SCOTUS Reports

Tag: Foreign Tax Credit

  • Liberty Global, Inc. v. Commissioner, 161 T.C. No. 10 (2023): Application of Overall Foreign Loss Recapture Rules

    Liberty Global, Inc. v. Commissioner, 161 T. C. No. 10 (2023)

    In a landmark decision, the U. S. Tax Court clarified the scope of I. R. C. § 904(f)(3), ruling that the provision only recaptures the amount necessary to offset an overall foreign loss (OFL) and does not limit or exempt the taxation of any additional gain from the disposition of controlled foreign corporation (CFC) stock. This ruling impacts how multinational corporations calculate their foreign tax credits and underscores the limited applicability of OFL recapture rules.

    Parties

    Liberty Global, Inc. (Petitioner) v. Commissioner of Internal Revenue (Respondent). Liberty Global, Inc. was the petitioner at the trial level before the United States Tax Court.

    Facts

    At the beginning of 2010, Liberty Global, Inc. had an overall foreign loss (OFL) account balance of approximately $474 million. In February 2010, Liberty Global sold all its stock in Jupiter Telecommunications Co. Ltd. (J:COM), a controlled foreign corporation (CFC), realizing a gain of more than $3. 25 billion. On its 2010 tax return, Liberty Global reported $438 million of this gain as dividend income under I. R. C. § 1248 and the remaining $2. 8 billion as foreign-source income, claiming foreign tax credits of over $240 million based on their interpretation of Treas. Reg. § 1. 904(f)-2(d)(1). The Commissioner of Internal Revenue issued a Notice of Deficiency, asserting that Liberty Global overstated its foreign-source income and, consequently, its foreign tax credit.

    Procedural History

    Following the Notice of Deficiency, Liberty Global timely petitioned the United States Tax Court for a redetermination of the deficiency. The case was submitted fully stipulated under Tax Court Rule 122, and the parties agreed that I. R. C. § 904(f)(3) applied to the sale of J:COM stock. The central issue before the court was the interpretation of I. R. C. § 904(f)(3) concerning the treatment of gain beyond the amount necessary to recapture the OFL.

    Issue(s)

    Whether I. R. C. § 904(f)(3)(A) limits the gain recognized from the disposition of CFC stock to the amount necessary to recapture the taxpayer’s OFL, thus exempting any remaining gain from taxation?

    Whether I. R. C. § 904(f)(3)(A) is ambiguous and whether Treas. Reg. § 1. 904(f)-2(d)(1) requires treating the entire gain from the disposition of CFC stock as foreign-source income?

    Rule(s) of Law

    I. R. C. § 904(f)(3)(A) states that upon the disposition of certain property, “the taxpayer, notwithstanding any other provision of this chapter (other than paragraph (1)), shall be deemed to have received and recognized taxable income from sources without the United States in the taxable year of the disposition, by reason of such disposition, in an amount equal to the lesser of the excess of the fair market value of such property over the taxpayer’s adjusted basis in such property or the remaining amount of the overall foreign losses which were not used under paragraph (1) for such taxable year or any prior taxable year. “

    Holding

    The court held that I. R. C. § 904(f)(3)(A) only applies to the gain necessary to recapture the OFL and does not override any other recognition provisions under chapter 1 of the Internal Revenue Code. The court further held that I. R. C. § 904(f)(3)(A) is not ambiguous and does not recharacterize as foreign-source gain any amount in excess of that necessary to recapture the OFL. Additionally, the court ruled that Treas. Reg. § 1. 904(f)-2(d)(1) does not recharacterize as foreign-source gain any amount in excess of that necessary to recapture the OFL.

    Reasoning

    The court’s reasoning focused on the plain language of I. R. C. § 904(f)(3)(A), which specifies that the provision only mandates recognition of foreign-source income to the extent necessary to offset the remaining OFL. The court rejected Liberty Global’s argument that the provision limited the total gain recognized to the OFL amount, noting that the statute does not address the treatment of gain beyond the OFL recapture amount. The court found that the silence of the statute on this matter meant that other applicable Code sections, such as I. R. C. §§ 865, 1001, and 1248, continued to govern the treatment of the excess gain. The court also dismissed Liberty Global’s contention that the statute was ambiguous and that the regulation required all gain to be treated as foreign-source income, emphasizing that the regulation’s text and context only address the gain necessary for OFL recapture.

    The court considered the broader statutory scheme, noting that I. R. C. § 904(f)(3) was designed to limit foreign tax credits and not to exempt significant portions of gain from taxation. The court also pointed out that Liberty Global’s interpretation would lead to inconsistent and illogical results compared to taxpayers without OFLs, which the statute did not support.

    Disposition

    The court ruled in favor of the Commissioner regarding the interpretation of I. R. C. § 904(f)(3) and its application to Liberty Global’s gain from the sale of J:COM stock. The court upheld the Commissioner’s position that the statute does not limit or exempt the taxation of gain beyond the amount necessary for OFL recapture. The court allowed Liberty Global to deduct its foreign taxes for 2010 under I. R. C. § 164(a)(3), as conceded by the Commissioner.

    Significance/Impact

    This decision has significant implications for multinational corporations involved in the disposition of CFC stock, clarifying that I. R. C. § 904(f)(3) is narrowly focused on recapturing OFLs and does not provide a mechanism for limiting or exempting taxation of additional gain. The ruling reinforces the principle that statutory provisions must be read in the context of the entire Code and not interpreted to create unintended tax benefits. It also emphasizes the importance of clear statutory language and the limited scope of regulatory authority in interpreting tax statutes. Subsequent courts and practitioners will likely reference this decision when addressing similar issues related to foreign tax credits and OFL recapture.

  • Toulouse v. Commissioner, 157 T.C. No. 4 (2021): Application of Foreign Tax Credits Against Net Investment Income Tax Under U.S. Income Tax Treaties

    Toulouse v. Commissioner, 157 T. C. No. 4 (2021)

    In Toulouse v. Commissioner, the U. S. Tax Court ruled that U. S. citizens residing abroad cannot use foreign tax credits to offset the Net Investment Income Tax (NIIT) under U. S. income tax treaties with France and Italy. The decision clarifies that treaty-based credits are subject to the limitations of U. S. tax law, which does not provide for such credits against NIIT, impacting how international taxpayers manage their tax liabilities.

