IRS has issued a new form, Form 8992, for doing the calculations with respect to Code Sec. 951A, which was enacted by the Tax Cuts and Jobs Act (TCJA, P.L. 115-97, 12/22/2017). Code Sec. 951A requires U.S. shareholders of controlled foreign corporations (CFCs) to include in gross income the shareholder’s global intangible low-taxed income (GILTI).
Background. The TCJA established a “participation exemption system” under which certain earnings of a foreign corporation can be repatriated to a corporate U.S. shareholder without U.S. tax. (Code Sec. 245A) The TCJA also added Code Sec. 951A—effectively, a base protection measure that subjects GILTI earned by a CFC to U.S. tax on a current basis, similar to the treatment of a CFC’s subpart F income under Code Sec. 951(a)(1)(A).
Specifically, under Code Sec. 951A(a), a U.S. shareholder of any CFC for a tax year must include in gross income its GILTI for that year.
The determination of a U.S. shareholder’s GILTI inclusion amount begins with the calculation of certain items of each CFC owned by the shareholder, such as tested income, tested loss, and qualified business asset investment (QBAI). Under Code Sec. 951A(e)(1), the U.S. shareholder then determines its pro rata share of each of these CFC-level items in a manner similar to a shareholder’s pro rata share of subpart F income under Code Sec. 951(a)(2), except that the U.S. shareholder’s pro rata shares of these items are not amounts included in gross income, but rather amounts taken into account by the shareholder in determining the GILTI included in the shareholder’s gross income.
The U.S. shareholder aggregates (and then nets or multiplies) its pro rata share of each of these items into a single shareholder-level amount. The ultimate GILTI inclusion amount is the excess (if any) of: (A) the shareholder’s net CFC tested income for the tax year, over (B) the shareholder’s net deemed tangible income return (net DTIR) for the tax year. (Code Sec. 951A(b))
A U.S. shareholder does not compute a separate GILTI inclusion amount with respect to each CFC for a tax year, but rather computes a single GILTI inclusion amount by reference to all its CFCs. (Code Sec. 951A(f)(2)) Because a U.S. shareholder’s GILTI inclusion amount is determined based on the relevant items of all the CFCs of which it is a U.S. shareholder, the effect of the provision is generally to ensure that a U.S. shareholder is taxed on its GILTI wherever (and through whichever CFC) derived.
For tax years that begin after Dec. 31, 2017 and before Jan. 1, 2026, in the case of a C corporation that is not a RIC or REIT, a deduction is allowed in an amount that is generally equal to 50% of the GILTI amount (if any) which is included in the gross income of the domestic corporation under Code Sec. 951A for the tax year. (Code Sec. 250(a)(1)(B)) That percentage decreases for later years. (Code Sec. 250(a)(3))
New Form 8992. The new form consists of Part I, Part II and Schedule A.
U.S. shareholders complete Schedule A first. Schedule A reports the U.S. shareholder’s pro rata share of amounts for each CFC from each CFC’s Form 5471, Schedule I-1, Information for Global Intangible Low-Taxed Income. This information is used to determine the U.S. shareholder’s GILTI, if any, and to determine the amount of the U.S. shareholder’s GILTI, if any, allocated to each CFC.
Note that a U.S. shareholder may not file a Form 5471, Schedule I-1 for each CFC that is part of its GILTI computation, for instance due to an exception for multiple filers of the same information. In such case, the U.S. shareholder will still need to provide amounts with respect to the CFC as if the U.S. shareholder filed Form 5471, Schedule I-1 for that CFC.
After entering the amounts from all of the relevant CFCs onto Schedule A, U.S. shareholders do the following steps:
…Calculate the Schedule A amounts that don’t come directly from Forms 5471, e.g., pro rata share of QBAI multiplied by 10% (column g); Specified Interest Expense (column i), and GILTI Allocation Ratio (column j).
…Sum up all the Schedule A amounts, and enter them on Schedule A, Line 1 (Totals).
…Enter the following amounts from Line 1 of Schedule A onto Part I: Pro Rata Share of Tested Income (column e); Pro Rata Share of Tested Loss (column f).
… Determine in Part I whether the U.S. shareholder has net CFC Tested Income or, instead, net CFC Tested Loss.
…If there is net income, complete Part II. If there is net loss, do not complete Part II.
…Complete Part II by determining the GILTI inclusion amount as follows: determining net DTIR by subtracting the Specified Interest Expense (Schedule A, column i) from the pro rata share of QBAI multiplied by 10% (Schedule A, column g), and then subtracting that net amount from the net CFC Tested Income (Part I, Line 3).
…Enter the GILTI inclusion amount (Part II, Line 3) in the following places: For a corporate shareholder, enter this amount on Form 1120, Schedule C, line 17, or on the comparable line of other corporate returns. For a noncorporate shareholder, enter the amount on Schedule 1 (Form 1040), line 21 (Other Income), or on the comparable line of other noncorporate tax returns. Also use the amount in the calculation of Schedule A, column k, GILTI Allocated to Tested Income CFCs.
…Use the now-calculated Schedule A, column k amount to complete Form 5471 Schedule J, Accumulated Earnings and Profits (E&P) of Controlled Foreign Corporation, and in Form 5471, Schedule P, Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations, for each CFC.
Code Section 250 deduction. The Code Sec. 250 deduction described under “Background,” above, is not computed on Form 8992. Instead it is computed on new Form 8993, Section 250 Deduction for Foreign-Drive Intangible Income and Global Intangible Low-Taxed Income.