.comments@irs.gov. Be sure to include ‘‘OMB Control No. 1545–0746’’ in the subject line.

Washington Briefs: Treasury Debt Strategy & VA Income Checks

Following the finalization of guidance on foreign tax credits, two additional items of note have emerged from Washington this week.

• Treasury Borrowing Advisory Committee (TBAC) Meeting: The Treasury Borrowing Advisory Committee (TBAC) will convene on February 3, 2026. The TBAC advises the Department of the Treasury on matters related to debt management and financing, including the types and quantities of government bonds to issue. The committee's recommendations are crucial to the Treasury's quarterly refunding process. The meeting, however, will be closed to the public. This closure is intended to prevent market speculation that could arise from premature disclosure of the committee's deliberations, as this information is exempt from disclosure under 5 U.S.C. 552b(c)(9)(A)
• VA/IRS Matching Program: The Department of Veterans Affairs (VA) and the IRS have entered into a new agreement to share tax return information. The IRS, bound by Section 6103, which generally protects the confidentiality of tax information, is authorized to share specific data under certain circumstances. In this case, the VA will use the tax return information to verify veterans’ employment status and earnings to determine eligibility for health benefit programs. This program operates under a Privacy Act notice, ensuring compliance with federal privacy regulations.