    Parties

    Catherine S. Toulouse, the petitioner, was a U. S. citizen residing in France during the relevant period. She filed her petition against the Commissioner of Internal Revenue, the respondent, challenging the assessment of the Net Investment Income Tax (NIIT) under I. R. C. sec. 1411 for the tax year 2013 and an addition to tax under I. R. C. sec. 6651(a)(2) for failure to pay.

    Facts

    Catherine S. Toulouse, a U. S. citizen residing in France, filed her 2013 federal income tax return claiming a foreign tax credit carryover to offset her regular tax liability. She also attempted to use this credit to offset her NIIT, which is a 3. 8% tax on net investment income imposed under I. R. C. sec. 1411. Toulouse reported a net investment income tax of $11,540 on Form 8960 but modified the form to reflect a foreign tax credit of the same amount, resulting in no NIIT due. She based her claim for the offset on Article 24(2)(a) of the U. S. -France Income Tax Treaty and Article 23(2)(a) of the U. S. -Italy Income Tax Treaty, asserting that these treaty provisions independently allowed for a foreign tax credit against the NIIT.

    Procedural History

    Following the filing of her 2013 return, the IRS issued a notice of a math error to Toulouse, adjusting her return by $11,540 due to the disallowed foreign tax credit against the NIIT. Toulouse contested this assessment, but the IRS upheld its position that no such credit was allowable. Subsequently, the IRS assessed the NIIT and an addition to tax under I. R. C. sec. 6651(a)(2) for failure to pay the tax shown on her return. Toulouse received notices of intent to levy and federal tax lien filing, leading her to request a Collection Due Process (CDP) hearing under I. R. C. secs. 6320 and 6330. After the hearing, the IRS issued a notice of determination sustaining the levy action but not the lien filing. Both parties filed cross-motions for summary judgment in the U. S. Tax Court, with Toulouse conceding that the Internal Revenue Code does not provide for a foreign tax credit against the NIIT but arguing that the treaties did.

    Issue(s)

    Whether Article 24(2)(a) of the U. S. -France Income Tax Treaty and Article 23(2)(a) of the U. S. -Italy Income Tax Treaty entitle a U. S. citizen residing abroad to use a foreign tax credit to offset the Net Investment Income Tax imposed under I. R. C. sec. 1411?

    Rule(s) of Law

    The Internal Revenue Code, under I. R. C. sec. 27 and sec. 901, provides for a foreign tax credit against the regular tax imposed by chapter 1 but does not extend this credit to the Net Investment Income Tax under chapter 2A. The treaties with France and Italy, while intended to reduce double taxation, subject any allowable foreign tax credit to the provisions and limitations of U. S. tax law, as per Article 24(2)(a) of the U. S. -France Treaty and Article 23(2)(a) of the U. S. -Italy Treaty.

    Holding

    The U. S. Tax Court held that Toulouse was not entitled to use a foreign tax credit to offset the Net Investment Income Tax under the provisions of the U. S. -France and U. S. -Italy Income Tax Treaties, as these treaties are subject to the limitations of U. S. tax law, which does not provide for such a credit against the NIIT.

    Reasoning

    The court’s reasoning focused on the plain text of the treaties, which expressly state that any foreign tax credit must be in accordance with and subject to the limitations of U. S. law. The court found that the Internal Revenue Code clearly allows a foreign tax credit only against taxes imposed under chapter 1, not chapter 2A, where the NIIT is located. The court rejected Toulouse’s argument that the treaties provide an independent basis for a credit, emphasizing that the treaties’ language ties the credit to U. S. law’s provisions. The court also considered the legislative history and structure of the Internal Revenue Code, noting that the placement of the NIIT in a separate chapter was a deliberate legislative choice that did not extend the foreign tax credit to this tax. The court further analyzed the Treasury Department’s Technical Explanation of the U. S. -France Treaty, which reinforced that the terms of any credit are determined by U. S. statutory law. The court concluded that since the Code does not provide for a foreign tax credit against the NIIT, the treaties could not independently provide such a credit.

    Disposition

    The court denied Toulouse’s motion for summary judgment and granted the Commissioner’s motion for partial summary judgment on the issue of the foreign tax credit against the NIIT. The court did not resolve the issue of the addition to tax under I. R. C. sec. 6651(a)(2), finding a dispute of material fact as to whether Toulouse’s failure to pay was due to reasonable cause.

    Significance/Impact

    This case is significant for its clarification of the interaction between U. S. income tax treaties and domestic tax law, particularly concerning the application of foreign tax credits against the Net Investment Income Tax. It underscores the principle that treaty-based credits are not independent of U. S. tax law but are instead subject to its provisions and limitations. This ruling may impact U. S. citizens residing abroad who seek to use foreign tax credits to mitigate their U. S. tax liabilities, particularly with respect to the NIIT. The decision also highlights the importance of the specific language in treaties and how it is interpreted in light of domestic law, potentially affecting future cases involving the interplay between treaties and the Internal Revenue Code. Subsequent treatment by other courts and practical implications for legal practice will depend on how taxpayers and the IRS navigate the complexities of international taxation and treaty interpretation.

  • Renee Vento v. Commissioner of Internal Revenue, 147 T.C. No. 7 (2016): Foreign Tax Credit and Virgin Islands Taxation

    Renee Vento v. Commissioner of Internal Revenue, 147 T. C. No. 7 (2016)

    In Vento v. Commissioner, the U. S. Tax Court ruled that U. S. citizens who mistakenly paid income taxes to the Virgin Islands could not claim a foreign tax credit against their U. S. tax liability. The petitioners, who were not bona fide Virgin Islands residents, had filed returns and paid taxes there based on an erroneous belief of residency. The court held that the payments did not qualify as “taxes paid” under the applicable regulations and were not creditable under Section 901 of the Internal Revenue Code. This decision clarifies the scope of the foreign tax credit and the tax treatment of U. S. citizens with respect to Virgin Islands taxation.

    Parties

    Renee Vento, Gail Vento, and Nicole Mollison were the petitioners at the trial level, and the Commissioner of Internal Revenue was the respondent. The case was heard by the United States Tax Court.

