Opinion ID: 548352
Heading Depth: 2
Heading Rank: 3

Heading: Kuwait Income Taxes

Text: 46 Section 901(a) of the Internal Revenue Code provides a credit for income taxes paid, or accrued during the taxable year, to any foreign country or United States possession. I.R.C. Sec. 901(b)(1). Income taxes paid or accrued during the taxable year to any foreign country in connection with the purchase and sale of oil and gas extracted in that country, however, are not considered taxes for purposes of I.R.C. Sec. 901 if (1) the taxpayer has no economic interest in the oil or gas to which I.R.C. Sec. 611(a) applies and (2) the purchase or sale is at a price which differs from the fair market value for the oil or gas at the time of purchase or sale. I.R.C. Sec. 901(f). Since we affirmed the Tax Court's decision that the crude oil supply discount was not additional nationalization compensation, it follows that the Kuwaiti income taxes are subject to the Sec. 901(f) test. 47 Gulf conceded before the Tax Court that it did not have an economic interest in the minerals in place in Kuwait after March 5, 1975 (the nationalization effective date). Furthermore, Gulf presented no evidence that the pre-discount price set by contract as the purchase and sales price for the oil was equal to fair market value. Since the I.R.C. Sec. 901(f) requirements are met, the Kuwaiti income taxes do not qualify as a foreign tax credit under I.R.C. Sec. 901; rather, these taxes qualify as a deduction under I.R.C. Sec. 164, which allows deductions for foreign taxes paid or accrued. The Tax Court did not commit an error of law in applying Sec. 901 and, therefore, we will affirm the Tax Court in this regard; however, we disagree that the taxes can be accrued in tax year 1975.