ABA Tax Section Submits Comments on Final GILTI Regs

ABA Tax Section Submits Comments on Final GILTI Regs

American Bar Association Section of Taxation

The American Bar Association Section of Taxation has submitted comments on final regulations (<a href="/lr/resolve//29m9x">T.D. 9866</a>) that provide guidance under <a href="/research/federal/usc26/951A" resolve="/lr/resolve//1xfwv">section 951A</a> on determining the amount of global intangible low-taxed income included in the gross income of some U.S. shareholders of foreign corporations, including U.S. shareholders that are members of a consolidated group. The preamble to the final regs states that for purposes of determining the level (partnership or partner) at which a GILTI inclusion amount is calculated and taken into gross income by partners that are not U.S. shareholders, <a href="/research/federal/usc26/1373#cqdm-0000002" resolve="/lr/resolve//cqdm#cqdm-0000002">section 1373(a)</a> provides that an S corporation is treated as a partnership and its shareholders as partners. However, unlike the proposed regs, the final regs do not include any examples involving S corporations, and the preamble requests comments on exactly how <a href="/research/federal/usc26/1373#cqdm-0000002" resolve="/lr/resolve//cqdm#cqdm-0000002">section 1373(a)</a> should be applied. The tax section offers two alternatives. The first takes a literal approach to <a href="/research/federal/usc26/1373#cqdm-0000002" resolve="/lr/resolve//cqdm#cqdm-0000002">section 1373(a)</a>, treating an S corporation as merely a conduit for its shareholders, and attempts to reconcile the aggregate approach with general subchapter K provisions. The <a href="/research/federal/usc26/1373#cqdm-0000002" resolve="/lr/resolve//cqdm#cqdm-0000002">section 1373(a)</a> “partnership” would exist as an aggregate of the S corporation owners, whether or not those owners met the definition of a U.S. shareholder, not only regarding the <a href="/research/federal/usc26/951A" resolve="/lr/resolve//1xfwv">section 951A</a> GILTI inclusion, but also regarding any subsequent controlled foreign corporation dividend that was tied to that income. Section members say this approach would have the advantage of being clear and consistent with <a href="/research/federal/usc26/1373#cqdm-0000002" resolve="/lr/resolve//cqdm#cqdm-0000002">section 1373(a)</a>, but would not necessarily be easy to administer. The second alternative takes a more limited approach and attempts to reconcile the aggregate approach with general subchapter S provisions, considering the underlying principles relating to both GILTI and S corporation income. The <a href="/research/federal/usc26/1373#cqdm-0000002" resolve="/lr/resolve//cqdm#cqdm-0000002">section 1373(a)</a> “partnership” would exist as an aggregate of the S corporation owners for purposes of determining whether those owners were U.S. shareholders and for determining the GILTI inclusion amount taken into gross income. However, unlike under the first alternative, the usual S corporation rules would apply to all distributions from the S corporation along with the receipt and subsequent distribution of any CFC dividend. The tax section says this approach is easier to administer, both by S corporations and the IRS, and would be consistent with the final regs.

The American Bar Association Section of Taxation has submitted comments on final regulations (T.D. 9866) that provide guidance under section 951A on determining the amount of global intangible low-taxed income included in the gross income of some U.S. shareholders of foreign corporations, including U.S. shareholders that are members of a consolidated group.

The American Bar Association Section of Taxation has submitted comments on final regulations (T.D. 9866) that provide guidance under section 951A on determining the amount of global intangible low-taxed income included in the gross income of some U.S. shareholders of foreign corporations, including U.S. shareholders that are members of a consolidated group. The preamble to the final regs states that for purposes of determining the level (partnership or partner) at which a GILTI inclusion amount is calculated and taken into gross income by partners that are not U.S. shareholders, section 1373(a) provides that an S corporation is treated as a partnership and its shareholders as partners. However, unlike the proposed regs, the final regs do not include any examples involving S corporations, and the preamble requests comments on exactly how section 1373(a) should be applied. The tax section offers two alternatives. The first takes a literal approach to section 1373(a), treating an S corporation as merely a conduit for its shareholders, and attempts to reconcile the aggregate approach with general subchapter K provisions. The section 1373(a) “partnership” would exist as an aggregate of the S corporation owners, whether or not those owners met the definition of a U.S. shareholder, not only regarding the section 951A GILTI inclusion, but also regarding any subsequent controlled foreign corporation dividend that was tied to that income. Section members say this approach would have the advantage of being clear and consistent with section 1373(a), but would not necessarily be easy to administer. The second alternative takes a more limited approach and attempts to reconcile the aggregate approach with general subchapter S provisions, considering the underlying principles relating to both GILTI and S corporation income. The section 1373(a) “partnership” would exist as an aggregate of the S corporation owners for purposes of determining whether those owners were U.S. shareholders and for determining the GILTI inclusion amount taken into gross income. However, unlike under the first alternative, the usual S corporation rules would apply to all distributions from the S corporation along with the receipt and subsequent distribution of any CFC dividend. The tax section says this approach is easier to administer, both by S corporations and the IRS, and would be consistent with the final regs.

Sec. 78 Gross Up For Deemed Paid Foreign Tax Credit

Sec. 861 Income from sources within the United States

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

Sec. 951A Global intangible low-taxed income 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

Foreign tax credit

Global intangible low-taxed income (GILTI)

Tax Cuts and Jobs Act

Thomas Callahan

DOC 2020-29523

2020 TNTI 148-23

Callahan, Thomas

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ABA Tax Section Submits Comments on Final GILTI Regs