IRC 962 Election for Corporate Tax Rate on Subpart F Income

Significant changes to the international taxation of controlled foreign corporations (CFCs) require tax advisers to engage in proactive planning to minimize the tax liability on previously deferred foreign income. For some individual, trust, or estate taxpayers holding shares in foreign corporations, an election under Section 962 to have qualified foreign income taxed at the corporate rate may make sense given the cost and complexities of the new GILTI regime on holdings in CFCs.

Section 962 allows individuals or fiduciaries to be taxed at domestic corporate rates on any amounts included as gross income under IRC 951(a), including presumable GILTI because of Section 951A(f)(1)(A), rather than at potentially higher individual or fiduciary income tax rates. An election under Section 962 can provide benefits specific to trusts and estates, given the compressed fiduciary income tax rates applicable to such taxpayers. Taxpayers making the election may also claim an indirect or deemed paid foreign tax credit under Section 960. Under the GILTI rules, in Section 960(d), only domestic corporations can claim indirect foreign tax credits.

There are several areas of risk and uncertainty surrounding the 962 election and tax advisers to individuals should proceed carefully in evaluating whether to elect domestic corporate tax treatment. When an electing taxpayer receives a distribution of earnings previously included in gross income under 951(a) or 951A(a), such taxpayer must include in gross income any distribution amount exceeding the amount of U.S. income tax paid at the time of a Section 962 election, which may result in double inclusion of previously deferred income.

Listen as our experienced panel provides a practical guide to the planning and compliance challenges of making a Section 962 election for Subpart F income and GILTI.

1. GILTI regime and expansion of deemed inclusions of foreign earnings
2. Section 962 election
   • Eligible income under IRC 951(a) and 951A(f)
   • Claiming IRC 960 indirect/deemed paid foreign tax credits
   • The tax rate on elected foreign income inclusion
   • Treatment of distributions where amounts previously included in gross income at the time of the election
3. Where a Section 962 election may create higher tax after a deferral
4. Impact of Section 962 elections on trusts and estates
   • Who may make the Section 962 election?
   • Impact of compressed fiduciary tables on effective tax rates
5. Making the election
6. Calculating and reporting the tax
7. Alternatives to the Section 962 election

The panel will discuss these and other important issues:

• What types of income are eligible for corporate tax rates under a Section 962 election?
• How to calculate the tax impact of subsequent distributions of amounts included in gross income under Section 962 election
• Determining when a Section 962 election could result in tax increases
• When do NOL benefits outweigh the benefit of making this election?

Learning Objectives

After completing this course, you will be able to:

• Determine what types of income are eligible for corporate tax rates under an IRC 962 election
• Ascertain how to calculate the tax impact of amounts included in gross income under IRC 962
• Establish whether an IRC 962 election is beneficial or could result in tax increases
• Recognize the treatment of Subpart F inclusions, GILTI, and tax liability on previously deferred foreign income
• Verify that the IRC 962 election is correct and follow the new law's provisions regarding IRC 962 tax reporting

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or professional experience at mid-level within the organization, preparing complex tax forms and schedules. Specific knowledge and understanding of international taxation, deferred foreign-source income, earnings and profits, controlled foreign corporations, specified foreign corporations, and repatriation of deferred foreign earnings; familiarity with accumulated cash and non-cash retained earnings and profits and netting of earnings and profits positions.

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IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).