Last week the IRS released Rev. Rul. 2016-8. The ruling removes certain restrictions that had been in place for over 25 years on income earned in Cuba. In particular, Cuba had been a country to which Code §901(j)(1)(A) had applied.
Code §901(j)(1)(A) applies to any foreign country:
- the government of which the United States does not recognize, unless such government is otherwise eligible to purchase defense articles or services under the Arms Export Control Act,
- with respect to which the United States has severed diplomatic relations,
- with respect to which the United States has not severed diplomatic relations but does not conduct such relations, or
- which the Secretary of State has, pursuant to section 6(j) of the Export Administration Act of 1979, as amended, designated as a foreign country which repeatedly provides support for acts of international terrorisms.
When Code §901(j)(1)(A) applies to a country, generally any taxes paid to the country cannot be claimed as credits in the U.S. under Code §§901, 902, or 960. In addition, generally all income earned by a controlled foreign corporation in such a country is Subpart F income.
With Cuba now removed (effective December 21, 2015) from the list of countries to which Code §901(j)(1)(A) applies, only the following countries remain: Iran, Sudan, and Syria. See Rev. Rul. 2005-3.