The IRS Office of Chief Counsel recently published a memo (memorandum 202436009) (the “memo”) on Sept. 6, concluding that a domestic corporation’s consulting services to U.S. military base employees in a foreign country constitute foreign-derived deduction-eligible income (FDDEI).
To be entitled to a FDDEI deduction, the services generally must be provided to a person not located in the United States. In this case the service recipient was the United States government, but the recipient of services is not located in the United States. The memo concluded that this qualifies as services to a person not located in the United States under Section 250(b)(4). Additionally, the memo concluded that the nationality of the recipient of the services is irrelevant for determining whether income from services constitutes FDDEI and that numerous authorities support treating the U.S. government as a “person” as the term is used in Section 250(b)(4)(B).
U.S. domestic corporate taxpayers that provide consulting services to U.S military base employees located outside the U.S. should consider the advice rendered in the memo and evaluate whether such services income may benefit from the favorable foreign-derived intangible income deduction.
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