## Facts

- Vulcan Materials Company and Subsidiaries (Vulcan), a domestic corporation, owned more than 10% of a Saudi corporation, Tradco‑Vulcan Co. Ltd. (TVCL).
- Saudi Arabia imposed (1) an income tax on the portion of a mixed corporation’s net profits attributable to non‑Saudi shareholders and (2) zakat on Saudi shareholders.
- TVCL and its shareholders kept shareholder-level accumulated-profit accounts that reflected differing tax burdens; the Saudi income tax reduced only the non‑Saudi shareholders’ accounts.
- For Vulcan’s 1984 taxable year, the IRS determined a \$133,679 U.S. federal income tax deficiency based on the computation of Vulcan’s deemed‑paid foreign tax credit under I.R.C. § 902(a).
- The parties agreed on the amount of Saudi income tax TVCL paid and the dividends Vulcan received; the dispute concerned the correct “accumulated profits” denominator in the § 902 fraction.
- Vulcan computed the denominator using only accumulated profits attributable to non‑Saudi shareholders, reduced by the full Saudi income tax, which increased the deemed‑paid credit.
- The Commissioner computed the denominator using TVCL’s total accumulated profits (including the Saudi shareholder’s share), reduced by foreign income taxes paid.

## Issues

1. For pre‑1986 I.R.C. § 902(a), does “accumulated profits” in the denominator of the deemed‑paid foreign tax credit fraction mean only the accumulated profits attributable to the shareholders subject to the foreign income tax, or the foreign corporation’s total accumulated profits?

## Decision

- The Tax Court held for the Commissioner.
- “Accumulated profits” in § 902(a) refers to the accumulated profits of the foreign corporation as an entity, not a shareholder-class subset.
- The denominator therefore included all of TVCL’s accumulated profits (Saudi and non‑Saudi), reduced by foreign income taxes paid.
- The court sustained the IRS deficiency determination for 1984.

## Legal Principles

- Under pre‑1986 I.R.C. § 902(a), the deemed‑paid foreign tax credit fraction uses the foreign corporation’s corporation-wide pool of accumulated profits, not profits segmented by shareholder nationality or tax treatment.
- Taxpayers may not increase a § 902 deemed‑paid credit by narrowing the denominator to only the profits of the shareholder group subject to a particular foreign tax while applying the full foreign income tax to that reduced base.
- Shareholder-level accounting allocations do not control the statutory meaning of “accumulated profits” when the statute and regulations operate on a corporate-level measure for the § 902 computation.

## Conclusion

The Tax Court construed “accumulated profits” in the pre‑1986 § 902 deemed‑paid credit formula as the foreign corporation’s total accumulated profits, rejecting a shareholder-specific denominator that would inflate the deemed‑paid foreign tax credit.


Vulcan Materials Co. & Subsidiaries v. Comm’r, 96 T.C. 410 (1991)