Part I

Section 901.—Taxes of Foreign Countries and of Possessions of the United States

Rev. Rul. 2011-19

ISSUE

Whether a credit is allowable under section 901 of the Internal Revenue Code for

in the United Kingdom (i.e.

, do not intend to live in the United Kingdom permanently)

(non-domiciliaries) to elect each year to be taxed on an alternative basis. The default

pay U.K. income and capital gains taxes on their worldwide income and capital gains

(gains), which is known as the arising basis of taxation. The alternative method of

taxation is the remittance basis, under which non-domiciliaries with non-U.K.-source

income or gains can elect to be taxed on their non-U.K.-source income and gains only

when they are remitted to the United Kingdom. Remittance basis taxpayers also are

subject to tax on their U.K.-source income and gains, which are taxed in the year in

Losses and deductions allocated to one type of taxable U.K.-source or non-U.K.-source

income or gains may be available to offset other categories of taxable income and

gains, depending on the type of income or gains involved and the nature of the losses

and deductions.

older and who were U.K. residents in at least seven of the prior nine taxable years

tax paid. A minimum of £1 of non-U.K.-source income or gains must be nominated in

valid.

A long-term non-domiciliary’s required nomination schedule must show specifics

concerning the nominated income or gains and the expenses or capital losses that are

deducted in arriving at the taxable income or gains giving rise to the £30,000 tax

although separately computed, are combined into a single base and taxed at the

subject to U.K. tax. If and when nominated income or gains are treated as remitted to

the United Kingdom, they will be regarded as previously taxed on the arising basis and

the long-term non-domiciliary will not again be subject to U.K. tax with respect to such

the long-term non-domiciliary will be taxed as if sufficient additional realized income or

gains had been nominated to result in a tax charge of £30,000. The U.K. statute also

provides a rule for when a long-term non-domiciliary elects the remittance basis but

does not have sufficient realized income or gains to result in a tax charge of £30,000. In

that case, the long-term non-domiciliary is deemed to have sufficient realized income or

gains and to have nominated an amount necessary to make the tax charge equal

£30,000. Income or gains, whether realized but not nominated, or imputed, which were

treated as previously-taxed income and therefore will be subject to tax if and when such

income or gains are actually remitted.

LAW AND ANALYSIS

that of an income tax in the U.S. sense. §1.901-2(a)(1).

whether foreign law imposes the levy or levies in a single or separate statutes. Where

the base of a levy is different in kind, and not merely in degree, for different classes of

persons subject to the levy, the levy is considered for purposes of section 901 to impose

are contained in a single or separate foreign statutes, a foreign levy identical to the tax

imposed under section 871(b) on a U.S. nonresident alien individual’s income that is

effectively connected with the conduct of a U.S. trade or business is a separate levy

citizen or resident, as the tax on nonresidents has a more limited scope and therefore is

different in kind from the tax on the worldwide income of U.S. citizens and residents.

Where foreign law imposes a levy that is the sum of two or more separately

computed amounts, and each such amount is computed by reference to a separate

base, separate levies are considered, for purposes of section 901, to be imposed.

purposes of a preliminary computation and are then combined as a single base.

§1.901-2(d)(1). For example, where excess deductible expenses allocated to one type

despite a separate preliminary computation the bases are combined before computing

1. The Remittance Basis and the Arising Basis of Taxation Are Separate Levies

Under both the arising basis and the remittance basis of taxation, a non-

domiciliary is subject to tax on U.K.-source and non-U.K.-source income and gains.

However, under the arising basis, a non-domiciliary is subject to tax on worldwide

income and gains that arise or accrue in a particular taxable year; while under the

remittance basis, a non-domiciliary is subject to tax only on U.K.-source income and

Levy that is a Separate Levy

that the tax charge equals £30,000). Losses and deductions allocated to U.K.-source

category in determining the amount of the long-term non-domiciliary’s taxable income.

term non-domiciliary’s U.K.-source income or gains, remitted non-U.K.-source income

combined in determining the long-term non-domiciliary’s taxable income; therefore, the

amounts of income constitute a single levy (the Long-Term Non-Domiciliary (LTND)

B. The LTND Levy Is a Tax in the U.S. Sense

character of that tax is that of an income tax in the U.S. sense. §1.901-2(a)(1). A

foreign levy is a tax if it requires a compulsory payment pursuant to the authority of a

foreign country to levy taxes. §1.901-2(a)(2)(i). The LTND Levy is a tax because it is

required to be paid pursuant to the authority of the government of the United Kingdom

to levy taxes.

