The Internal Revenue Service is taking steps to change the rules concerning deductible charitable donations in an effort to avoid reducing foreign tax credits, Dow Jones Newswires reported.

The new rules, including a 1991 proposal, are intended to keep taxpayers from failing to making deductible donations because they are worried about reducing their foreign source income—and, as a result—their foreign tax credit limitation.

"By adopting the straightforward approach of allocating contributions that are deductible for U.S. tax purposes to U.S.-source income, the regulations ensure that the incentives for charitable contributions work as intended," Greg Jenner, acting assistant Treasury secretary for tax policy, told Dow Jones.

The temporary rule is effective for charity after July 28, 2004 and the IRS will take comment on the proposed rule until Oct. 26, with a public hearing planned for Dec. 2, Dow Jones reported.

Both the temporary and proposed rules would allocate and apportion deductible donations solely to U.S.-source income for foreign tax credit purposes, Dow Jones reported.