Company Urges Treasury to Finalize GILTI Regs by Year-End

July 12, 2019

CC:PA:LPD:PR (REG-101828-19)
Room 5203
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC

RE: Proposed Regulations Issued 6/21/2019 — Guidance Under Section 958 (rules for Determining Stock Ownership) and Section 951A (Global Intangible Low-Taxed Income)

To Whom It May Concern:

As noted in the supplementary information promulgated regarding GILTI high tax exception, Section 951 A©(2)(A)(i) provides that gross tested income of a CFC for a taxable year is all gross income of the CFC for the year, determined without regard to certain items. In particular, section 951A(c)(2)(A)(i)(III) excludes from gross tested income any gross income excluded from foreign base company income, as defined in section 954 or insurance income defined in section 953 of a CFC by reason of the exception under 954(b)(4) aka the “GILTI high tax exclusion”. The proposed change would expand the high tax exception to encompass income subject to a foreign tax rate above 18.9%.

I represent A.W. Chesterton Company, an S-Corporation, and its shareholders. We are obviously a closely held corporation and our shareholders hold interest in CFCs both directly and through the S-Corp. The imposition of both GILTI and the one-time toll tax that resulted from Tax Cuts and Jobs Act enactment has caused a highly negative impact on the cash position of our company as well as considerable uncertainty relating to the filing and tax payments on the shareholder's individual returns. We enthusiastically endorse the expansion of the rules relating to the GILTI high tax exception.

There remains considerable uncertainty relating to the finalization of the proposed regulation. Per the verbiage in the proposed regulation the expanded high tax exception applies to taxable years of foreign corporations beginning on or after the date of publication of the Treasury decision adopting these rules as final regulations in the Federal Register, and to the taxable years of United States shareholders in which or with such taxable years of foreign corporations end. Not knowing when the rules will be final is truly a burden on the taxpayer. The impact of this is that our shareholders, who were awaiting guidance on expansion of the exception, is that their 2018 individual returns remained on extension and trying to make reasonably accurate estimated tax payments for 2019 becomes impossible. We strongly encourage the Treasury to finalize the regulations before the end of 2019 so that the ability to use the expanded high tax exception can materialize and not be delayed until 2020. It is a matter of fairness and good governance.

I truly appreciate the opportunity to comment on this issue. It is vital to our shareholders that resolution of this issue occur in a timely fashion. Making prudent business decisions becomes very difficult when uncertainty around tax and the accompanying cash issues remain.

If there are any questions relating to the positions stated above, please feel free to contact me at (781) 481-2232 or via e-mail at Leo.Maguire@Chesterton.com.

Sincerely,

Leo D. Maguire
Vice President Tax, Treasury & Risk
Chesterton Company
Office: 781-481-2243
E-mail: Leo.Maguire@Chesterton.com