NYSBA Members Concerned With Complexity of Rules Under GILTI Regs

NYSBA Members Concerned With Complexity of Rules Under GILTI Regs

New York State Bar Association Tax Section

Karen Sowell of the New York State Bar Association Tax Section has submitted a report on proposed regulations (<a href="/lr/resolve//28f7p">REG-104390-18</a>) on global intangible low-taxed income, supplementing a <a href="/lr/resolve//2810m">prior report</a> to reiterate some suggestions that weren’t adopted in the regs and raising concerns about the complexity created by various basis adjustment rules. The tax section has commented on numerous non-basis issues under the regs, seeking changes and clarifications regarding the amounts that must be included in the gross income of U.S. shareholders, including changes that narrow the language of an anti-avoidance rule. Addressing the general provisions of the regs, section members seek changes to take account of qualified business asset investment (QBAI), interest income, and interest expense in controlled foreign corporations with tested losses. Other comments and suggested changes address tested income and loss, QBAI property, and partnerships. As a policy matter, the tax section suggests a pure aggregate approach for applying the GILTI rules to domestic partnerships. If that approach is adopted, section members say that generous grandfathering provisions should apply for existing foreign corporations that are treated as CFCs under the current rules. Addressing basis issues under the proposed regs, the tax section suggests changes and clarifications regarding the CFC basis reduction rule, basis reduction for CFC stock held in a group, and upper tier basis adjustments. The tax section also addresses basis issues in intra-group reorganizations and suggests that all shares of a single class held by a single U.S. shareholder should be aggregated, with an anti-abuse rule for transactions in shares undertaken with a principal purpose of tax avoidance. The tax section asserts that the rules for basis adjustments under the regs are complicated, admitting that some of its suggestions to make the rules more workable and grant taxpayer relief will further complicate those rules. Section members express concern about the complexity of the rules in the context of partnerships and corporate nonconsolidated and consolidated returns. Acknowledging Treasury’s desire to prevent what may be viewed as loss duplication, the tax section presents several arguments for the adoption or authorization of basis adjustment rules by Congress rather than by Treasury. If basis regulations are adopted, section members suggest two approaches they say are simpler than the approach in the proposed regs and generally achieve the goal of preventing loss duplication.

For the entire report, including an appendix, see the <a href="//s3.amazonaws.com/pdfs.taxnotes.com/2018/2018-46260_TNTIRSdocs_NYSBATS-Report-on-Proposed-GILTI-Regs.pdf">PDF version</a> of the document.

Karen Sowell of the New York State Bar Association Tax Section has submitted a report on proposed regulations (REG-104390-18) on global intangible low-taxed income, supplementing a prior report to reiterate some suggestions that weren’t adopted in the regs and raising concerns about the complexity created by various basis adjustment rules.

Karen Sowell of the New York State Bar Association Tax Section has submitted a report on proposed regulations (REG-104390-18) on global intangible low-taxed income, supplementing a prior report to reiterate some suggestions that weren’t adopted in the regs and raising concerns about the complexity created by various basis adjustment rules. The tax section has commented on numerous non-basis issues under the regs, seeking changes and clarifications regarding the amounts that must be included in the gross income of U.S. shareholders, including changes that narrow the language of an anti-avoidance rule. Addressing the general provisions of the regs, section members seek changes to take account of qualified business asset investment (QBAI), interest income, and interest expense in controlled foreign corporations with tested losses. Other comments and suggested changes address tested income and loss, QBAI property, and partnerships. As a policy matter, the tax section suggests a pure aggregate approach for applying the GILTI rules to domestic partnerships. If that approach is adopted, section members say that generous grandfathering provisions should apply for existing foreign corporations that are treated as CFCs under the current rules. Addressing basis issues under the proposed regs, the tax section suggests changes and clarifications regarding the CFC basis reduction rule, basis reduction for CFC stock held in a group, and upper tier basis adjustments. The tax section also addresses basis issues in intra-group reorganizations and suggests that all shares of a single class held by a single U.S. shareholder should be aggregated, with an anti-abuse rule for transactions in shares undertaken with a principal purpose of tax avoidance. The tax section asserts that the rules for basis adjustments under the regs are complicated, admitting that some of its suggestions to make the rules more workable and grant taxpayer relief will further complicate those rules. Section members express concern about the complexity of the rules in the context of partnerships and corporate nonconsolidated and consolidated returns. Acknowledging Treasury’s desire to prevent what may be viewed as loss duplication, the tax section presents several arguments for the adoption or authorization of basis adjustment rules by Congress rather than by Treasury. If basis regulations are adopted, section members suggest two approaches they say are simpler than the approach in the proposed regs and generally achieve the goal of preventing loss duplication.

Sec. 951A Global intangible low-taxed income included in gross income of United States shareholders

Sec. 951 Amounts included in gross income of United States shareholders

Sec. 1502 Regulations

Sec. 6038 Information reporting with respect to certain foreign corporations and partnerships

United States

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NYSBA Members Concerned With Complexity of Rules Under GILTI Regs