Section 245A dividends received deduction: IRC 245A explained for US corporations
IRC 245A gives certain US corporations a 100% deduction for the foreign-source portion of qualifying dividends from 10%-owned foreign corporations.
For 2025 returns filed in 2026, the core statute is unchanged, but current cases and proposed rules affect how limits are analyzed.
This IRC 245A explained guide focuses on the 2025 tax year.
It also covers 2026 developments that matter when reviewing the deduction, including Varian Medical Systems, Liberty Global, and proposed August 2026 changes to the extraordinary-reduction rules.
What is Section 245A? The participation exemption explained
Section 245A of the IRC allows a domestic corporation to deduct 100% of the foreign-source portion of dividends received from a specified 10-percent owned foreign corporation, effectively creating a territorial tax system for qualifying distributions.
IRC Section 245A was enacted by the Tax Cuts and Jobs Act of 2017 and applies to distributions after December 31, 2017.
The Section 245A dividend received deduction can make the qualifying foreign-source portion deductible at 100% for a domestic corporate US shareholder.
Section 245A is the cornerstone of the US participation exemption system, eliminating double taxation on qualifying foreign dividends received by US corporate shareholders.
IRC 245A appears at 26 USC 245A.
A domestic corporation shareholder must still meet the ownership, holding-period, dividend-character, and anti-abuse rules before a distribution is DRD eligible.
For context on the ownership rules behind a controlled foreign corporation, see TFX’s guide to controlled foreign corporation reporting.
“Section 245a of income tax act” is not the formal US citation. The governing provision is Section 245A of the Internal Revenue Code, while “245aa” does not identify a separate IRC section.
The deduction must be tested against the specific stock and distribution. Entity classification by itself does not establish a 100% DRD.
How the US moved to a territorial tax system under TCJA
TCJA changed certain post-2017 foreign dividends by adding a 100% participation exemption under IRC Sec 245A.
Before TCJA, repatriated earnings could produce US tax with a deemed-paid credit. The new rule instead deducts the qualifying foreign-source portion.
The foreign dividends exemption did not make the system purely territorial.
US rules still tax Subpart F income, GILTI for 2025, and other foreign income, while the 245A DRD applies only to qualifying corporate distributions.
TFX’s explanation of the FDII and GILTI rules shows how the participation exemption fits beside TCJA’s other international provisions.
The result is a foreign dividends exemption for a narrow class of corporate dividends, not a blanket exemption for all foreign earnings.
That distinction matters when a CFC dividend distribution comes from PTEP, hybrid amounts, or ineligible E&P.
The pre-TCJA model also required qualifying corporate groups to track indirect foreign tax credits under former Section 902.
Who qualifies: requirements for the Section 245A DRD
The 245A requirements start with 4 tests: a qualifying domestic corporation, a specified 10-percent owned foreign corporation, at least 10% ownership by vote or value, and a dividend with a qualifying foreign-source portion.
Section 246 adds a separate holding-period test.
To claim the Section 245A deduction, the US shareholder must be a domestic C corporation – individuals, S corporations, and partnerships do not qualify directly.
The following 4 core conditions determine whether a corporate dividend is eligible for the DRD:
- The recipient must be a domestic C corporation that is a US shareholder of the payer.
- The payer must be a specified 10-percent owned foreign corporation, or SFC.
- The recipient must own at least 10% of the foreign corporation by vote or value.
- The dividend must contain a foreign-source portion that is not barred by another rule.
These rules come from IRC Section 245A(a) and (b), with the 10% US shareholder definition tied to Section 951(b).
TFX’s guide to IRS constructive ownership rules helps explain when attributed stock affects CFC and shareholder status.
A foreign-corporation dividends received deduction analysis also requires checking whether the payer is a PFIC, a CFC, or both.
A corporation seeking the DRD cannot rely on the 10% percentage alone if another statutory exclusion applies. Confirm the payer’s US tax classification before treating the dividend as eligible.
What is a specified 10-percent owned foreign corporation?
A specified 10-percent owned foreign corporation is an SFC in which the domestic corporation is a US shareholder under the 10% vote-or-value test.
A PFIC is excluded only when it is not also a CFC, so a corporation that is both can still be an SFC.
The ownership test uses the US shareholder rules, including direct, indirect, and constructive ownership where applicable.
That means a domestic corporation shareholder should map the full chain before treating dividends received from a foreign corporation as DRD-eligible.
