GILTI Calculations for Individual U.S. Shareholders: Section 951A

Section 951A requires U.S. shareholders of controlled foreign corporations (CFCs) to include in gross income the shareholder's GILTI for the tax year. Tax advisers must identify the tax consequences for their clients that are U.S. shareholders in CFCs.

GILTI is an anti-deferral regime that may subject U.S. shareholders (as defined in Section 951(b)) of a CFC to tax on all or a portion of the CFC's income. GILTI is calculated under a complex formula but essentially requires U.S. shareholders to include into gross income CFC net income (subject to certain exceptions) less a routine return on certain CFC tangible depreciable property (qualified business asset investment or QBAI) with adjustments for specified interest expense. QBAI generally includes tangible depreciable personal property used to generate CFC tested income and does not include intangible property.

Critical to the tax impact of GILTI is the disparate treatment between corporate and individual taxpayers. C corporations are generally entitled to a Section 250 deduction for GILTI and the Section 78 gross-up attributable to the GILTI inclusion and an indirect foreign tax credit for certain foreign income taxes paid or accrued by the CFC subject to foreign tax credit limitation rules. Absent a Section 962 election, individual U.S. shareholders aren't eligible for these benefits, resulting in a much higher tax impact on individuals than on corporate entities.

Listen as our expert panel provides a thorough and practical guide to the mechanics of identifying, calculating, and reporting GILTI income for individual taxpayers.