A U.S. taxpayer that is subject to income tax in both the U.S. and a foreign country can reduce the amount of tax payable to the U.S. by claiming a credit for foreign income taxes paid or accrued to one or more foreign countries. The principle is simple: taxpayers should not pay tax twice with regard to the same item of income. The application of the principle is not so easy, requiring a taxpayer to overcome several hurdles, including a determination of the source of income and whether the tax is a creditable income tax. Faced with Pillar 1 of B.E.P.S. and digital services taxes, both of which look to the location of customers when determining the source of income – and the primary right to impose tax – the I.R.S. adopted a new set of foreign tax credit regulations. They warn U.S. taxpayers that until U.S. tax law is changed, foreign income taxes imposed on the basis of customer location will not be allowed as a credit against U.S. tax when nexus does not exist between the foreign country imposing tax and the place where the income generating activity takes place. Wooyoung Lee explains the new “nexus” requirement for a tax to be considered an income tax under U.S. concepts and provides a real-life illustration of how the tax result may have changed.