IRS UPDATES DRAFT OF FORM AND INSTRUCTIONS FOR REPORTING GILTI (Global Intangible Low-Taxed Income)

21 January 2020

The IRS has released an updated draft of Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI), and updated draft instructions for that form.

Background—GILTI . Code Sec. 951A was added to the Code by the Tax Cuts and Jobs Act (TCJA, PL 115-97) 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 U.S. shareholder, such as tested income, tested loss, and qualified business asset investment (QBAI).

A U.S. shareholder is a U.S. person who owns, directly or indirectly, 10% or more of

  1. The combined voting power of all classes of a CFC’s voting stock; or
  2. The total value of all classes of a CFC’s stock. (Code Sec. 951(b))

A CFC is a foreign corporation whose U.S. shareholders own more than 50% of

  1. The total combined voting power of all classes of the CFC’s voting stock, or
  2. The total value of the CFC’s stock. (Code Sec. 957(a)) Generally, a loss CFC is a CFC without tested income for a CFC inclusion year. (Reg § 1.951A-2(b)(2))

U.S. shareholders of CFCs use Form 8992 to compute their GILTI inclusion amount and use Schedule A (Form 8992) to report their pro rata share of amounts from each CFC. (IRS.gov)

Background—Regs. On June 21, 2019, the IRS issued final regs under Code Sec. 951A that provided guidance on how U.S. shareholders of CFCs should determine the amount of GILTI to include in their gross income. See Final regs on global intangible low-taxed income, subpart F income (06/18/2019).

Under the final regs, a specified interest expense generally is the aggregate of the U.S. shareholder’s pro rata share of the CFC’s interest expense over the aggregate of the U.S. shareholder’s pro rata share of the CFC’s interest income (netting approach). (Reg. §1.951A-1(c)(3)(iii))

The final regs also reduce a loss CFC’s interest expense by its “tested loss QBAI amount,” an amount equal to 10% of the CFC’s QBAI if that CFC had been a tested income CFC. (Reg §1.951A-4(b)(1)(iv))

What’s new. The IRS has updated Form 8992 and its instructions to reflect the regulations issued in June 2019. The updates include the following:

  • Part II of Form 8992 was updated to reflect the U.S. shareholder’s calculation of specified interest expense using the netting approach in Reg §1.951A-1(c)(3)(iii).
  • A new column (h) was added to Schedule A (Form 8992) to reflect the rule in the final regs that reduces a loss CFC’s interest expense by its loss QBAI amount.
  • Columns (i) and (j) of Schedule A (Form 8992) were updated to report the U.S. shareholder’s pro rata share of interest income and pro rata share of interest expense, respectively.