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establish port prices. Assume that this ar- adjustments under section 907(d) may rangement is a pricing arrangement de

be made only by the Commissioner in scribed in section 907(d). Thus, Y does not

the same manner that section 482 is adtax the refinery income. The results are the

ministered. Correlative and similar adsame as in Example 3 even if $12 per barrel is equal to, more than, or less than, the value

justments consistent with the subof the primary products at the port. See

stantive and procedural principles of paragraph (a)(5)(vi) of this section.

section 482 and $1.482-1(d) apply. How[T.D. 8338, 56 FR 11073, Mar. 15, 1991)

ever, section 907(d) is not a limitation

on section 482. If a taxpayer disposing $ 1.907(d)-1 Disregard of posted prices

of minerals at a posted price does comfor purposes of chapter 1 of the ply with the initial computation reCode (for taxable years beginning quirement of this section, adjustments after December 31, 1982).

and correlative and similar adjust(a) In general—(1) Scope. Section ments consistent with the substantive 907(d) applies if a person has FOGEI and procedural aspects of section 482 from the

and $1.482-1(d) shall apply, whether (i) Acquisition (other than from a made on the return by the taxpayer or foreign government) or

on a later audit. This paragraph (b) (ii) Disposition of minerals at a post- does not apply to an actual sale or exed price that differs from the fair mar- change of minerals made between perket value at the time of the trans- sons with respect to whom adjustments action. Also, if a seller (other than a under section 482 would never apply foreign government) derives FOGEI (but see paragraph (a)(4) of this secupon a disposition described in the pre- tion). ceding sentence, section 907(d) applies (c) Definitions. For purposes of this to the acquisition by the purchaser sectionwhether not the purchaser has (1) Foreign government. The term forFOGEI. Thus, section 907(d) may apply eign government means only the intein determining a person's FORI.

gral parts or controlled entities of a (2) Initial computation requirement. If foreign sovereign and political subdivisection 907(d) applies to any person, in- sions of a foreign country. come on the transaction as initially re- (2) Minerals. The term minerals has flected on the person's return shall be the same meaning as in $1.907(c)-1(f)(1). computed as if the transaction were ef- (3) Posted price. The term posted price fected at fair market value. This re- means the price set by, or at the direcquirement applies the first time a per- tion of, a foreign government to calson has taxable income derived from culate income for purposes of its tax or either the transaction or an item (such at which minerals must be sold.

a dividend described in section (4) Other pricing arrangement. The 907(c)(3)(A)) determined with reference term other pricing arrangement in secto that income.

tion 907(d) means a pricing arrange(3) Burden of proof. The taxpayer ment having the effect of a posted must be able to demonstrate the trans- price. action as it actually occurred and the (5) Fair market value. The term fair basis for reporting the transaction market value, whether or not at the port under the principles of paragraph (a)(2) prior to export, is determined in the of this section.

same way that the wellhead price is de(4) Related parties. Section 907(d) (as a termined under $1.907(C)-1(b)(6). rule of characterization) applies wheth

[T.D. 8338, 56 FR 11075, Mar. 15, 1991) er or not the parties to the transaction are related. Thus, the excess of the

$ 1.907(e)-1 (Reserved) posted price over the fair market value may never be taken into account in de- $ 1.907(f)-1 Carryback and carryover termining a person's FOGEI under sec- of credits disallowed by section tion 907(a) but may be taken into ac- 907(a) (for amounts carried becount in determining a person's FORI.

tween taxable years that each begin (b) Adjustments. If a taxpayer does

after December 31, 1982). not comply with the initial require- (a) In general. If a taxpayer chooses ment of paragraph (a)(2) of this section, the benefits of section 901, any unused


FOGEI tax paid or accrued in a taxable year beginning after December 31, 1982, may be carried to the taxable years specified in section 907(f) under the carryback and carryover principles of this section $1.904–2(b). See section 907(e) and $1.907(e)-1 for transitional rules that apply to unused FOGEI taxes carried back or forward between a taxable year beginning before January 1, 1983, and a taxable year beginning after December 31, 1982.

(b) Unused FOGEI tar—(1) In general. The “unused FOGEI tax" for purposes of this section is the excess of the FOGEI taxes for a taxable year (year of origin) over that year's limitation level (as defined in $1.907(a)-1(b)).

