Enter the section 962 election: a relatively obscure provision of the Code designed to ensure an individual taxpayer was not subject to a higher rate of tax on the earnings of a directly-owned foreign corporation than if he or she had owned it through a United States corporation. This is where the controlled foreign corporations Subpart F income is revealed to the IRS. Why a Section 962 Statement is Necessary - International Tax It does allow me to input the 962 tax (21%) on GILTI income. For years, section 962 was a relatively obscure tax-planning mechanism. . How can the IRS easily verify that the correct amount of gross income was taken into account for the United States shareholder? B. Attribution Rules in Sections 958(b) and 318(a) . 1.962-2 - Election of limitation of tax for individuals. 962, individuals can make an election to pay tax on Subpart F income at corporate rates (and claim indirect foreign tax credits under Sec. Each election statement must have the applicable title and, in the case of an attachment in Portable Document Format (.pdf) included with an electronically filed return, the file name reflected in the following table: . Demystifying the 962 Election | SF Tax Counsel Tax on Section 951(a) income at corporate rates. A complex situation can get more complex when a distribution of earnings is made in a later year. . Marrying ESG initiatives to business tax planning, Early access to wages may require new employment tax analyses, Determining gross receipts under Sec. The answer, in brief, is to fill an information gap. If this return has multiple units of the 962 screen, complete this section only on the first unit of the 962 screen. More recently, the TCJA required U.S. shareholders to take into account their pro rata share of a CFC's global intangible low-taxed income (GILTI) in a way that is similar to Subpart F. The GILTI rules in new Sec. The Section 962 Statement solves that problem. If an IRC Sec. 951A affect the vast majority of U.S. shareholders of CFCs. Now you know why the Section 962 Statement exists. However, that same dividend paid by a nonqualified foreign corporation would be taxable at full ordinary rates to that individual. However, a distribution from a qualified foreign corporation would likely be eligible for the lower rates applicable to qualified dividends. That dividend paid from a qualified foreign corporation would be taxed currently at 20% plus potentially an additional 3.8% net investment income tax. AICPA lists 15 recommendations that would provide clarification and guidance. Knowledge Base Solution - How do I generate a Federal Election in - CCH The election is administratively simpler than forming an actual intermediary corporation,but subtle differences in distribution ordering and other rules could cause it to provide different tax outcomes which may need to be modeled in advance. The analysis may have to consider the interplay of the tax regimes and profiles of several different foreign countries. 962 to ensure that individuals' tax burdens with respect to undistributed foreign earnings of their CFCs would be no heavier than if the individuals had instead invested in an American corporation doing business abroad. Finally, the Joint Explan-atory Statement of the Committee of Conference to Public Law 115-97 states that: Other basic information is provided. This raises the following question: Should an individual who makes a Sec. Also need answer for this :D. Have you found the solution? (1) In general. The box called Section 962 tax should be the credit you compute and should be negative. No new contributions can be made. The controlling domestic shareholder (s) makes the election by attaching a statement to the shareholder's federal tax return and must provide notice of the election to the other affected shareholders. Toms total federal tax liability associated with the 962 election will be $77,004. Names, address, and taxable year of each CFC to which the taxpayer is a U.S. shareholder. U.S. individual shareholders that have made a Section 962 election for Section 965, Subpart F, or GILTI inclusions in prior years however may be subject to tax on all or a portion of the distribution of PTEP under Section 962(d). Sign up to get the early-bird pricing here. To avoid double taxation, that distribution would need to be removed from STI, but there may not be clear authority for doing so. Depending on the specific circumstances, using section 962 could result in an individual paying a greater effective rate of tax on their foreign earnings once they have been repatriated. Thus, both spouses should sign any Section 965 election statements. IRC Section 962 elections allow individuals and certain trusts that are US shareholders of CFCs to be taxed on GILTI and subpart F income as if they were a domestic corporation. 962 election. The 2020 United States presidential election in Montana was held on Tuesday, November 3, 2020, as part of the 2020 United States presidential election in which all 50 states plus the District of Columbia participated. Form 1040, line 12a, has box 3 marked with the amount and Statement #1 entered as the description. Sec. The controlled foreign corporations financial data will be invisible to the IRS without a hands-on audit. Reg. Assume an individual U.S. shareholder of a controlled foreign corporation prepared his/her Form 1040 and does not make the Section 962 election. The election statement must state that the taxpayer is electing to apply 172(b)(1)(D)(v)(I) under Rev. In this case, the distribution will be taxed at a favorable rate. 2020 United States presidential election in Montana - Wikipedia With these facts in mind, Congress adopted Sec. Otherwise, the system thinks it is additional tax, double counts it and doesn't re-compute it. In this case, does form 8992 not need to be used? PDF Code 962 Election Offers benefits Under U.S. Tax Reform The gross income information has been reported, and the tax calculation formula is mechanical. The Tax Cuts & Jobs Act, however, changed that, pushing the so-called section 962 election into vogue. Taxpayers should expect significant scrutiny of their positions by state tax authorities given the lack of guidance, and complete documentation will be critical in mounting a successful defense. IRS Allows 50% GILTI Deduction to U.S. Shareholders of - Florida And, just as importantly, we will talk about how to prepare a good Section 962 Statement. 