FOREIGN ELECTRICITY SALES do not have to be reported to the IRS as potential corporate tax shelters.

US tax rules require US companies to report any transactions to the IRS that generate at least $250,000 in foreign tax credits where the taxpayer holds the underlying assets “giving rise to” the credits for 45 days or
less. The major accounting firms were advising US power companies with foreign power plants to make “protective filings” to report their electricity sales after IRS officials suggested that such sales were covered by tax shelter reporting rules. The thought was that the sales generate income on which taxes must be paid abroad, these taxes are then creditable in the US, and the electricity “giving rise to” the tax credits is not held for more than 45 days. All US manufacturers and retailers had potentially the same problem.

The IRS issued an announcement in mid-November to make clear that sales of inventory in the “ordinary  course of the taxpayer’s trade or business” do not have to be reported. The announcement is Revenue Procedure 2004-68.