(2) Year of origin. The term “year of origin” in the regulations under section 904 corresponds to the term "unused credit year” under section 907(1).

(c) Taz deemed paid or accrued. The unused FOGEI tax from a year of origin that may be deemed paid or accrued under section 907(f) in any preceding or succeeding taxable year (“excess limitation year") may not exceed the lesser of

(1) The excess extraction limitation for the excess limitation year, or

(2) The excess general section 904 limitation for the excess limitation year.

(d) Excess extraction limitation. Under section 907(f)(2)(A), the “excess extraction limitation” for an excess limitation year is the amount by which that year's section 907(a) extraction limitation exceeds the sum of

(1) The FOGEI taxes paid or accrued, and

(2) The FOGEI taxes deemed paid or accrued in that year by reason of a sec

tion 907(f) carryback or carryover from preceding years of origin.

(e) Excess general section 904 limitation. Under section 907(f)(2)(B), the "excess general section 904 limitation" for an excess limitation year is the amount by which that year's section 904 general limitation exceeds the sum of

(1) The general limitation taxes paid or accrued (or deemed to have been paid under section 902 or 960) to all foreign countries and possessions of the United States during the taxable year,

(2) The general limitation taxes deemed paid or accrued in such taxable year under section 904(c) and which are attributable to taxable years preceding the unused credit year, plus

(3) The FOGEI taxes deemed paid or accrued in that year by reason of a section 907(1) carryover (or carryback) from preceding years of origin.

(1) Section 907(1) priority. If a taxable year is a year of origin under both section 907(1) and section 904(c), section 907(f) applies first. See section 907(1)(3)(A).

(8) Cross-reference. In computing the carryback and carryover of disallowed credits under section 907(f), the principles of $1.904–2 (d), (e), and (f) apply.

(h) Example. The following example illustrates the application of section 907(1).

Erample. X, a U.S. corporation organized on January 1, 1983, uses the accrual method of accounting and the calendar year as its taxable year. X's only income is income which is not subject to a separate tax limitation under section 904(d). X's preliminary U.S. tax liability indicates an effective rate of 46% for taxable years 1983–1985. X has the following foreign tax items for 1983–1985:

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2. FOGEI taxes
3. Other foreign taxable income
4. Other foreign taxes
5. (a) Section 907(a) limitation (.46 x Line 1)

(b) General section 904 limitation (.46 (line 1 plus line 3)) 6. (a) Unused FOGEI taxes (excess of line 2 over line 5(a)) (b) Unused general limitation taxes (excess of line 4 plus lesser of line 2 or line 5(a) over

line 5(b)) 7. (a) FOGEI taxes from years preceding 1983 deemed accrued under section 907(1) (b) Section 904 general limitation taxes from years preceding 1983 deemed accrued

under section 904(c) 8. (a) Excess section 907(a) limitation (excess of line 5(a) over sum of line 2 and line 7(a)) (b) Excess section 904 general limitation (excess of line 5(b) over sum of line 4, lesser of

line 2 and line 5(a) and line 7(b)) 9. Limit on FOGEI taxes that will be deemed accrued under section 907(0) (lesser of line

8(a) and line 8(b)

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X has unused 1983 FOGEI taxes of $600. Since the excess section 907(a) limitation for 1984 is zero, the unused FOGEI taxes are carried to 1985. Of the $600 carryover, $400 is deemed accrued in 1985 and the balance of $200 is carried to following years (but not to a year after 1988). After the carryover from

1983 to 1985, the excess section 904 geceni limitation for 1985 (line 8(b)) is reduced $400 to $1,600 to reflect the amount of FOGEI taxes deemed accrued in 1985 ans section 907(1). [T.D. 8338, 56 FR 11079, Mar. 15, 1991)


A list of CFR titles, subtitles, chapters, subchapters and parts and an alphabetical list of agencies publishing in the CFR are included in the CFR Index and Finding Aids volume to the Code of Federal Regulations which is published separately and revised annually.

Table of CFR Titles and Chapters
Alphabetical List of Agencies Appearing in the CFR
Table of OMB Control Numbers
List of CFR Sections Affected

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