Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts
IRS has issued the final versions of Form 8991, Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts, and the instructions for that form.
Background. Under Code Sec. 59A, with respect to base erosion payments (as defined below) paid or accrued in tax years that begin after Dec. 31, 2017, “applicable taxpayers” are required to pay a tax, the “base erosion anti-abuse tax” (BEAT), equal to the “base erosion minimum tax amount” for the tax year. (Code Sec. 59A(a))
Applicable taxpayers are corporations (other than RICs, REITs, and S corporations) with average annual gross receipts of at least $500 million for the three-tax-year period ending with the preceding year and a “base erosion percentage” of at least 3% (2% for certain banks and securities dealers). (Code Sec. 59A(e)) The “base erosion percentage” for any tax year is equal to the aggregate amount of base erosion tax benefits of the taxpayer for the tax year divided by the aggregate amount of specified deductions allowable to the taxpayer for the tax year. (Code Sec. 59A(c)(4))
For purposes of determining a taxpayer’s gross receipts and base erosion percentage, pursuant to Code Sec. 59A(e)(3), all persons treated as a single employer under Code Sec. 52(a) are treated as a single taxpayer. In applying Code Sec. 1563 for purposes of Code Sec. 52, the exception for foreign corporations under Code Sec. 1563(b)(2)(C) is disregarded. (Code Sec. 59A(e)(3))
The base erosion minimum tax amount equals the excess of: a) a statutory percentage of the taxpayer’s modified taxable income over b) the taxpayer’s regular tax liability reduced by certain excess credits. The percentage is 5% for tax years beginning in calendar year 2018; 10% for tax years beginning in 2019 through 2025; and 12.5% for tax years beginning after December 31, 2025. The applicable rates are one percent higher for a group that includes a bank or securities dealer. (Code Sec. 59A(b))
Modified taxable income means the taxable income of the taxpayer computed under Chapter 1 for the tax year, determined without regard to: a) any base erosion tax benefit with respect to any base erosion payment, and b) the base erosion percentage of any net operating loss deduction allowed under Code Sec. 172 for the tax year. (Code Sec. 59A(c)(1))
Generally, a base erosion tax benefit is any deduction that is allowed under Chapter 1 for the tax year for any base erosion payment. Base erosion tax benefits also include any deductions allowed for the tax year for depreciation or amortization with respect to the property acquired with payments described in Code Sec. 59A(d)(2). (Code Sec. 59A(c)(2))
A base erosion payment generally means any amount paid or accrued by an applicable taxpayer to a foreign person that is a related party of the taxpayer and with respect to which a deduction is allowable, including any amount paid or accrued by the taxpayer to the related party in connection with the acquisition by the taxpayer from the related party of property of a character subject to the allowance of depreciation (or amortization in lieu of depreciation). (Code Sec. 59A(d))
Final Form 8991. Form is a five-page form that consists of four parts and two schedules. Its purpose is to determine an applicable taxpayer’s base erosion minimum tax amount for the year.
…General instructions. IRS instructs taxpayers to complete every applicable entry space on Form 8991. They should not enter “See Attached” or “Available Upon Request” instead of completing the entry spaces. If more space is needed on the forms or schedules, taxpayers should attach separate sheets using the same size and format as the printed forms.
If there are supporting statements and attachments, the taxpayer should arrange them in the same order as the schedules or forms they support and attach them last. They should show the totals on the printed forms and enter the filer’s name and EIN on each supporting statement or attachment.
Form 8991 should be attached to the taxpayer’s income tax return.
…Who must file. Any corporation, other than a regulated investment company, a real estate investment trust, or an S corporation, that has gross receipts of at least $500 million in 1 or more of the 3 preceding tax years ending with the preceding tax year, must file Form 8991.
…Part I and Schedule A. Part I of the form, which is entitled Applicable Taxpayer, asks the taxpayer to report its gross receipts and calculate its base erosion percentage to determine whether the taxpayer is an applicable taxpayer such that Code Sec. 59A applies.
The very top line of Part I contains two not-numbered lines that account for the aggregation rule of Code Sec. 59A(e)(3) that is described above. Those lines require a taxpayer that is completing the form to include an attachment that identifies by name and employer identification number all other separate taxpayers that, together with the taxpayer filing the form, are treated as one person.
Observation: Prop Reg §1.59A-2(f)(2) contains an example of applying the gross receipts test and base erosion percentage tests when aggregate group members have different tax years.
Thereafter, a seven-part Line 1 presents the gross receipts test. If the $500 million threshold is not met, the taxpayer may bypass the remainder of the form. In that case, the form with Part 1, Line 1 completed must be attached to the taxpayer’s tax return indicating that Code Sec. 59A does not apply.
Line 2 is used for calculating the base erosion percentage. Lines 2a-j account for deductions incurred by the taxpayer. The taxpayer must complete Schedule A, Base Erosion Payments and Base Erosion Tax Benefits, in order to complete Line 2a. Schedule A identifies the potential base erosion payments and base erosion tax benefits. Taxpayers meeting the $500 million threshold but not meeting the base erosion percentage threshold must attach a detailed accounting of inputs on Schedule A (as well as completing Part I), but need not complete the rest of the form.
Parts II-IV and Schedule B. Parts II (Modified Taxable Income), III (Regular Tax Liability Adjusted for Purposes of Computing Base Erosion Minimum Tax Amount) and IV (Computation of Base Erosion Minimum Tax Amount) are used to compute the tax but are to be completed only if both of the Part I tests are met.
Part III takes into account the regular tax liability, as adjusted for allowable tax credits under the BEAT regime. Schedule B is used to compute adjustments to allowable credits.
Line 5e of Part IV is the base erosion minimum tax amount. An applicable taxpayer filing Form 1120 enters this amount on Schedule J, line 3. An applicable taxpayer filing Form 1120-F enters this amount on Section II, Schedule J, line 3. An applicable taxpayer filing Form 1120-L enters this amount on Schedule K, line 3. And an applicable taxpayer filing Form 1120-PC enters this amount on page 1, line 6.
References: For the base erosion and anti-abuse tax, see FTC 2d/FIN ¶ D-1250 et seq, United States Tax Reporter ¶ 59A4.