    Facts

    Renee Vento, Gail Vento, and Nicole Mollison, all U. S. citizens and sisters, resided in California, the Virgin Islands, and Nevada respectively when they filed their petitions. Throughout 2001, they lived in the U. S. , where they worked, attended school, or cared for children. Despite making estimated tax payments to the U. S. Treasury for 2001, they did not file U. S. Federal income tax returns for that year. Instead, they filed individual territorial income tax returns with the Virgin Islands Bureau of Internal Revenue (BIR) in October 2002, each including a payment of tax. These payments were later transferred to the BIR by the U. S. Treasury under Section 7654. The petitioners conceded that they were not bona fide residents of the Virgin Islands for 2001 and had no income sourced there. Renee Vento filed an amended return with the BIR requesting a refund, but it was marked as “closed” without a refund being issued.

    Procedural History

    The Commissioner issued notices of deficiency to the petitioners on October 14, 2005, determining deficiencies in their Federal income tax for 2001, along with additions to tax and penalties. The petitioners filed petitions with the U. S. Tax Court contesting these deficiencies. Some adjustments in the notices involved partnership items, which were struck upon the Commissioner’s motion and dismissed. The remaining issue was whether the petitioners were entitled to foreign tax credits under Section 901 for their payments to the Virgin Islands. The case was submitted fully stipulated under Rule 122 of the Tax Court Rules of Practice and Procedure.

    Issue(s)

    Whether the petitioners are entitled to credits under Section 901 of the Internal Revenue Code against their U. S. tax liabilities for 2001 for payments made to the Virgin Islands, given that they were not bona fide residents of the Virgin Islands and had no income sourced there?

    Rule(s) of Law

    Section 901 of the Internal Revenue Code allows U. S. citizens, resident aliens, and domestic corporations to credit foreign income taxes paid against their U. S. income tax liabilities. However, the credit is only available for “taxes paid,” which must be compulsory amounts paid in satisfaction of a legal obligation. Section 1. 901-2(e) of the Income Tax Regulations specifies that an amount is not considered a “tax paid” if it is reasonably certain to be refunded or if it exceeds the taxpayer’s liability under foreign law, unless the taxpayer’s interpretation of the law was reasonable and all effective and practical remedies to reduce the liability were exhausted. Additionally, Section 904 limits the amount of creditable foreign tax to prevent credits from offsetting U. S. tax on U. S. -source income.

    Holding

    The U. S. Tax Court held that the petitioners were not entitled to credits under Section 901 against their U. S. income tax liabilities for the amounts paid as tax to the Virgin Islands for their 2001 taxable year. The court found that the petitioners failed to establish that their payments qualified as “taxes paid” under Section 1. 901-2(e) of the Income Tax Regulations, as they did not demonstrate a reasonable interpretation of the law or exhaustion of all effective and practical remedies to secure a refund from the Virgin Islands. Furthermore, the court held that the Section 904 limitation applies to taxes paid to the Virgin Islands, and the petitioners did not establish that their claimed credits did not exceed the applicable limitation.

    Reasoning

    The court’s reasoning centered on three main points. First, the petitioners did not meet their burden of proving that their payments to the Virgin Islands were “taxes paid” under Section 1. 901-2(e) of the Income Tax Regulations. They failed to show that their interpretation of the law as bona fide residents was reasonable, especially given the concerns raised by the IRS and Congress about similar claims and the lack of evidence that they relied on competent advice. Additionally, they did not exhaust all effective and practical remedies to reduce their Virgin Islands tax liability, as only one petitioner requested a refund, and the extent of her efforts was unclear. Second, the court rejected the petitioners’ argument that Section 904 did not apply to taxes paid to the Virgin Islands, finding that the limitation applies to all foreign taxes, including those paid to U. S. possessions. The petitioners did not establish that they had any foreign source income, which would have been necessary to generate a Section 904 limitation sufficient to allow the claimed credits. Third, the court concluded that Congress did not intend for taxes paid by U. S. citizens or residents to the Virgin Islands to be creditable under Section 901, as the coordination rules of Section 932 provide sufficient means to prevent double taxation. The court noted that the petitioners’ unusual situation of paying tax to the Virgin Islands without Virgin Islands income might have presented an opportunity to exploit a loophole in the statutory framework, but the court’s decision was based on the petitioners’ failure to meet the requirements for claiming a foreign tax credit.

    Disposition

    The U. S. Tax Court entered decisions under Rule 155 denying the petitioners’ claims for foreign tax credits under Section 901 for their payments to the Virgin Islands for the 2001 taxable year.

    Significance/Impact

    The Vento decision clarifies the scope of the foreign tax credit under Section 901 and its interaction with the tax coordination rules for the Virgin Islands under Section 932. It establishes that U. S. citizens or residents who mistakenly pay tax to the Virgin Islands based on an erroneous claim of residency cannot claim a foreign tax credit for those payments, even if they face double taxation. The decision reinforces the importance of meeting the requirements for claiming a foreign tax credit, including demonstrating a reasonable interpretation of the law and exhausting all effective and practical remedies to reduce foreign tax liability. The case also highlights the challenges faced by the IRS in preventing double taxation when a U. S. possession retains taxes paid by U. S. citizens who were not legally obligated to pay them. The decision may prompt further scrutiny of claims to Virgin Islands residency and the application of the foreign tax credit to payments made to U. S. possessions.

  • Sotiropoulos v. Comm’r, 142 T.C. 269 (2014): Jurisdiction and Foreign Tax Credit Adjustments under I.R.C. § 905(c)

    Sotiropoulos v. Commissioner, 142 T. C. 269 (2014)

    In Sotiropoulos v. Commissioner, the U. S. Tax Court asserted its jurisdiction to determine if a statutory provision divesting it of jurisdiction applied, specifically whether U. K. taxes claimed as credits were ‘refunded’ under I. R. C. § 905(c). The case, pivotal for taxpayers contesting foreign tax credit adjustments, underscores the court’s role as a prepayment forum, allowing disputes over the application of § 905(c) to be resolved before tax collection.

    Parties

    Petitioner: Panagiota Pam Sotiropoulos, a U. S. citizen residing and working in the U. K. , initially filed her case in the U. S. Tax Court as a petitioner. Respondent: Commissioner of Internal Revenue, representing the Internal Revenue Service (IRS), was the respondent at the trial and appeal levels.