A pure PFIC that is not a controlled foreign corporation is outside the SFC definition. A PFIC that is also a CFC is not excluded solely because it has PFIC status.
The classification matters for dividends eligible for IRC Section 245A because the SFC definition is a gatekeeper.
It is separate from the later holding period requirement and the hybrid-dividend rules. That classification can also change Form 5471 and PFIC reporting.
The holding period requirement under Section 245A
For a qualifying dividend, the corporation must hold the relevant SFC share for more than 365 days during a 731-day period that begins 365 days before the ex-dividend date.
The taxpayer must also remain a US shareholder throughout that qualifying period.
Failing the 365-day holding period test can disqualify an otherwise qualifying Section 245A dividend.
IRC Section 246(c)(5) modifies the normal corporate DRD holding rule for this deduction.
Days during which the taxpayer’s risk of loss is diminished can reduce the holding period under Section 246(c)(4).
The holding period requirement applies to the share on which the dividend is paid.
The 2026 Varian decision also confirms that indirect ownership of lower-tier CFC stock does not automatically satisfy Section 246’s “held by the taxpayer” language.
A shareholder should document acquisition dates, ex-dividend dates, dispositions, hedges, and ownership changes.
Those records support the 245A requirements before a dividend is reported as a 100% DRD deduction.
Calculating the foreign-source portion of a dividend
IRC Sec 245A(c) calculates the foreign-source portion by multiplying the dividend by the ratio of undistributed foreign earnings to total undistributed earnings.
E&P is measured at the close of the SFC’s tax year and computed under Sections 964(a) and 986.
Current 26 USC 245A(c) uses “undistributed earnings” and “undistributed foreign earnings.”
The post-1986 E&P terminology associated with older indirect-credit rules should not replace the current statutory calculation.
The following 3 steps calculate the foreign source portion for the 245A DRD:
- Determine total undistributed earnings and profits for the SFC under Section 245A(c).
- Subtract E&P attributable to effectively connected income and specified domestic-corporation dividends to find undistributed foreign earnings.
- Multiply the dividend by the foreign-E&P-to-total-E&P ratio.
The DRD limitation is the qualifying foreign-source portion, not automatically 100% of every cash dividend.
Based on our client scenario at TFX: A US parent receives a $400,000 dividend from an SFC with $800,000 of total undistributed E&P.
If $600,000 is undistributed foreign earnings, the ratio is 75%, so the potential DRD is $300,000 before other limits.
The remaining $100,000 is outside the foreign dividend exemption under this ratio.
TFX’s guide to timing foreign income and taxes explains why payment dates and foreign tax timing should be reconciled.
Exclusions: when Section 245A does not apply
At least 4 common rules can block or limit the deduction: hybrid dividends, ineligible amounts under Treasury Regulation 1.245A-5, Subpart F inclusions that are not actual dividends, and PFIC dividends when the PFIC is not also a CFC.
Each rule has separate mechanics.
The following 4 exclusions or limits should be checked before treating a dividend as DRD eligible:
- Hybrid dividends under Section 245A(e) do not receive the Section 245A(a) deduction.
- An extraordinary disposition or extraordinary reduction can create an ineligible amount under Regulation 1.245A-5.
- Subpart F income is generally an inclusion under Section 951, not a dividend paid to the US shareholder.
- A PFIC that is not also a CFC is excluded from the SFC definition under Section 245A(b).
Hybrid dividends – where the foreign tax system allows a deduction or similar benefit for the payment – are excluded from the DRD to the extent they are hybrid dividends.
Do not treat every dividend connected to an extraordinary disposition as fully disallowed.
The 245A regulations compute an “ineligible amount,” and the deduction is limited to the portion of the dividend that exceeds that amount.
Form 1120 Schedule C separates qualifying and nonqualifying foreign dividends.
That distinction should match the corporation’s hybrid and Regulation 1.245A-5 workpapers before the 2025 return is filed.
Hybrid dividends and the anti-hybrid rules explained
A hybrid dividend is a distribution from an SFC that would otherwise qualify for Section 245A but is linked to a hybrid deduction under foreign law.
Section 245A(e)(1) denies the DRD, and Section 245A(e)(2) applies a separate inclusion rule to tiered hybrid dividends.
Treasury Regulation 1.245A(e)-1 tracks hybrid deductions through hybrid deduction accounts.
