Form 8993 Form Section 250 Deduction is Prepared for GILTI

Form 8993 Form Section 250 Deduction is Prepared for GILTI

How Form 8993 to Claim Section 250 Election

With the creation of the TCJA (Tax Cuts and Jobs Act) came the introduction of Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI). The key concept behind these new international cross-border tax laws is that foreign income which is earned abroad (and remains abroad) should still be taxable to US persons. It is similar in concept to Subpart F — except Subpart F primarily deals with passive income, and with GILTI for example, it is more encompassing and has become much more far-reaching than first intended. One key component of the TCJA is the GILTI and FDII 50%/37.5% deductions available to Domestic Corporation shareholders. The US Government recently finalized regulations that allow for US Individuals to make an election to be treated as a Domestic Shareholder for GILTI (50% Deduction and 80% Foreign Tax Credit). Let’s review the basics of Form 8993 and Section 250 Deduction:

As provided by the IRS:

Who must File IRS Form 8993?

      • All domestic corporations (and U.S. individual shareholders of controlled foreign corporations (CFCs) making a section 962 election (962 electing individual) must use Form 8993 to determine the allowable deduction under section 250.

      • The deduction is allowed only to domestic corporations (not including real estate investment trusts (REITs), regulated investment companies (RICs), and S corporations) and section 962 electing individuals. For the treatment of a domestic corporation that is a partner in a partnership, see Proposed and Final Regulations sections 1.250(b)-1(e) and 1.250(b)-3(e).

When and Where To File Form 8993

Attach Form 8993 to your income tax return and file both by the due date (including extensions) for that return

What is 26 USC 250?

Section 250 refers to the deduction that US Corporate Shareholders of CFC (Controlled Foreign Corporations) can make.  In addition, in accordance with section 962, individuals can elect to be treated as a Domestic Corporate Shareholder, and therefore may want to file Form 8993 as well –

      • (a) Allowance of deduction

        • (1) In general

          • In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—

            • (A) 37.5 percent of the foreign-derived intangible income of such domestic corporation for such taxable year, plus

            • (B) 50 percent of—

              • (i) the global intangible low-taxed income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and

              • (ii) the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in clause (i).

When and Where To File Form 8993

Attach Form 8993 to your income tax return and file both by the due date (including extensions) for that return.

Form 8993 Deduction Limitation

If the sum of FDII and GILTI exceeds taxable income, the deduction under section 250 is limited to taxable income and applied on Form 8993.

Part I. Determining Deduction Eligible Income (DEI) and Deemed Intangible Income (DII)

DII refers to Deemed Intangible Income and it is an equation based on the total computed income and requires the computation of DEI to begin –

      • 1. Gross income

      • 2. Exclusions

        • a Income included under section 951(a)(1) (see instructions

        • b Income included under section 951A (see instructions)

        • c Financial services income

        • d CFC dividends (see instructions

        • e Domestic oil and gas extraction income

        • f Foreign branch income

      • 3. Total exclusions (add lines 2a through 2f)

      • 4. Gross DEI (subtract line 3 from line 1)

      • 5. Deductions properly allocable to the amount on line 4

      • 6. DEI (subtract line 5 from line 4)

      • 7. Deemed tangible income return (10% of QBAI)

      • 8. DII (subtract line 7 from line 6)

GROSS DEI

      • Gross DEI is the corporations is Gross Income, minus exclusions. The exclusion involve income such as Sub F, certain dividends, branch income, etc.)

DEI

      • Next, deductions of the income that are allowable are deducted from the Gross DEI

DTIR

      • 10% OFF QBAI is then subtracted from the DEI

DII

      • DII = DEI-DTIR

Part III  Determining FDII and/or GILTI Deduction Under Form 8993

      • 20 Foreign-derived ratio (FDDEI/DEI) (divide line 19 by line 6)

      • 21 FDII (multiply line 8 by line 20)

      • 22 GILTI inclusion (see instructions)

      • 23 Total FDII and GILTI (add lines 21 and 22)

      • 24 Taxable income (see instructions) (If zero or less, skip lines 25 through 27 and enter -0- on lines 28 and 29.)

      • 25 Excess FDII and GILTI over taxable income (subtract line 24 from line 23). If zero or less, enter -0- here and on lines 26 and 27

      • 26 FDII reduction (divide line 21 by line 23; multiply by line 25)

      • 27 GILTI reduction (subtract line 26 from line 25)

      • 28 FDII deduction (see instructions). Enter here and on Form 1120, Schedule C

      • 29 GILTI deduction (see instructions). Enter here and on Form 1120, Schedule 

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