    Facts

    Panagiota Pam Sotiropoulos, a U. S. citizen, was employed by Goldman Sachs in London from 2003 to 2005. During this period, her employer withheld U. K. income tax from her wages. Sotiropoulos filed U. S. and U. K. income tax returns for each year, claiming foreign tax credits on her U. S. returns equivalent to the U. K. tax withheld. She also invested in U. K. film partnerships and claimed substantial deductions on her U. K. returns, leading to requests for refunds of the withheld U. K. taxes. Sotiropoulos received payments from U. K. taxing authorities but argued these were not ‘refunds’ within the meaning of I. R. C. § 905(c)(1)(C) due to ongoing investigations into her entitlement and potential implications of the U. S. /U. K. income tax treaty. She did not notify the IRS of these payments as required by § 905(c)(1). Following an IRS examination, the agency determined that Sotiropoulos had received U. K. tax refunds and disallowed corresponding foreign tax credits on her U. S. returns, leading to a notice of deficiency.

    Procedural History

    After receiving the notice of deficiency, Sotiropoulos timely petitioned the U. S. Tax Court for redetermination of the deficiencies for tax years 2003-2005. Approximately a year after filing his answer, the Commissioner moved to dismiss the case for lack of jurisdiction, arguing that the notice of deficiency was erroneously issued because § 905(c) authorizes the IRS to redetermine and collect the tax upon notice and demand, bypassing deficiency procedures. The Commissioner conceded the accuracy-related penalties but maintained that foreign tax credit adjustments were removed from deficiency procedures by § 6213(h)(2)(A) cross-referencing to § 905(c).

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction to determine if the U. K. taxes paid by the petitioner have been ‘refunded in whole or in part’ within the meaning of I. R. C. § 905(c)(1)(C)?

    Rule(s) of Law

    I. R. C. § 901(a) allows a U. S. citizen to claim a credit for income taxes paid to a foreign country. I. R. C. § 905(c)(1) requires a taxpayer to notify the Secretary if a claimed foreign tax is ‘refunded in whole or in part,’ allowing the IRS to redetermine the U. S. tax for the affected years. I. R. C. § 905(c)(3) permits the IRS to collect any additional tax due upon notice and demand. I. R. C. § 6213(h)(2)(A) exempts § 905(c) adjustments from the usual deficiency procedures.

    Holding

    The U. S. Tax Court held that it has jurisdiction to determine whether the U. K. taxes paid by the petitioner have been ‘refunded in whole or in part’ within the meaning of I. R. C. § 905(c)(1)(C), thus denying the Commissioner’s motion to dismiss for lack of jurisdiction.

    Reasoning

    The court reasoned that it always has jurisdiction to determine its own jurisdiction. It emphasized that the statutory framework of the Internal Revenue Code generally provides taxpayers a prepayment forum to contest disputed taxes, with limited exceptions allowing summary assessment. The court noted that § 905(c) adjustments are only applicable if a foreign tax is ‘refunded,’ and since Sotiropoulos disputed this, the court had to determine whether the statutory provision alleged to divest it of jurisdiction applied. The court distinguished this from situations where taxpayers concede receipt of a foreign tax refund by self-reporting, and highlighted previous cases where the Tax Court had jurisdiction over similar disputes under § 905(c) and its predecessors. The court applied a broad, practical construction of its jurisdictional provisions, rejecting a narrow, technical interpretation that would limit its ability to review disputes over § 905(c) adjustments. It also considered the policy of providing taxpayers a prepayment forum to resolve disputes, which supported its decision to retain jurisdiction.

    Disposition

    The court issued an order denying the Commissioner’s motion to dismiss for lack of jurisdiction.

    Significance/Impact

    Sotiropoulos v. Commissioner is significant as it clarifies that the U. S. Tax Court retains jurisdiction to adjudicate whether a foreign tax credit adjustment under § 905(c) is warranted, particularly when the taxpayer disputes the ‘refund’ status of foreign taxes. This ruling reaffirms the court’s role as a prepayment forum, ensuring taxpayers have an opportunity to challenge IRS determinations before assessment and collection of additional taxes. The decision also sets a precedent for handling similar disputes, emphasizing the court’s broad jurisdictional authority and the importance of judicial review in tax disputes involving foreign tax credits. Subsequent courts have followed this precedent, ensuring taxpayers’ rights to contest § 905(c) adjustments are preserved.

  • Sotiropoulos v. Commissioner, 142 T.C. No. 15 (2014): Jurisdiction over Foreign Tax Credit Adjustments under I.R.C. § 905(c)

    Sotiropoulos v. Commissioner, 142 T. C. No. 15 (2014)

    In Sotiropoulos v. Commissioner, the U. S. Tax Court ruled it has jurisdiction to determine whether U. K. tax payments received by a U. S. citizen are “refunds” under I. R. C. § 905(c), impacting the applicability of deficiency procedures for foreign tax credit adjustments. This decision reaffirms the court’s role as a prepayment forum for taxpayers to contest IRS determinations related to foreign tax credits, despite the IRS’s attempt to bypass these procedures.

    Parties

    Petitioner: Panagiota Pam Sotiropoulos, a U. S. citizen who lived and worked in the U. K. during the years in question.
    Respondent: Commissioner of Internal Revenue, representing the IRS.

    Facts

    Panagiota Pam Sotiropoulos, a U. S. citizen, resided and worked in the U. K. from 2003 to 2005. During these years, she was employed by Goldman Sachs in London, and her employer withheld U. K. income tax from her wages. Sotiropoulos claimed foreign tax credits on her U. S. tax returns corresponding to the U. K. taxes withheld. Subsequently, she filed U. K. tax returns claiming deductions from investments in U. K. film partnerships, resulting in overpayments of U. K. tax. She applied for refunds of these overpayments and received payments from U. K. taxing authorities. However, she argued that these payments were not “refunds” under I. R. C. § 905(c)(1)(C) because her entitlement to refunds was still under investigation by U. K. authorities and possibly affected by the U. S. /U. K. income tax treaty. Consequently, she did not notify the IRS of these payments as required by I. R. C. § 905(c)(1).

    Procedural History

    Following an audit, the IRS determined that Sotiropoulos had received U. K. tax refunds and disallowed corresponding foreign tax credits on her U. S. returns for 2003-2005. The IRS issued a notice of deficiency, which Sotiropoulos contested by timely petitioning the U. S. Tax Court. Approximately a year after filing his answer, the Commissioner moved to dismiss the case for lack of jurisdiction, asserting that I. R. C. § 905(c) authorized the IRS to redetermine her tax and collect it upon notice and demand, thus bypassing deficiency procedures.