50% Section 250 GILTI Deduction with a Deadline! Tom received pre-tax income of $100,000 FC 1 and $100,000 of pre-tax income from FC 2. Sec. US final GILTI/FDII regulations under section 250 include guidance on section 962 elections, pass-through FDII reporting | EY - Global About us Back Close search Trending Why Chief Marketing Officers should be central to every transformation 31 Jan 2023 Consulting The CEO Imperative: How will CEOs respond to a new recession reality? 415.318.3990 Local 833.829.4376 Toll Free 415.335.7922 Fax, 505 Montgomery St. 11th Floor San Francisco, CA 94111, 4900 Hopyard Rd. The question seems to be what exactly do you need to put in the election and how is it reported on the return. The following diagram compares the treatment of a taxpayer who makes a section 962 election to one who does not: TheGILTI high-tax exclusionintroduced in final Treasury Regulation section 1.951A-2(c)(7) created a major new consideration for U.S. individual shareholders making section 962 elections. Section 962 Elections for Taxpayers with GILTI Inclusions - Moss Adams 962 election is made, the U.S. individual will recognized GILTI income of $820,000 plus the IRC Sec. Georgia, for its part, does not recognize the Sec. (2) Revocation. If a CFC is more interested in deferring his or her tax liability than obtaining tax savings, a 962 election may provide a deferral of tax. In reality, however, this benefit is a timing difference, as the subsequent distribution will be subject to tax. E&P distributed from a corporation to its shareholders generally qualifies for federal tax purposes as a dividend (Sec. Any foreign entity through which the taxpayer is an indirect owner of a CFC under Section 958(a).3. This article is not legal or tax advice. Below, please see Illustration 2 which discusses the potential federal tax consequences associated with a Section 962 election if an individual was the sole shareholder of two CFCs.Illustration 2.Assume the same facts in Illustration 1. The taxpayer hereby makes an election under Section 962(a)(1) to be taxed on amounts included in the taxpayers gross income under section 951(a) as if the individual were a Subchapter C corporation for the 2019 tax year. Has anyone done a 962 election in regards to GILTI (Form 8992 - Intuit The Section 962 Statement bridges that gap. For a taxpayer whose only GILTI exposure is from such high-taxed foreign companies, the section 962 election may no longer be necessary as the GILTI inclusion may be fully eliminated. 962 election should be treated for state purposes. Subpart F requires U.S. shareholders of a controlled foreign corporation (CFC) to take into current income their pro rata share of Subpart F income. Under these circumstances, it is not too difficult to imagine scenarios where a CFC shareholder pays more in federal, state, and foreign taxes than the actual distributions they receive from the CFC. According to the 962 regulations, the attachment making the 962 election must contain the following information: 1. Now the government does not have a tax liability question to answer. Taxpayers making a Sec. An individual who makes the Section 962 election must send a statement to the IRS with their return. Now lets assume the individual United States shareholder makes the Section 962 election. 1.962-2(b) requires the taxpayer to prepare and attach a statement. Dont get lost in the fog of legislative changes, developing tax issues, and newly evolving tax planning strategies. Atax court decisionheld that such distributions are generally subject to tax at ordinary rates rather than the reduced qualified dividend rate if dividends from the foreign corporation would normally be considered ordinary rather than qualified dividends. The taxpayer's virtual corporation can use deemed-paid foreign tax credits paid by the controlled foreign corporation to reduce the . The Section 962 election is made annually for all CFCs in which an individual is a U.S. shareholder, including indirectly through pass-through entities. There is no tax form created just for the individual taxpayer making a Section 962 election, so the Section 962 Statement requirement is the governments way of telling you to do the governments job at your expense. Join more than 3500 subscribers and get exlusive weekly information. The availability of the section 962 election may also impact the value of a GILTI high-tax exclusion election. The election is made by filing a statement to such effect with this tax return. 199A Signed Safe Harbor Statement Must be Attached as a PDF to an E 962 election with respect to a GILTI inclusion. Therefore, the U.S. taxable income on the inclusion is $500,000. This process goes through a calculation of reducing a CFC's total tested income by the net deemed income from tangible assets. The GILTI High-Tax Exception: Is it a Viable Planning Option? - hklaw.com I would appreciate if you could pass on any information you found out about this. When Subpart F was enacted, the top federal tax rate for corporations was 52% while individuals were taxed at rates as high as 91% and could not take advantage of indirect foreign tax credits available to corporations. Section 962 allows an individual shareholder of a controlled foreign corporation to elect to be taxed as a domestic C corporation. Other basic information is provided. Lets see how Subpart F income flows from one tax form to another, providing the government with a clear view of the taxpayers taxable income and therefore, the correct tax liability. GILTI High-Tax Election a Welcome Alternative to a Section 962 - FORVIS Be Careful What You Wish For: Challenges and Opportunities Arising From 962 election seems like a slam-dunk for an individual U.S. shareholder in a CFC. Lets also assume that FC 1 and FC 2 did not pay any foreign taxes. The elections were first scheduled to be held on 14 February 2015. Third, when the CFC makes an actual distribution of earnings that has already been included in gross income by the shareholder under Section 951(a) or Section 951A requires that the earnings be included in the gross income of the shareholder again to the extent they exceed the amount of U.S. income tax paid at the time of the Section 962 election.