CPA Seeks Guidance for Proposed FDII, GILTI Regs

PUBLIC SUBMISSION

Docket: IRS-2019-0012
Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income (REG-104464-18)

Comment On: IRS-2019-0012-0001
Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income

Document: IRS-2019-0012-0002
Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income (REG-104464-18)

Submitter Information

Name: Anonymous Anonymous

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General Comment

Dear Sir or Madam:

I appreciate the opportunity to respond to the proposed regulations for implementing section 250 regarding the FDII and GILTI deductions of the Internal Revenue Code.

I am a certified public accountant working in private industry for a company engaged in the business of manufacturing and selling a variety of products. I am responding particularly to proposed regulation 1.250(b)-6(c)(1)(i), which states that a foreign related party sale is a FDDEI sale if an unrelated party transaction, described in 1.250(b)-6(b)(5)(i) or (ii), occurs with respect to the property purchased in the related party sale on or before the FDII filing date, provided that the unrelated party is a transaction described in 1.250(b)-4(b). While I am aware that the regulation carries out the objective of section 250(c)(1)(I) and Statement of Managers to the Conference Report to Accompany H.R. 1, H.R. Rept. 115-466 (Dec. 15, 2017), p. 625, I am concerned with the impracticality of tracking each property in each related party sale in order to be compliant with 1.250(b)-6(c)(1)(i). Specifically, related party sales of property that are further transferred in transactions described in 1.250(b)-6(b)(5)(i) or (ii) may not be tracked on a property-by-property basis by a foreign related party.

For example, a sale of raw materials by a taxpayer to a foreign related party to be used as a component in the manufacture of a product, as described in 1.250(b)-6(b)(5)(ii), is often tracked not on the basis of individual raw materials, but rather on the basis of inventory cost flow accounting methods. In this case, the related party would not have data to share to the taxpayer regarding whether the property sold by the taxpayer to the related party has indeed been sold by the foreign related party, or even to whom the product was sold, for purposes of determining if the property containing the taxpayer's component property was sold in an unrelated party transaction described in 1.250(b)-6(b)(5)(ii).

It is impractical to track each property in a foreign related party sale if the property becomes part of the foreign related party's inventory. While I see the utility of tracking each property in a related party sale, as evidenced by the example provided in 1.250(b)-6(c)(4), the guidance provided in 1.250(b)-6(c)(1)(i) would essentially require foreign related parties engaged in transactions with a taxpayer in the purchase of inventory to track its inventory and cost of goods on an individual basis in order to calculate the taxpayer's FDDEI, defeating the purpose of using inventory cost flow methods.

Therefore, I recommend that the final regulations provide additional guidance on the tracking of property in related party sales for the purpose of identifying whether the property has been sold in an unrelated party transaction described in 1.250(b)-6(b)(5). Additionally, I recommend that the Treasury Department and IRS provide examples in 1.250(b)-6(c)(4) of the tracking of property in related party sales constituting inventory to a foreign related party in future unrelated party transactions by the foreign related party.