    Issue(s)

    Whether the U. S. Tax Court has jurisdiction to determine if the payments received by Sotiropoulos from U. K. taxing authorities constitute “refunds” within the meaning of I. R. C. § 905(c)(1)(C), thereby affecting the applicability of deficiency procedures?

    Rule(s) of Law

    I. R. C. § 905(c)(1) requires a taxpayer to notify the Secretary if a foreign tax claimed as a credit is “refunded in whole or in part. ” The Secretary may then redetermine the U. S. tax for the affected year, and any additional tax due is collectible upon notice and demand per I. R. C. § 905(c)(3). I. R. C. § 6213(h)(2)(A) excludes foreign tax credit adjustments under § 905(c) from deficiency procedures.

    Holding

    The U. S. Tax Court has jurisdiction to determine whether the statutory provision alleged to divest it of jurisdiction applies, specifically whether the U. K. taxes paid by Sotiropoulos have been “refunded in whole or in part” within the meaning of I. R. C. § 905(c)(1)(C).

    Reasoning

    The court reasoned that its jurisdiction to determine its jurisdiction is inherent and necessary to resolve disputes over the application of I. R. C. § 905(c). The court emphasized that Sotiropoulos contested the characterization of the U. K. payments as “refunds,” which is a prerequisite for the application of § 905(c)(1)(C). The court cited precedent where similar disputes over foreign tax credit adjustments were adjudicated under deficiency procedures, underscoring the importance of providing taxpayers a prepayment forum to contest disputed taxes. The court distinguished the case from situations where taxes are uncontested or arise from obvious errors, where summary assessment is permitted. The court’s jurisdiction to determine the nature of the U. K. payments ensures that taxpayers have an opportunity to contest IRS determinations before assessment, aligning with the statutory scheme’s intent.

    Disposition

    The court denied the Commissioner’s motion to dismiss for lack of jurisdiction, affirming its authority to decide whether the U. K. payments constituted “refunds” under I. R. C. § 905(c)(1)(C).

    Significance/Impact

    This decision reinforces the U. S. Tax Court’s role as a prepayment forum for taxpayers contesting foreign tax credit adjustments. It clarifies that the court retains jurisdiction to determine the applicability of I. R. C. § 905(c) when the characterization of foreign tax payments is disputed. The ruling has practical implications for taxpayers and the IRS in handling foreign tax credit disputes, ensuring that taxpayers have a venue to challenge IRS determinations before tax assessments are made. The case also highlights the interplay between domestic tax laws and international tax treaties, affecting how foreign tax credits are administered and contested.

  • Eshel v. Commissioner, 144 T.C. 204 (2015): Application of Social Security Totalization Agreements and Foreign Tax Credits

    Eshel v. Commissioner, 144 T. C. 204 (2015) (Tax Court, 2015)

    In Eshel v. Commissioner, the U. S. Tax Court ruled that the French taxes CSG and CRDS are not creditable under U. S. tax law due to their coverage under the U. S. -France Social Security Totalization Agreement. The decision hinges on whether these taxes “amend or supplement” the French social security system, impacting U. S. citizens’ ability to claim foreign tax credits and highlighting the complexities of international tax treaties and social security coordination.

    Parties

    Ory and Linda Coryell Eshel, husband and wife, were the petitioners in this case, appealing against the Commissioner of Internal Revenue, the respondent. The Eshels, dual citizens of the United States and France, sought redetermination of tax deficiencies determined by the respondent for the tax years 2008 and 2009.

    Facts

    Ory and Linda Coryell Eshel, U. S. and French dual citizens, resided in France during 2008 and 2009. Ory Eshel worked for a non-American employer in France and paid various taxes to the French government, including the French income tax, unemployment tax, the general social contribution (CSG), and the contribution for the repayment of social debt (CRDS). During these years, the Eshels also paid French social security taxes and participated in the French social security system. They did not participate in the U. S. social security system because Ory Eshel’s employment was with a non-American entity. The Eshels claimed foreign tax credits on their U. S. federal income tax returns for the CSG and CRDS paid in 2008 and 2009. The Commissioner of Internal Revenue denied these credits, leading to a notice of deficiency, which the Eshels contested by timely petitioning the U. S. Tax Court.

    Procedural History

    The Eshels filed a petition with the U. S. Tax Court for redetermination of the deficiencies after receiving a notice from the Commissioner of Internal Revenue. Both parties filed cross-motions for summary judgment, with the sole issue being whether CSG and CRDS were creditable taxes for Federal income tax purposes. The Tax Court applied a de novo standard of review in interpreting the relevant statutes and the U. S. -France Totalization Agreement.

    Issue(s)

    Whether the French taxes CSG and CRDS “amend or supplement” the French social security laws specified in the U. S. -France Totalization Agreement, thus rendering them non-creditable under Section 317(b)(4) of the Social Security Amendments of 1977?

    Rule(s) of Law

    Under Section 901 of the Internal Revenue Code, U. S. citizens may claim a foreign tax credit for income taxes paid to a foreign country. However, Section 317(b)(4) of the Social Security Amendments of 1977 precludes credits for taxes paid to a foreign country if those taxes are paid “in accordance with” a social security totalization agreement. The U. S. -France Totalization Agreement applies to French social security laws and any legislation that “amends or supplements” those laws.

    Holding

    The Tax Court held that CSG and CRDS “amend or supplement” the French social security laws specified in the U. S. -France Totalization Agreement, and therefore, these taxes are not creditable under U. S. tax law pursuant to Section 317(b)(4) of the Social Security Amendments of 1977.

    Reasoning

    The court’s reasoning focused on the interpretation of the phrase “amend or supplement” within the Totalization Agreement. The court determined that CSG and CRDS are administered by French social security officials, collected in the same manner as other social security taxes, and are allocated to fund the French social security system. The court relied on the plain meaning of “amend” and “supplement,” finding that CSG formally alters the French Social Security Code by adding new provisions, while both CSG and CRDS add to the funding of the social security system, thereby supplementing it. The court also considered the European Court of Justice’s (ECJ) rulings, which characterized CSG and CRDS as social charges under EU law due to their direct link to the French social security system. The court rejected the Eshels’ arguments that the taxes must provide a distinct “period of coverage” to be covered by the Totalization Agreement, finding no such requirement in the statute or legislative history. Additionally, the court examined post-ratification understandings of both the U. S. and French governments, concluding that the U. S. government consistently regarded CSG and CRDS as covered by the Agreement, while the French government’s position was ambiguous and not determinative. The court ultimately found that the Totalization Agreement’s purpose of coordinating social security systems between the U. S. and France was served by treating CSG and CRDS as non-creditable taxes, ensuring parity between taxpayers working in the U. S. and those working abroad.

