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On its original 1980 return, petitioner included $17,945,227
of section 78 gross-up income and claimed a deduction in the same
amount. Petitioner also deducted $16,610,858 as direct foreign
taxes paid, for a total deduction of $34,556,085. The 1980
amended return eliminated the foreign tax deduction, claiming in
its place creditable foreign taxes (in the amount of the original
deduction) resulting from direct and deemed paid taxes. The 1980
amended return also claimed an additional $8,686,479 of deemed
paid taxes, for total creditable foreign taxes of $43,242,564.
The 1980 amended return reported total section 78 gross-up income
of $26,631,706, an increase of $8,686,479 over the $17,945,227
reported on the original 1980 return.
On its 1980 through 1982 amended returns, petitioner
reported that the election of the foreign tax credit generated
increased taxable income from the disallowance of the deduction
for foreign taxes and increased section 78 gross-up income.
Those amended returns reported net operating losses (NOL’s) and
no U.S. tax liability against which to credit foreign taxes;
accordingly, petitioner applied no foreign tax credits on those
amended returns. Petitioner had no taxable income or U.S. tax
liability for 1978 and 1979 against which a foreign tax credit
from 1980 or 1981 could have been applied by way of a carryback.
Pursuant to petitioner’s 1985 amended return, the creditable
foreign taxes reported on the 1980 through 1982 amended returns
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