• Monte Silver, Tax lawyer

Treasury To Address Individual Use Of GILTI, Official Says

Very good news. I tend not to believe that something like this happens by chance or luck. This is a direct result of our advocacy work and lawsuit! It may not give 100% of what we want, but it could help a lot in many cases and is a step in the right direction. Great work to everyone!!

The U.S. Department of the Treasury will address whether individual taxpayers can elect for corporate treatment under the federal tax overhaul's international framework, including its global intangible low-taxed income provision, a government official said Wednesday.

A Treasury official said his department would address global intangible low-taxed income as it applies to individual taxpayers. Tax experts have been perplexed about whether individual taxpayers, facing potentially higher taxes under the Tax Cuts and Jobs Act's GILTI provision, can receive relief by requesting treatment as a corporation - which can receive better tax treatment - under Internal Revenue Code Section 962 (IRC § 962).

"We have been receiving comments on 962 elections and GILTI, and we will be addressing that," Doug Poms, international tax counsel at the Treasury, said during an International Fiscal Association conference in Washington, D.C.

Poms did not elaborate on how the Treasury would rule on the issue, or which batch of regulations it would use. The Treasury released proposed GILTI regulations in September 2018 and submitted regulations on IRC Section 250 (IRC § 250) - which contains the deductions available for GILTI as well as for foreign-derived intangible income - on Dec. 14 for review by the Office of Information and Regulatory Affairs.

The GILTI provision was meant to be a global minimum tax preventing companies from shifting their income overseas, but in practice it has raised a host of thorny implementation issues. The law immediately taxes foreign intangible income, defined in the statute through a formula based on tangible property, but grants it a 50 percent deduction, creating an ultimate tax rate of 10.5 percent.

But the deduction is available only for corporate taxpayers, leaving individual taxpayers doing business through pass-throughs at a significant disadvantage. Individual taxpayers using an S corporation or partnership still fall under GILTI's tax, while not being eligible for either the GILTI deduction or the TCJA's general deduction exempting most overseas income from taxation.

Section 962 allows individual taxpayers to elect for taxation at the corporate rate under the rules for taxation of controlled foreign corporations. But practitioners and tax experts aren't sure if this would mean that those individuals would also be eligible for the GILTI deduction, and the language of the law hasn't been much help.

Poms also said the Treasury would seek to address the disparity between individual and corporate treatment more broadly.

"We're mindful of the differences of the treatment for individuals," Poms said, "and we've received a number of comments for things that we could do to move individuals in the direction so their treatment is closer to what the individual would receive if they owned their interest in a [controlled foreign corporation]."

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