¹⁵Generally, related persons include CFCs and partnerships more than 50% owned by each other or by the same U.S. shareholders; see Regs. Secs. 1.904-5(c)(2)(i) and -5(i)(1). A discussion of the allocation and apportionment rules for all deductions is beyond the scope of this article; see Soltis and Lau, Foreign Tax Credit Planning for S Corporations, 3 Business Entities 36 (May/June 2001).

¹⁶See Temp. Regs. Sec. 1.861-10T(b) and (c).

¹⁷Passive FPHCI generally includes dividends, interest, rents, royalties, annuities and net gains from certain commodity and currency transactions.

¹⁸Notice 89-91, 1989-2 CB 408.

¹⁹See Temp. Regs. Sec. 1.905-3T(d)(2) and Notice 90-26, 1990-1 CB 336. Temp. Regs. Sec. 1.905-3T was issued before Sec. 986(a)(1) was amended in 1997. Sec. 986(a)(1) provides that accrued foreign taxes (and any adjustment) are converted to U.S. dollars at the average exchange rate for the year of accrual. This article discusses the rules in the temporary regulations, which might not reflect the changes in Sec. 986(a)(1).

²⁰In effect, no redetermination of U.S. tax is required, unless (1) the foreign tax liability is in a hyperinflationary currency (Temp. Regs. Sec. 1.905-3T(d)(4)(i)); (2) the amount of foreign tax accrued exceeds the amount of foreign tax paid by at least 2% (the IRS in its discretion, can require a redetermination of U.S. tax liability) (Temp. Regs. Sec. 1.905-3T(d)(4)(ii)); or (3) an adjustment to an FTC credit pool would reduce that pool below zero (Temp. Regs. Sec. 1.905-3T(d)(4)(iv)).