    Disposition

    The Tax Court granted the respondent’s motion for summary judgment and denied the petitioners’ motion, holding that CSG and CRDS are not creditable foreign taxes for Federal income tax purposes.

    Significance/Impact

    The Eshel decision clarifies the scope of the U. S. -France Totalization Agreement and the application of Section 317(b)(4) of the Social Security Amendments of 1977, impacting how U. S. taxpayers residing in France can claim foreign tax credits. The ruling underscores the importance of understanding the nuances of international tax treaties and social security agreements when claiming foreign tax credits. It also highlights the broader implications for U. S. citizens working abroad, particularly in countries with which the U. S. has totalization agreements, as it may limit their ability to mitigate double taxation through foreign tax credits. The decision has been cited in subsequent cases and is likely to influence future interpretations of similar agreements between the U. S. and other countries.

  • PPL Corp. & Subsidiaries v. Commissioner, 135 T.C. 304 (2010): Foreign Tax Credit for Excess Profits Tax

    PPL Corp. & Subsidiaries v. Commissioner, 135 T. C. 304 (2010)

    In a landmark decision, the U. S. Tax Court ruled that the U. K. ‘s windfall tax on privatized utilities was creditable as an excess profits tax under U. S. tax law. PPL Corporation, a U. S. energy company, sought a foreign tax credit for the windfall tax paid by its U. K. subsidiary. The court’s ruling hinged on the tax’s design and effect, which targeted the excess profits of privatized utilities, despite its formulaic structure based on company values. This decision has significant implications for multinational corporations claiming foreign tax credits and underscores the importance of substance over form in tax law.

    Parties

    PPL Corporation & Subsidiaries, a Pennsylvania corporation, was the petitioner. The Commissioner of Internal Revenue was the respondent. The case was initially filed in the U. S. Tax Court and involved the tax years of PPL Corporation and its subsidiaries.

    Facts

    PPL Corporation, known as PP&L Resources, Inc. during 1997, is a global energy company with operations in the U. S. and the U. K. Its indirect U. K. subsidiary, South Western Electricity plc (SWEB), was involved in electricity distribution and generation. The U. K. government had privatized several utilities, including SWEB, through public flotations at fixed prices, which resulted in significant profits for these companies during the initial post-privatization period. Public discontent over these profits led to the introduction of a windfall tax by the newly elected Labour Party in 1997. The tax targeted 32 privatized utilities, aiming to raise approximately £5. 2 billion to fund a welfare-to-work program. SWEB paid a windfall tax of £90,419,265, which PPL Corporation sought to claim as a foreign tax credit under U. S. tax law.

    Procedural History

    The Commissioner issued a notice of deficiency to PPL Corporation, denying the foreign tax credit for the windfall tax and asserting a deficiency of $10,196,874 in federal income tax for 1997. PPL Corporation filed a petition in the U. S. Tax Court challenging the deficiency. The court previously addressed a related issue in the case concerning depreciation deductions, leaving the windfall tax and dividend rescission issues for this decision. The standard of review applied was de novo, with the burden of proof resting on PPL Corporation.

    Issue(s)

    Whether the U. K. windfall tax, as applied to SWEB, constitutes a creditable income, war profits, or excess profits tax under section 901 of the Internal Revenue Code?

    Rule(s) of Law

    Section 901 of the Internal Revenue Code allows a foreign tax credit for income, war profits, and excess profits taxes paid to a foreign country. Treasury Regulation section 1. 901-2 defines an income tax as one that is likely to reach net gain in the normal circumstances in which it applies. This requires satisfaction of realization, gross receipts, and net income requirements. The predominant character standard, established by the 1983 regulations, focuses on whether the tax reaches net gain in the majority of circumstances.

    Holding

    The U. S. Tax Court held that the U. K. windfall tax paid by SWEB was a creditable excess profits tax under section 901 of the Internal Revenue Code. The court found that, despite its statutory formulation based on the difference between two values, the tax was designed to and did, in fact, reach the excess profits realized by the privatized utilities during the initial post-privatization period.

    Reasoning

    The court’s reasoning focused on the predominant character of the windfall tax, considering both its design and actual effect on the majority of the taxpayers subject to it. The court rejected the Commissioner’s argument that the text of the windfall tax statute alone determined its character, emphasizing that extrinsic evidence could be considered to determine whether the tax reached net gain. The court analyzed the historical development of the tax, its legislative intent, and its mathematical reformulation to demonstrate that it operated as a tax on excess profits for most of the affected companies. The court found that the windfall tax was justified as a means to recoup excessive profits earned by the utilities, which were considered excessive relative to their flotation values. The court also noted that none of the companies paid a windfall tax exceeding their total initial period profits, further supporting its conclusion that the tax was on excess profits. The court’s decision was influenced by prior cases such as Texasgulf Inc. v. Commissioner and Exxon Corp. v. Commissioner, which considered empirical evidence and the overall effect of the tax in determining creditability.

    Disposition

    The court ruled in favor of PPL Corporation, allowing the foreign tax credit for the windfall tax paid by SWEB. The decision was to be entered under Rule 155 of the Tax Court Rules of Practice and Procedure, which pertains to the computation of the tax deficiency or overpayment.

    Significance/Impact

    The decision in PPL Corp. & Subsidiaries v. Commissioner has significant implications for the application of foreign tax credits under U. S. tax law. It establishes that the substance of a foreign tax, rather than its statutory form, is critical in determining its creditability. The ruling emphasizes the importance of empirical evidence and the actual effect of a tax in assessing its predominant character. This case may influence future determinations of foreign tax credit eligibility, particularly for taxes that are structured in unconventional ways but effectively target net income or excess profits. The decision also highlights the complexities multinational corporations face in navigating international tax regimes and the importance of understanding the underlying economic effects of foreign taxes when claiming credits.

  • Sunoco, Inc. v. Comm’r, 118 T.C. 181 (2002): Foreign Tax Credit and Interest Expense Apportionment

    Sunoco, Inc. v. Comm’r, 118 T. C. 181 (U. S. Tax Ct. 2002)

    In Sunoco, Inc. v. Comm’r, the U. S. Tax Court ruled that the IRS regulations do not permit the netting of interest income against interest expense when calculating foreign tax credits. This decision, which overruled a prior court opinion, impacts multinational corporations by limiting the ability to offset interest costs against foreign income for tax credit purposes, potentially reducing available tax credits.

