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The U.S. tax code contains special rules for taxpayers who participate in, cooperate with, or agree to participate in an international boycott. If these rules apply, you may be required to reduce certain tax benefits, including your Foreign Tax Credit (FTC).
These provisions are governed by Internal Revenue Code Section 999 and are intended to discourage participation in international boycotts that are not sanctioned by the United States.
What Is an International Boycott?
An international boycott generally occurs when a foreign country, organization, or business requires a taxpayer to:
- Refuse to do business with certain countries, companies, or individuals
- Provide information about business relationships with boycotted countries
- Agree to boycott-related conditions as part of a contract or business arrangement
These requirements most commonly arise in international trade, foreign contracting, and multinational business activities.
How Does This Affect the Foreign Tax Credit?
If you're subject to the international boycott rules, the IRS may require a reduction of certain tax benefits, including:
- The Foreign Tax Credit (Form 1116)
- Deferral benefits related to foreign income
- Other international tax benefits allowed under federal tax law
The amount of any reduction depends on the nature and extent of the boycott-related activities.
Who Is Most Likely to Be Affected?
These rules generally do not affect most individual taxpayers.
They are more commonly encountered by:
- Businesses engaged in international trade
- Owners of foreign business operations
- Taxpayers with foreign partnerships or corporations
- Individuals involved in foreign contracting arrangements
If you receive documentation indicating boycott participation, cooperation, or requests from a foreign country, you may need to review these rules carefully.
If you have international boycott reporting requirements, you may need to:
- Review the IRS instructions carefully
- Complete the required forms outside the software
- Consult a qualified tax professional familiar with international tax reporting
Because these rules are highly specialized, additional guidance may be necessary to ensure accurate reporting.
Additional Information
For additional information, refer to Form 1116 Instructions (Foreign Tax Credit)