The IRS recently released seven private letter rulings (PLRs) (PLR 202240011, PLR 202240010, PLR 202240009, PLR 20220008, PLR 202240007, PLR 202240006, and PLR 202240005) in response to taxpayer requests to extend the time to make a global intangible low-taxed income (GILTI) high-tax exclusion election (“GILTI HTE Election”) under Treas. Reg. Sec. 1.951A-2(c)(7)(viii).
Generally, if a controlled foreign corporation’s (CFC) tentative tested income item is subject to an effective rate of foreign tax greater than 90% of the maximum corporate rate under Section 11 (i.e., 18.9%, based upon the current rate of 21%), a controlling domestic shareholder can make a GILTI HTE Election under Treas. Reg. Sec. 1.951A-2(c)(7)(viii) to exclude such tentative tested income item from gross-tested income with a timely filed original federal income tax return or an amended federal income tax returns within 24 months of the unextended due date of the original return.
Treas. Reg. Sec. 1.951A-2(c)(7)(viii)(E) includes a consistency requirement that if a GILTI HTE Election is made for one CFC which is a member of a controlling domestic shareholder group (“CFC group”), then such election applies to each member of such CFC group. The CFC group is determined based on the “affiliated group” concept under Section 1504(a), without regard to Section 1504(b)(1) through (6), and with the application of the constructive ownership rules under Section 318, but with certain modifications. For more background on the final GILTI HTE regulations, see our prior story, “Final GILTI HTE regs provide flexibility.”
In PLR 202240011, a domestic partnership (DP) requested an extension of time after the expiration of the 24-month period to make the GILTI HTE Election under the consistency requirement for a CFC with respect to which DP is a controlling domestic shareholder, since the GILTI HTE Election was made for other CFCs in the same CFC group by DP’s majority partner—a domestic corporation—which is a controlling domestic shareholder of the other CFCs. The IRS concluded that the requirements for late-election relief under Treas. Reg. Secs. 301.9100-1 and 301.9100-3 were satisfied. Therefore, the IRS granted an extension of 120 days from the date of the letter to make a GILTI HTE Election. In the other six PLRs, the taxpayers presented substantially the same facts as in PLR 202240011, and the IRS granted the extensions.
If taxpayers have made the GILTI HTE Election for prior years, they should evaluate whether any intended CFCs should be subject the GILTI HTE rules under the consistency requirement. In particular, private equity funds should collect GILTI HTE election information for their entire structure and then examine their ownership carefully under the modified constructive ownership rules to have a full understanding of the potential ramifications. If an issue is identified, it may be necessary to amend the prior-year returns within 24 months, or, if outside 24 months, taxpayers should consider late-election relief as sought in the PLRs.
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