    Parties

    Sunoco, Inc. , and its subsidiaries (collectively, Sunoco) were the petitioners throughout the litigation. The Commissioner of Internal Revenue was the respondent at all stages.

    Facts

    Sunoco, Inc. , the parent company of an affiliated group of corporations, engaged in the acquisition, development, refining, marketing, and transportation of oil, gas, and other energy products both domestically and internationally. For the tax years 1982, 1983, 1984, and 1986, Sunoco claimed foreign tax credits under section 901(a) of the Internal Revenue Code. In computing these credits, Sunoco allocated and apportioned interest expenses among its subsidiaries to determine foreign-source income. Sunoco sought to change its method of computing the overall limitation on these credits by offsetting interest income against interest expenses before allocation, a practice known as ‘netting’. This netting approach was not reflected in the original tax filings for these years.

    Procedural History

    The case originated with the Commissioner of Internal Revenue determining deficiencies in Sunoco’s federal income taxes for the years 1979, 1981, and 1983, which Sunoco disputed. Sunoco filed a petition with the U. S. Tax Court challenging these deficiencies and seeking to have overpaid taxes refunded. The specific issue of interest netting was addressed by the court after both parties stipulated the relevant facts. The Tax Court’s decision was based on de novo review of the legal interpretation of the applicable regulations.

    Issue(s)

    Whether section 1. 861-8(e)(2) of the Income Tax Regulations permits Sunoco to offset its interest income against interest expenses before allocating and apportioning net interest expenses to foreign-source income for the purpose of computing the overall limitation on foreign tax credits under section 904(a) of the Internal Revenue Code?

    Rule(s) of Law

    The controlling legal principle is found in section 1. 861-8(e)(2) of the Income Tax Regulations, which states that the aggregate of deductions for interest shall be considered related to all income-producing activities and properties of the taxpayer and thus allocable to all the gross income the taxpayer generates. This regulation is based on the fungibility of money and the flexibility of management in using funds.

    Holding

    The U. S. Tax Court held that section 1. 861-8(e)(2) of the Income Tax Regulations does not permit Sunoco to offset its interest income against interest expenses before allocating and apportioning the net interest expenses to foreign-source income. The court overruled its prior decision in Bowater, Inc. & Subs. v. Commissioner which had allowed for such netting.

    Reasoning

    The court’s reasoning included the following points:

    – The plain language of the regulation requires that the ‘aggregate of deductions for interest’ be allocated to ‘all the gross income’ of the taxpayer, indicating that gross interest expense, not net interest expense, should be used for allocation purposes.

    – The court rejected Sunoco’s argument that the term ‘interest’ in the context of the regulation could be interpreted to mean net interest expense. The court found no ambiguity in the regulation’s language that would support such an interpretation.

    – The court considered that netting would subvert the operation of the source rules, which assign gross income to different sources based on specific standards. Netting would disregard the source of interest income, potentially leading to incongruous and erroneous results.

    – The court noted that allowing netting would require an adjustment to gross income, a step not contemplated by the regulations. The court also highlighted that netting would have a different impact on the foreign tax credit depending on the source of the interest income being offset.

    – The court took into account the subsequent reversal of its Bowater decision by the U. S. Court of Appeals for the Second Circuit and a similar ruling by the Fifth Circuit in Dresser Indus. , Inc. v. United States, which both found that interest netting was not permitted under the regulations.

    Disposition

    The U. S. Tax Court granted the Commissioner’s motion in limine, thereby rejecting Sunoco’s method of interest netting for the computation of foreign tax credits.

    Significance/Impact

    The decision in Sunoco, Inc. v. Comm’r is significant for multinational corporations as it clarifies that the IRS regulations do not permit the netting of interest income against interest expenses when computing foreign tax credits. This ruling overruled a prior Tax Court decision, aligning the Tax Court’s position with that of two Circuit Courts. The practical implication is that corporations may face a higher tax liability due to the inability to offset domestic interest income against foreign interest expenses. Subsequent legislative changes and temporary regulations have explicitly addressed interest netting, but for the years in question, this decision sets a precedent that has been followed in subsequent cases and IRS guidance.

  • Chrysler Corp. v. Commissioner of Internal Revenue, 116 T.C. 465 (2001): Timeliness of Foreign Tax Credit Election

    Chrysler Corp. v. Commissioner of Internal Revenue, 116 T. C. 465, 2001 U. S. Tax Ct. LEXIS 31 (U. S. Tax Court 2001)

    In a significant ruling on foreign tax credit elections, the U. S. Tax Court held that Chrysler Corporation’s attempt to convert foreign tax deductions into credits for tax years 1980, 1981, and 1982 was untimely under section 901(a) of the Internal Revenue Code. The decision hinges on the interpretation of the statute’s time limitation for making such elections, clarifying that the period begins from the due date of the return for the year the foreign taxes accrue. This ruling impacts how taxpayers must approach the timing of foreign tax credit elections and underscores the importance of adhering to statutory deadlines.

    Parties

    Chrysler Corporation, f. k. a. Chrysler Holding Corporation, as successor by merger to Chrysler Motors Corporation and its consolidated subsidiaries, was the petitioner. The Commissioner of Internal Revenue was the respondent.

    Facts

    Chrysler Corporation, an accrual basis taxpayer, timely filed its federal income tax returns for the years 1980 through 1985. For the tax years 1980 through 1982, Chrysler deducted foreign taxes that accrued during those years. In 1995, Chrysler amended its returns for those years to elect foreign tax credits in lieu of the deductions, and amended its 1985 return to claim a refund from a carryover of the foreign taxes to 1985. The Commissioner disallowed Chrysler’s claim, arguing that the change from deductions to credits was untimely under section 901(a) of the Internal Revenue Code.

    Procedural History

    Chrysler filed a petition with the U. S. Tax Court challenging the Commissioner’s determination of deficiencies in its federal income taxes for the years 1983, 1984, and 1985. The Commissioner moved for partial summary judgment, asserting that Chrysler’s election to credit foreign taxes for the years 1980, 1981, and 1982 was untimely. The Tax Court granted the Commissioner’s motion for partial summary judgment.