The rule addresses cases where foreign law gives a deduction or specified benefit and US law would otherwise provide a 100% participation exemption.
For tiered payments, an upper-tier CFC receiving a hybrid dividend from a lower-tier CFC can create Subpart F income for the US shareholder under Section 245A(e)(2).
The related foreign tax rules also restrict credits for that inclusion. A hybrid instrument does not automatically make every dollar of a distribution hybrid.
The classification depends on the hybrid deduction account and the amount of the dividend, so the 245A regulations must be applied to the actual foreign-law benefit.
The payer’s local tax return can be important evidence. It shows whether a deduction or comparable tax benefit arose from the payment.
Section 245A and Subpart F income: how they interact
Subpart F income under Section 951 is generally included currently by a US shareholder and is not an actual dividend eligible for the ordinary Section 245A(a) DRD.
When that previously taxed earnings pool is later distributed, Section 959 generally excludes the PTEP from gross income.
Understanding the boundary between Subpart F inclusions and actual dividend distributions is essential to applying the 245A DRD correctly.
A later CFC dividend distribution of previously taxed earnings is usually governed by Section 959 rather than by a second DRD.
The purpose is to prevent the same earnings from being taxed twice after a prior Section 951 inclusion.
One special rule sits outside that statement.
IRC Section 964(e)(4) can allow a 245A DRD for certain Subpart F income arising from a CFC’s sale of stock in another foreign corporation, as if the qualifying amount were a dividend.
TFX’s GILTI guide explains the other major 2025 current-inclusion regime for controlled foreign corporation earnings.
Keeping Subpart F income, GILTI inclusion, and actual distributions in separate E&P buckets supports accurate PTEP tracking. Form 5471 schedules should reconcile those pools before cash is distributed.
A mislabeled PTEP payment can distort both income and FTC reporting.
GILTI and Section 245A: the 50% deduction under Section 250
For tax years beginning in 2025, a GILTI inclusion under Section 951A is not eligible for Section 245A.
A domestic C corporation instead generally gets a 50% Section 250 deduction, subject to the taxable-income limit, while the 2025 Section 960(d) deemed-paid percentage is 80%.
The IRS’s 2025 Form 8993 instructions confirm the 50% GILTI deduction for tax years beginning before January 1, 2026.
They state that the Section 250 percentage becomes 40% thereafter under current law.
The 2019 remain useful historical background, but the IRS now labels that page as historical.
For a 2025 return, current Form 8993 instructions and final regulations control the filing mechanics, while the 2026 tax year follows different law.
Section 250 generally uses 40% for net CFC tested income, while Section 960(d) uses a 90% deemed-paid percentage. Those changes do not retroactively alter a 2025 GILTI inclusion filed in 2026.
The Section 250 deduction and the 245A dividend received deduction are separate provisions.
One applies to the 2025 GILTI regime, while the other applies to qualifying foreign-source corporate dividends.
Section 245A and foreign tax credits: the disallowance rule
Section 245A(d) denies a foreign tax credit or deduction for taxes tied to a dividend for which the DRD is allowed.
Regulation 1.245A(d)-1 treats qualifying income as Section 245A(d) income even when the corporation does not claim the deduction.
A qualifying Section 245A dividend cannot be paired with an FTC for taxes attributable to the deductible amount. The rule is not a simple elective choice between the DRD and the credit.
Form 1118 is the corporate foreign tax credit form.
Its 2025 instructions require the 245A dividends received deduction to be reflected in Schedule A and separately note that hybrid dividends are not eligible for the deduction.
This foreign tax credit disallowance prevents a credit for foreign taxes tied to income removed from the US corporate tax base.
It also affects withholding taxes attributable to a qualifying dividend.
TFX’s Form 1116 foreign tax credit guide covers the individual credit system.
Corporate filers use Form 1118. Credits reduce US tax on taxable income, while the DRD removes qualifying dividend income.
Withholding should be traced to the dividend before Form 1118 is finalized. Taxes attached to deductible Section 245A(d) income are not rescued by leaving the DRD unclaimed.
The Section 78 gross-up and Section 245A: a critical interaction
For a 2025 tax year, Section 78 treats deemed-paid foreign taxes as a dividend for most Code purposes other than Sections 245 and 245A.
The Varian Medical Systems decisions do not create a general 2025 Section 245A deduction for a Section 78 gross-up.