C. The Predominant Character of the LTND Levy Is that of an Income Tax in the

U.S. Sense

applies, and liability for the tax is not dependent, by its terms or otherwise, on the

2(a)(3). Liability for the LTND Levy is not dependent on the availability of a credit for the

LTND Levy against income tax liability to another country.

each of the realization, gross receipts, and net income requirements set forth in §1.901-

that would result in the realization of income under the income tax provisions of the

Code. §1.901-2(b)(2)(i)(A). A foreign tax that, judged on the basis of its predominant

described in §1.901-2(b)(2)(i) satisfies the realization requirement even if it is also

paragraph. For example, a foreign tax that, judged on the basis of its predominant

a personal residence used by the owner. §1.901-2(b)(2)(i).

non-domiciliary electing the remittance basis of taxation generally are computed on the

gains nominated for purposes of the RBC must be part (or all) of the non-U.K.-source

income and gains arising or accruing in that taxable year. Income tax is charged on

nominated income, and capital gains tax is charged on nominated gains, as if the

arising basis applied for the relevant taxable year. In other words, the nominated

taxable year. Thus, the RBC is imposed on nominated income or nominated gains that

have been realized or accrued in the taxable year.

sufficient income or gains, with the result that the tax charge on nominated income

would be less than £30,000, an amount of income or gains is deemed to be nominated

so as to make the tax charge equal £30,000. Thus, income or gains that have been

realized or accrued but not nominated will be subject to the RBC. If a long-term non-

domiciliary elects the remittance basis but does not have sufficient realized or accrued

income or gains to make the tax charge equal £30,000, the long-term non-domiciliary is

such imputed income or gains to make the tax charge equal £30,000.

be subject to the tax except with respect to such imputed income. However, a foreign

Accordingly, it is reasonable to conclude that the RBC is not based only or

predominantly on such imputed income or gains. The RBC in general is imposed on

realized income or gains, whether nominated by the long-term non-domiciliary or

considered by the U.K. statute to have been nominated. Thus, judged on its

predominant character, the LTND Levy meets the realization test.

2. Gross Receipts

predominant character, it is imposed on the basis of gross receipts or gross receipts

2(b)(3)(i) satisfies the gross receipts requirement even if it is also imposed on the basis

of some amounts not described in that paragraph. As is the case with income and

gains that are taxed under either the arising basis or the remittance basis, nominated

the LTND Levy meets the gross receipts test.

3. Net Income

A foreign tax satisfies the net income requirement if, judged on the basis of its

permit recovery of the significant costs and expenses (including significant capital

recovery of such significant costs and expenses computed under a method that is likely

costs and expenses. §1.901-2(b)(4)(i). Since the LTND Levy is imposed on U.K.-

source income and gains, remitted non-U.K.-source income and gains, and nominated

but unremitted non-U.K.-source income and gains, all of which consist of gross receipts

which it applies, it has the predominant character of an income tax in the U.S. sense.

credit is allowable under section 901. However, a credit for the LTND Levy will be

available only if the other legal requirements for obtaining a foreign tax credit are

satisfied. For example, an amount paid is treated as a compulsory payment of income

tax only to the extent the taxpayer applies the substantive and procedural provisions of

foreign law, including elective provisions such as those available under U.K. law relating

to the LTND Levy, in such a way as to reduce, over time, the taxpayer’s reasonably

expected liability under foreign law for income tax. §1.901-2(e)(5).

Taxpayers generally may rely upon revenue rulings to determine the tax

taxpayers, IRS personnel, and others concerned are cautioned against reaching the

same conclusion in other cases unless those cases present facts and circumstances

that are substantially the same as those in the revenue ruling. §601.601(d)(2)(v)(e).

revenue ruling if the relevant provisions have been amended in any material respect,

The principal author of this revenue ruling is Teresa Burridge Hughes of the

revenue ruling, contact Ms. Hughes at (202) 622-3850 (not a toll-free call).