    Issue(s)

    Whether Chrysler’s election to credit foreign taxes for the tax years 1980, 1981, and 1982, made in 1995, was timely under section 901(a) of the Internal Revenue Code?

    Rule(s) of Law

    Section 901(a) of the Internal Revenue Code allows a taxpayer to elect to credit foreign income taxes in lieu of deducting them under section 164(a)(3). The election or change of election must be made before the expiration of the period prescribed for making a claim for credit or refund of the tax imposed by the chapter for such taxable year. Section 6511(d)(3)(A) provides a 10-year period of limitation from the date prescribed by law for filing the return for the year with respect to which the claim is made, specifically for foreign tax credits.

    Holding

    The U. S. Tax Court held that Chrysler’s election to credit foreign taxes for the tax years 1980, 1981, and 1982 was untimely under section 901(a) of the Internal Revenue Code. The court determined that the 10-year period for making or changing the election began on the due dates of the returns for the years 1980, 1981, and 1982, not from the date of the 1985 return where Chrysler sought to apply the carryover.

    Reasoning

    The court interpreted the phrase “for such taxable year” in section 901(a) to refer to the “any taxable year” specified at the beginning of the same sentence, meaning the year for which the election of the foreign tax credit is made. This interpretation aligns with the Commissioner’s regulations under section 1. 901-1(d), which state that the taxpayer may claim the benefits of section 901 for a particular taxable year within the period prescribed by section 6511(d)(3)(A). The court rejected Chrysler’s argument that the election period should be measured from the year of the refund claim (1985), finding instead that the election must be made within 10 years from the due date of the return for the year the foreign taxes accrued. The court distinguished the case of Allatt v. United States, noting that the issue of timeliness under section 901(a) was not addressed in that case. The court’s ruling emphasized the statutory language and the Commissioner’s regulations, underscoring the importance of timely elections under the Internal Revenue Code.

    Disposition

    The U. S. Tax Court granted the Commissioner’s motion for partial summary judgment, holding that Chrysler’s election to credit foreign taxes for the years 1980, 1981, and 1982 was untimely. An appropriate order was issued to reflect this decision.

    Significance/Impact

    This decision clarifies the time limitation for electing foreign tax credits under section 901(a) of the Internal Revenue Code, establishing that the election must be made within 10 years from the due date of the return for the year the foreign taxes accrue. The ruling impacts taxpayers’ ability to amend prior year returns to claim foreign tax credits and highlights the importance of timely elections. It also underscores the deference given to the Commissioner’s regulations in interpreting statutory provisions. Subsequent courts have followed this ruling, reinforcing its doctrinal importance in the area of foreign tax credit elections and the application of statutory time limits.

  • American Air Liquide, Inc. v. Commissioner, 116 T.C. 23 (2001): Classifying Royalty Income for Foreign Tax Credit Purposes

    American Air Liquide, Inc. v. Commissioner, 116 T. C. 23 (2001)

    Royalties received by a U. S. subsidiary from its foreign parent are classified as passive income for foreign tax credit purposes under section 904(d)(1)(A), unless explicitly excepted by statute or regulation.

    Summary

    American Air Liquide, Inc. (AAL) sought to classify royalties received from its French parent, L’Air Liquide, as general limitation income under section 904(d)(1)(I) for foreign tax credit purposes. The IRS recharacterized these royalties as passive income under section 904(d)(1)(A). The Tax Court held that the royalties were passive income, rejecting AAL’s arguments based on a reserved regulation, the U. S. -France Treaty, and Treasury statements. The decision underscores the importance of explicit statutory or regulatory exceptions for deviating from the general classification of royalties as passive income.

    Facts

    American Air Liquide, Inc. (AAL) is the parent of a consolidated group that includes Liquid Air Corp. (LAC). AAL’s ultimate parent is L’Air Liquide, S. A. , a French corporation. In 1986, AAL acquired LAC’s research facilities and rights to technical information. Under license agreements, AAL and LAC received royalties from L’Air for the use of this intellectual property outside the U. S. AAL treated these royalties as general limitation income under section 904(d)(1)(I) on its tax returns for the years 1989-1991. The IRS recharacterized the royalties as passive income under section 904(d)(1)(A), resulting in deficiencies.

    Procedural History

    AAL filed a petition in the U. S. Tax Court challenging the IRS’s recharacterization of the royalty income. Both parties filed cross-motions for summary judgment. The Tax Court recharacterized the motions as cross-motions for summary judgment under Rule 121 due to exhibits attached by AAL. The court ultimately granted summary judgment to the Commissioner and denied AAL’s motion.

    Issue(s)

    1. Whether royalties received by AAL from its foreign parent, L’Air Liquide, should be classified as passive income under section 904(d)(1)(A) or general limitation income under section 904(d)(1)(I) for the purpose of calculating AAL’s foreign tax credit?

    Holding

    1. Yes, because the royalties are classified as passive income under section 904(d)(1)(A) as they fit the statutory definition of foreign personal holding company income, and no explicit exception in the statute, regulations, or treaties applies to reclassify them as general limitation income.

    Court’s Reasoning

    The court applied the statutory rule under section 904(d)(1)(A), which classifies royalties as passive income. AAL’s arguments were rejected: the reserved paragraph in section 1. 904-5(i)(3) of the Income Tax Regulations did not provide an exception, as it merely reserved space for future regulations. The court cited Connecticut Gen. Life Ins. Co. v. Commissioner to support this view. The U. S. -France Treaty’s nondiscrimination provision did not apply, as AAL was treated the same as any other U. S. corporation receiving royalties from a non-controlled foreign corporation. Treasury statements and proposed regulations did not support AAL’s position, as they indicated no intent to retroactively change the classification of such royalties. The court emphasized that without clear statutory or regulatory language, the general rule classifying royalties as passive income must be followed.

    Practical Implications

    This decision reinforces the strict application of section 904(d)(1)(A) in classifying royalties as passive income for foreign tax credit purposes. Taxpayers cannot rely on reserved regulations or treaty nondiscrimination clauses to recharacterize income without explicit statutory or regulatory support. The ruling impacts U. S. subsidiaries of foreign parents by limiting their ability to claim foreign tax credits against general limitation income baskets. Practitioners should advise clients to carefully consider the source and classification of income when planning foreign tax credit strategies. Subsequent cases like Connecticut Gen. Life Ins. Co. v. Commissioner have similarly upheld the classification of royalties as passive income in the absence of clear exceptions.