Varian involved a narrow 2018 TCJA effective-date mismatch.
In 2024, the Tax Court held that Varian could use the DRD for certain Section 78 amounts because the old Section 78 text remained effective during part of its fiscal transition year.
On April 8, 2026, the Tax Court held that Section 246’s holding-period rule still limited Varian’s DRD.
Lower-tier CFC stock held indirectly did not satisfy the “held by the taxpayer” requirement for those claimed amounts.
The 2026 decision also increased the foreign tax credit disallowance computation by requiring the post-Section 965(c) net inclusion amount in the denominator.
That holding concerns Varian’s 2018 transition-tax facts, not ordinary 2025 dividends.
Anti-abuse rules and the extraordinary disposition regulations
Treasury Regulation 1.245A-5 limits the DRD when a dividend contains an “ineligible amount” tied to an extraordinary disposition or reduction.
An extraordinary disposition generally addresses specified related-party asset transfers during the TCJA “disqualified period.”
The regulations can make 50% of an extraordinary disposition amount ineligible for the 245A DRD, subject to detailed definitions and ordering rules.
Extraordinary reductions address ownership drops that could otherwise cause earnings to escape current US tax and later receive a DRD.
Regulation 1.245A-5 includes an election that can close the CFC year in qualifying cases.
A key 2026 update arrived on August 26.
Proposed regulations would phase out the extraordinary-reduction rules for foreign-corporation tax periods beginning after December 31, 2025, while modifying parts of the extraordinary-disposition rules.
The 2026 Tenth Circuit decision in Liberty Global adds a separate anti-abuse point.
The court affirmed denial of claimed deductions where an integrated 2018 transaction lacked economic substance under Section 7701(o).
Section 245A anti-abuse rules reach beyond a mechanical 10% ownership test; the transaction, E&P source, timing, and regulatory ineligible amounts can all matter.
NOTE! A significant caveat applies here. On July 15, 2026, the Tax Court held in Siemens Medical Solutions USA, Inc. v. Commissioner, 167 T.C. No. 5, that the extraordinary disposition rules under Temp. Treas. Reg. §1.245A-5T conflict with the statute and are invalid, and granted the taxpayer the full, unreduced Section 245A deduction. The IRS has not conceded the issue outside that case, and the regulation has not been formally withdrawn, so corporations with extraordinary disposition amounts on 2025 returns face a live conflict between the regulatory limitation and a Tax Court decision rejecting it. This is a fact pattern where the position taken on the return should be discussed with a CPA before filing.
The nimble dividend rule and Section 245A
A nimble dividend can arise under Section 316(a) when a corporation has current-year E&P despite an accumulated E&P deficit.
If a 2025 SFC dividend is supported by current E&P and meets the other DRD rules, its qualifying foreign-source portion can still be deductible.
The nimble dividend rule can create Section 245A eligibility even when a foreign subsidiary begins the year with an accumulated E&P deficit.
Section 316 treats a distribution as a dividend to the extent of current-year earnings and profits.
Current E&P is computed at year-end without reducing it for distributions made during that year. That is the legal basis for the nimble dividend concept.
The 245A DRD adds its own foreign-source calculation and limits.
A nimble dividend does not bypass the 365-day test, hybrid rules, Regulation 1.245A-5, or the foreign tax credit disallowance.
A nimble dividend foreign tax credit analysis must therefore separate taxable and deductible portions.
Foreign taxes attributable to a Section 245A(d) amount cannot be credited or deducted merely because current E&P created dividend status.
Current E&P creates dividend character, not automatic DRD eligibility. The remaining Section 245A and Section 246 tests still apply.
Tiered ownership structures and Section 245A
In a 3-tier structure – US parent, foreign holdco, and foreign opco – Section 245A(a) applies when the domestic parent receives a qualifying dividend from an SFC.
An opco-to-holdco dividend is a CFC-to-CFC payment governed by other rules, including Sections 959 and 954(c)(6).
A tiered ownership structure does not create a DRD “at each tier” if the intermediate recipient is foreign.
The direct corporate DRD belongs to the domestic corporation that receives the qualifying dividend.
Tiered hybrid dividends are governed by Section 245A(e)(2).
PTEP distributions can instead fall under Section 959, while certain CFC stock-sale income can receive special treatment under IRC Section 964(e)(4).
This distinction matters because a domestic corporation shareholder may own a lower-tier CFC indirectly but still fail a rule that depends on stock being “held by the taxpayer.”
