[Code of Federal Regulations]
[Title 26, Volume 18]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR301.6316-3]

[Page 214]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 301_PROCEDURE AND ADMINISTRATION--Table of Contents
 
                               Collection
 
Sec. 301.6316-3  Allocation of tax attributable to foreign currency.

    (a) Adjusted gross income ratio. The portion of the tax which is 
attributable to amounts received in nonconvertible foreign currency 
shall, for purposes of applying Sec. 301.6316-1 to the currency of each 
foreign country, be the amount by which:
    (1) The amount which bears the same ratio to the entire tax for the 
taxable year as (i) the taxpayer's adjusted gross income received in 
that currency bears to (ii) the adjusted gross income determined under 
section 62 by taking into account the entire gross income and all 
deductions allowable under that section without distinction as to 
amounts received in foreign currency, exceeds
    (2) The total of the allowable credits against tax, and payments on 
account of tax, which are properly allocable to the amount of that 
currency included in gross income.
    (b) Example. (1) For the calendar year 1955 Mr. Jones and his wife 
filed a joint return on which the adjusted gross income is as follows, 
after amounts received in foreign currency had been properly translated 
into United States dollars for tax computation purposes:

Fulbright grant received by Mr. Jones in nonconvertible foreign   $8,000
 currency......................................................
Dividends received by Mr. Jones entitled to dividends-received       500
 credit........................................................
Compensation for personal services of Mrs. Jones...............    3,000
Net profit from business carried on by Mrs. Jones..............    2,500
                                                                --------
   Total adjusted gross income.................................   14,000


    (2) The following amounts are allowable as properly deductible from 
adjusted gross income, no determination being made as to whether or not 
any part of them is properly allocable to the Fulbright grant:

Deduction for personal exemptions..............................   $3,000
Charitable contributions.......................................      500
Interest expense...............................................      400
Taxes..........................................................      300
                                                                --------
   Total allowable deductions..................................    4,200


    (3) For the taxable year the following amounts are allowable as 
credits against the tax, or as payments on account of the tax:

Foreign tax credit for foreign taxes paid on Fulbright grant..   $300.00
Dividends-received credit.....................................     20.00
Credit for income tax withheld upon compensation of Mrs. Jones    304.80
Payments of estimated tax (see Sec.  301.6316-
 6(b)(2) for determination of amounts):
  U.S. dollars......................................   $426.32  ........
  Foreign currency..................................    893.88  1,320.20
                                                     -----------
   Total allowable credits and payments.......................  1,945.00


    (4) The portion of the tax which is attributable to amounts received 
in nonconvertible foreign currency is $33.49, determined as follows:

Adjusted gross income.......................................  $14,000.00
Less: Allowable deductions..................................    4,200.00
                                                 -------------
    Taxable income..........................................    9,800.00
                                                 =============
Tax computed under section 2................................    2,148.00
Ratio of adjusted gross income received in nonconvertible          57.14
 foreign currency to entire adjusted gross income ($8,000/
 $14,000) (percent).........................................
Portion of tax attributable to nonconvertible foreign          $1,227.37
 currency ($2,148x57.14 percent)............................
Less:
  Credit for foreign taxes paid on Fulbright         $300.00  ..........
   grant........................................
Payment in foreign currency of estimated tax....      893.88    1,193.88
                                                 -------------
    Portion of tax attributable to amounts received in             83.49
     nonconvertible foreign currency........................