New Regulations for Global Intangible Low-Taxed Income

Learn about the new final and proposed regulations that will affect U.S. shareholders eligible for global intangible low-taxed income.

A key component of the Tax Cuts and Jobs Act of 2017 (TCJA) was the implementation of global intangible low-taxed income foreign tax credits (GILTI) for controlled foreign corporations. GILTI taxes U.S. shareholders currently on income earned through their controlled foreign corporations (CFC) even though their profits are not repatriated.

Affect of Global Intangible Low-Taxed Income (GILTI)

According to the recently issued final GILTI regulations, partners are treated as they would be for any foreign partnership. Consequently, any partner who indirectly owns less than 10% of a CFC (by voting or value) will not have a GILTI inclusion. The final GILTI regulations are retroactive for any CFC tax year after December 31, 2017.

Application of the Regulations

This created a problem, however, because treating income at the partnership level is inconsistent with the treatment of Subpart F Income, which traditionally has been determined at the partnership level. The Internal Revenue Service issued proposed regulations to resolve this. The proposed regulations extend the aggregate treatment of domestic partnerships to Subpart F and Section 956 inclusions — which is a fundamental change to the treatment of Subpart F income. These proposed regulations are effective for tax years beginning after December 31, 2017.

The proposed regulations also address the high-tax exclusion from GILTI by allowing CFCs to elect to exclude certain income that is subject to a foreign effective tax rate of at least 18.9% if that income is also excluded under Subpart F. (CFCs that don’t have Subpart F income still may be subject to GILTI.) This exclusion will become effective once the proposed regulations are final and effective.

Opportunities and Challenges

Global Intangible Low-Taxed Income

Photo by Ben Rosett on Unsplash

These new rules pose potential opportunities and challenges for taxpayers:

  • Partners who don’t meet the 10% threshold are not considered a U.S. shareholder for purposes of these rules. These partners, however, still may be subject to the passive foreign investment company rules.
  • If the high-tax exclusion is elected, it applies to all CFCs owned by the controlling U.S. shareholder group.
  • Once the high-tax exclusion is elected, it applies to subsequent tax years unless it is revoked. If revoked, the election would not be available to that CFC for 60 months. Any subsequent elections cannot be revoked for 60 months.
  • U.S. companies that have a high-taxed CFC and a low-taxed CFC may face unfavorable consequences if they elect the high-taxed exclusion.
  • Coordinating the GILTI rules with the Subpart F rules may have tax consequences for CFCs with de minimis income as defined by Subpart F. Under the new regulations, Subpart F income is taxed solely under the Subpart F rules, whereas de minimis Subpart F incomes falls solely under the GILTI rules.

Companies will need to consider carefully how all these issues affect them. For help evaluating these considerations, contact us today.

©2019

Featured image by Sean Pollock on Unsplash.

IRS Publishes Final and Proposed Regs on 100% Depreciation

Learn the latest about depreciation, the TCJA (passed two years ago), and how it’s affected by the latest regulatory changes by the IRS.

The IRS has issued final regulations in September to finalize the proposed regulations issued in August 2018, which implement several provisions included in the Tax Cuts and Jobs Act (TCJA). The proposed regulations contain new provisions not addressed previously.

Depreciation According to the IRS

  • The 100% additional first year depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Machinery, equipment, computers, appliances and furniture generally qualify.
  • The deduction applies to qualifying property acquired and placed in service after September 27, 2017. The final regulations provide clarifying guidance on the requirements that must be met for property to qualify for the deduction, including used property. The final regulations also provide rules for qualified film, television and live theatrical productions.
  • In the proposed regulations, the Treasury Department and IRS propose rules regarding (i) certain property not eligible for the additional first year depreciation deduction, (ii) a de minimis use rule for determining whether a taxpayer previously used property; (iii) components acquired after Sept. 27, 2017, of larger property for which construction began before Sept. 28, 2017; and (iv) other aspects not dealt with in the previous August 2018 proposed regulations.
  • The proposed regulations also withdraw and repropose rules regarding application of the used property acquisition requirements (i) to consolidated groups, and (ii) to a series of related transactions.

Learn More About the IRS and Depreciation

More information is available on the IRS site. To see how these regulations may affect you, contact a qualified professional.

©2019

Backup Withholding: Know the Story

Backup withholding may seem like a small thing, but it can become a pain. Read more to learn about how to prevent it from happening to you.

When you open a new account, make an investment or begin to receive payments reportable on Form 1099, you must provide your taxpayer identification number (often your Social Security number). For certain types of payments, you need to provide your taxpayer identification number in writing, certifying under penalties of perjury that it's correct.

Continue reading "Backup Withholding: Know the Story"

Cryptotrader saves $471,000 on Taxes

How a Crypto Client  Saved $471,000!

It is a very common story I hear. An individual has huge gains trading crypto-to-crypto in 2017. In Spring 2018, he asks his accountant if he has to report the trading on his return. The accountant is clueless. The investor knows his return is not being done right.

Continue reading "Cryptotrader saves $471,000 on Taxes"

Can I Deduct a Lost Crypto Wallet?

I just talked to a client who had keep over $50,000 in Bitcoins safe on a private wallet. The private wallet is locked with special password. He thought he remembered the password.

He typed in it three times. Each time, he was told it was wrong. Then it permanently locked up never to be opened again. His Bitcoins are now in a cyber wasteland never to be used again. A tragic story, but not uncommon.

Can the loss be taken on the tax return?

Continue reading "Can I Deduct a Lost Crypto Wallet?"

GAO agrees FBAR and Form 8938 are too burdensome for expats.

The Government Accounting Office released a study to Congress acknowledgding that the FBAR and Form 8938 reporting requirements are confusing and burdensome for Americans living abroad.

A 2010 law requires Americans and foreign banks to report more information to IRS about Americans' foreign assets. Implementing the law, however, has raised some concerns.

Continue reading "GAO agrees FBAR and Form 8938 are too burdensome for expats."

Avoiding the IRS crackdown

All American crypto traders should know that the IRS is gearing up for large compliance campaign (read crackdown) on crypto traders.[1]

The IRS commission said in November 2018, "You think the IRS doesn't know [who the cryptotraders are]? The IRS will have more information about them than you can possibly imagine."[2]

Clinton Donnelly has written a book to show traders how to protect themselves. He is an Enrolled Agent with a law degree experienced in defending taxpayers from the IRS at examinations, audits, and appeals.

Continue reading "Avoiding the IRS crackdown"