Varian’s April 2026 holding-period analysis illustrates that point for its 2018 transition-year claim.
Keep a separate E&P and PTEP rollforward for each CFC in the chain.
How to claim the Section 245A deduction: step-by-step
For a 2025 Form 1120, qualifying Section 245A dividends are reported on Schedule C, line 13, column (a), and the deduction is reflected in column (c).
Form 5471 Schedule I, line 5a also feeds the corporate reporting when the dividend comes from a reportable foreign corporation.
The following 6 steps cover the core 245A requirements for a 2025 corporate return:
- Confirm the recipient is an eligible domestic C corporation and the payer is a qualifying SFC.
- Verify more than 365 days of holding during the 731-day window under Section 246(c)(5).
- Calculate the foreign-source portion under Section 245A(c) using the statutory E&P definitions.
- Confirm that hybrid-dividend and Regulation 1.245A-5 limits do not make part of the dividend ineligible.
- For a 2025 Form 1120, qualifying Section 245A dividends are reported on Schedule C, line 11, column (a), and the deduction is reflected in column (c).
- Exclude foreign taxes tied to Section 245A(d) income from the allowable corporate FTC or deduction.
For 2025, the Section 245A DRD is reported through Schedule C of Form 1120, with qualifying foreign-source dividends on line 11.
For the dividend received deduction, IRS instructions also direct nonqualifying foreign-source dividends to Schedule C, line 14.
That includes hybrid dividends, Regulation 1.245A-5 ineligible amounts, and dividends failing the Section 246(c)(5) holding rule.
Keep an ownership chart, stock dates, E&P workpapers, foreign tax records, and hybrid-deduction data with the return file.
Those documents support the 245A dividend received deduction if the IRS later asks how the amount was computed.
Common mistakes when claiming the Section 245A DRD
Five recurring mistakes can change a 100% DRD into taxable income or an overstated FTC: missing the 365-day holding rule, treating hybrid dividends as eligible, claiming barred foreign taxes, confusing Subpart F with dividends, and overlooking Regulation 1.245A-5 ineligible amounts.
The following 5 mistakes should be checked before the return is filed:
- Failing the more-than-365-day holding period because stock dates or hedged periods were counted incorrectly.
- Claiming a DRD for a hybrid dividend barred by Section 245A(e).
- Claiming a foreign tax credit or deduction for taxes tied to Section 245A(d) income.
- Applying the ordinary DRD to a Subpart F inclusion that is not an actual dividend.
- Ignoring an extraordinary disposition or extraordinary reduction under Regulation 1.245A-5 for a 2025 foreign-corporation year.
The 2025 Form 1120 instructions separate qualifying dividends on Schedule C, line 13 from nonqualifying foreign dividends on line 14.
That line-level distinction gives filers a concrete review point before submission.
The IRS Section 245A practice unit also directs exam teams to verify foreign tax treatment and regulatory limits.
That supports careful reconciliation rather than treating any one mismatch as an automatic audit trigger.
Section 245A vs. the old indirect foreign tax credit: what changed
Before TCJA, Section 902 allowed a deemed paid credit for certain foreign corporate taxes while the dividend entered the US tax base.
TCJA repealed Section 902 and added a 100% DRD for the qualifying foreign-source portion, with no FTC for taxes tied to the deductible amount.
For qualifying post-2017 dividends, Section 245A replaced the old Section 902 deemed paid credit model with a 100% DRD on the foreign-source portion.
| Feature | Pre-TCJA indirect FTC | Post-TCJA Section 245A DRD |
|---|---|---|
| Mechanism | Taxable dividend plus Section 902 deemed paid credit | Deduction for qualifying foreign-source portion |
| US tax on qualifying dividend | Subject to US tax, reduced by allowable FTC | Qualifying foreign-source portion can be fully deducted |
| FTC availability | Deemed paid credit could offset US tax | Section 245A(d) bars credit or deduction for related taxes |
| Complexity | Foreign tax pools and indirect-credit computations | SFC, E&P, holding, hybrid, FTC, and anti-abuse tests |
The newer corporate dividends received deduction shifts the focus from tracing old indirect-credit pools to proving DRD eligibility and the foreign-source amount.
It does not remove CFC, PTEP, GILTI, Subpart F, or Form 5471 reporting.
This history also explains the narrow Varian dispute.
