Modification of foreign tax credit limitation baskets

(a) Modification of foreign tax credit limitation baskets (1) In general Section 904(d)(1) is amended by striking subparagraphs (A) and (B) and by redesignating subparagraphs (C) and (D) as subparagraphs (A) and (B), respectively. (2) Conforming amendments (A) Section 904(d)(2)(A)(ii) is amended by striking income described in paragraph (1)(A), foreign branch income, and. (B) Section 904(c) is amended by striking the last sentence. (C) (i) Section 904(d)(2) is amended by striking subparagraph (J) and by redesignating subparagraph (K) as subparagraph (J). (ii) Section 250(b)(3)(A)(i)(VI) is amended to read as follows: (VI) the business profits of such corporation which are attributable (under rules established by the Secretary) to 1 or more qualified business units (as defined in section 989(a)) in 1 or more foreign countries, over. (D) Section 904(d)(2)(J), as redesignated by subparagraph (C)(i), is amended by striking 2007 each place it appears in the text and in the heading and inserting 2026. (3) Transition rule The Secretary of the Treasury (or the Secretary's delegate) shall establish rules for the application of section 960(c)(2) with respect to categories of income described in subparagraphs (A) and (B) of section 904(d)(2) (as in effect for taxable years beginning before January 1, 2026). (b) Rules for allocation of certain deductions to foreign source global intangible low-taxed income for purposes of foreign tax credit limitation Section 904(b) is amended by adding at the end the following new paragraph: (5) Deductions treated as allocable to foreign source global intangible low-taxed income In the case of a domestic corporation and solely for purposes of the application of subsection (a) with respect to amounts includible inc gross income by reason of section 951A (other than passive category income), the taxpayer’s taxable income from sources without the United States shall be determined— (A) by allocating and apportioning any deduction allowed under section 250(a)(2) (and any deduction allowed under section 164(a)(3) for taxes imposed on amounts described in section 250(a)(2)) to such income, and (B) by allocating and apportioning any other deduction to such income only if the Secretary determines that such deduction is directly allocable to such income. Any deduction which would (but for subparagraph (B)) have been allocated or apportioned to such income shall only be allocated or apportioned to income which is from sources within the United States.. (c) Effective date (1) In general Except as provided in paragraph (2), the amendments made by this section shall apply to taxable years beginning after December 31, 2025. (2) Modification of foreign tax credit carryback and carryforward The amendment made by subsection (a)(2)(B) shall apply to taxes paid or accrued in taxable years beginning after December 31, 2025.