Memorandum Issued Confirming Two French Taxes Eligible for Foreign Tax Credit

Formalizing a change of view by the agency noted on its website in July,[1] the IRS has issued an LB&I, SB/SE directive on the ability of taxpayers who pay two French taxes to claim a foreign tax credit.[2]

The taxes imposed by France that the IRS now agrees are eligible for foreign tax credit treatment are:

  • Contribution sociale généralisée (CSG) and

  • Contribution pour le remboursement de la dette sociale (CRDS).

The memorandum explains the IRS prior position as follows:

For U.S. income tax purposes, taxes paid to a foreign country, even if they are otherwise eligible for a credit under I.R.C. § 901, are not creditable to the extent they are “paid… with respect to any period of employment… which is covered under the social security system of such foreign country in accordance with the terms of a [totalization agreement].” § 317(b)(4), P.L. No. 92-516 (the “1977 Social Security Act”). The Agreement on Social Security between the United States of America and the French Republic, signed March 2, 1987, (the “Totalization Agreement”) applies to the French laws listed in Article 2(1)(b) and, under Article 2(3), any legislation which “amends or supplements” those French laws.

The CSG and CRDS are French taxes imposed on income and, to the extent imposed on income from employment, they are withheld by the employer in a similar manner to other social levies and appear on the employee’s pay stub as a social contribution.

Historically, the IRS has denied foreign tax credits for CSG and CRDS imposed on employment income pursuant to § 317(b)(4) of the 1977 Social Security Act. While the CSG and CRDS are not listed in Article 2(1)(b) of the Totalization Agreement, the IRS’s position was that, under Article 2(3), the CSG and CRDS “amend[] or supplement[]” the laws in Article 2(1)(b) of the Totalization Agreement.[3]

While the Tax Court agreed with that position when the IRS was challenged on it in the case of Eschel v. Commissioner, 142 TC 197 (2014), that ruling was reversed on appeal by the Circuit Court of Appeals for the DC Circuit (831 F.3d 512 (D.C. Cir. 2016)).[4]

In May of this year, the State Department informed the IRS that the USA and France have a “shared understanding” that the CSG and CRDS do not amend or supplement the laws referenced under The Agreement on Social Security between the United States of America and the French Republic.  The IRS no longer takes the position that these taxes are not eligible for the foreign tax credit under IRC §901.

The “Recommendation” section of the memo provides:

Effective upon issuance of this Joint Directive, examiners will no longer challenge foreign tax credit claims, including claims for refund, for CSG and CRDS payments on the basis that the Totalization Agreement applies to these taxes nor will examiners assert that the CSG and CRDS are not creditable income taxes.[5]

[1] See Ed Zollars, “Refunds Going Back to 2009 May Be Available to Certain Taxpayers Who Paid French Taxes,” Current Federal Tax Developments website, July 21, 2019,, retrieved August 24, 2019

[2] LB&I-04-0819-007, August 2, 2019,, retrieved August 24, 2019

[3] Ibid

[4] Ibid

[5] Ibid