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Proposed FDII rules address TCJA’s most overlooked incentive

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A man holding his chinIn this Grant Thornton Tax Flash, we closely examine the proposed regulations the IRS has released to implement the tax deduction under Section 250 that provides domestic corporations with guidance on determining their foreign-derived intangible income (FDII). The new regulations impose strict documentation requirements and grant much-needed relief for certain individuals electing to be taxed as corporations under Section 962.

Section 250 was created by the Tax Cuts and Jobs Act and provides a deduction to corporate taxpayers for half of their global intangible low-taxed income (GILTI) and 37.5% of their FDII. The deduction is meant to limit the role tax consequences play when a domestic corporation chooses the location of its intangible income attributable to foreign markets. When taken in concert with the GILTI provisions under Section 951A, the aim of Section 250 is to create symmetry with respect to the taxation of intangibles. 

Proposed regulations were released under Sections 250, 962, 1502, 6038, and 6038A on March 4. The proposed regulations provide guidance in a number of areas, ranging from the combined treatment of consolidated groups to complex rules addressing qualification, determination and substantiation of foreign income. The proposed regulations also provide that for purposes of Section 962, an electing individual may claim the benefit of the Section 250 deduction to reduce its GILTI and the Section 78 gross-up attributable to the shareholder’s GILTI. This is welcome relief for individual taxpayers and prevents the need for costly restructuring.

Download our Tax Flash now and learn how this important deduction can help your business.

Contact 
David Sites
Partner
Washington National Tax Office 
Grant Thornton LLP
+1 202 861 4104

David Zaiken
Managing Director
Washington National Tax Office 
Grant Thornton LLP
+1 202 521 1543
 
Cory Perry
Senior Manager
Washington National Tax Office
Grant Thornton LLP
T +1 202 521 1509

Mike Del Medico
Manager
Washington National Tax Office
Grant Thornton LLP
+1 202 521 1522