Tax Court strikes down timely filing requirement for foreign taxpayers.

Tax Adviser, The, May, 2006 by Janiczek, Randall J.

In a January 2006 decision, the Tax Court ruled for the taxpayer in Swallows Holding Ltd., 126 TC No. 6, effectively striking down the Sec. 882 requirement that entitles a foreign corporation to take deduction against its gross income, but only if it timely files a U.S. income tax return. The decision will probably have a significant effect on whether foreign corporations decide to file U.S. tax returns, especially when they are uncertain about whether they are supposed to file and/or whether they have been reluctant to file late returns.

Background

In 1990, Treasury amended the regulations under Sec. 882 to include a provision allowing foreign corporations to deduct expenses against their effectively connected income, but only if they timely filed a...

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