Its 2018 fiscal year straddled mismatched TCJA effective dates, which allowed the Tax Court to apply pre-amendment Section 78 text alongside new Section 245A for that transition period.
Does Section 245A apply to individual expats or small business owners?
No. The ordinary Section 245A(a) DRD is for an eligible domestic corporation that is a US shareholder of an SFC.
An individual expat cannot claim the corporate DRD directly, and S corporations and partnerships do not receive it as entity-level C corporation deductions.
If you are an individual US expat who owns shares in a foreign company, Section 245A does not apply to you directly – but GILTI, Subpart F, and PFIC rules may apply depending on the entity and ownership.
An individual with 10% or more of a foreign corporation may have Form 5471, Subpart F, or GILTI obligations.
A separate Section 962 election can change how certain CFC inclusions are taxed, but it does not turn an individual into a general corporate DRD claimant.
The Foreign Earned Income Exclusion is separate.
It applies to qualifying foreign earned income of individuals, not corporate dividends, and it does not replace CFC information reporting.
If the foreign business is disregarded for US tax purposes rather than treated as a corporation, see TFX’s Form 8858 and foreign disregarded entity guide.
Entity classification comes first because Section 245A applies to stock in a foreign corporation.
A disregarded entity follows a different reporting path.
Practical example: Section 245A in action
A US C corporation that owns 100% of an SFC can deduct 100% of a dividend when the full distribution is foreign-source, the 365-day test is met, and no hybrid or Regulation 1.245A-5 limit applies.
Foreign taxes tied to the deductible amount cannot also generate an FTC.
Based on our client scenario at TFX: A US C corporation owns 100% of a German subsidiary for 4 years.
The subsidiary has $900,000 of undistributed earnings, all qualifying as undistributed foreign earnings, and pays a $500,000 dividend in 2025.
The following 6 steps show the Section 245A calculation:
- The US parent is a domestic C corporation and owns 100%, so the foreign subsidiary is an SFC.
- Four years of ownership exceeds the more-than-365-day requirement within the 731-day testing window.
- The records show no hybrid deduction tied to the $500,000 payment.
- The foreign-source ratio is $900,000 divided by $900,000, or 100%.
- The potential 245A DRD is therefore $500,000, subject to the remaining regulatory checks.
- No FTC or deduction is claimed for foreign taxes attributable to the Section 245A(d) amount.
The US corporate result is a $500,000 dividend matched by a $500,000 DRD, leaving no US taxable income from that dividend before separate items are considered.
The dividend and DRD still must be reported on Schedule C. A 100% DRD does not mean zero compliance work.
The file should retain the stock history, E&P computation, foreign tax records, and hybrid analysis supporting the result.
If the group also moves property or stock across borders, TFX’s Section 367 foreign transfer guide explains separate rules that can apply before or alongside dividend repatriation.
File your corporate international tax return with TFX
Frequently asked questions
No. The ordinary Section 245A(a) DRD is available to eligible domestic C corporations, not S corporations.
Owners can still face separate CFC, Subpart F, GILTI, or information-reporting rules.
Not if the PFIC is not also a CFC.
Section 245A(b) excludes that corporation from the SFC definition. A PFIC that is also a CFC requires a separate overlap analysis.
The relevant SFC share must be held for more than 365 days within a 731-day period.
That period begins 365 days before the ex-dividend date. The taxpayer must remain a US shareholder during the qualifying period.
No, for taxes attributable to Section 245A(d) income.
The Code disallows both a credit and a deduction for those foreign taxes. The result does not turn on merely choosing not to claim the DRD.
A hybrid dividend is tied to a foreign-law hybrid deduction or comparable tax benefit.
Section 245A(e) denies the US DRD for that amount. Tiered hybrid dividends can also create a current inclusion.
No. For 2025, GILTI under Section 951A is a current inclusion, not a Section 245A dividend.
A domestic C corporation generally uses a separate 50% Section 250 deduction, subject to its limitation.
Section 245A(c) uses a ratio of undistributed foreign earnings to total undistributed earnings.
That ratio is multiplied by the dividend. The E&P computation follows Sections 964(a) and 986, subject to Section 245A(c)’s exclusions.
TFX’s guide to foreign withholding tax addresses how tax withheld abroad is identified and reported.
For a qualifying dividend, Section 245A(d) still governs whether that foreign tax is creditable or deductible.
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