AICPA suggests changes in GILTI tax rules to IRS

The American Institute of CPAs is asking the Internal Revenue Service and the Treasury Department to make some changes in their proposed regulations for the Global Intangible Low Tax Income, or GILTI, provision in the Tax Cuts and Jobs Act, suggesting modifications in the rules pertaining to net tested losses, anti-abuse provisions and interaction with the section 245A dividends received deduction.

The GILTI provisions in the Tax Cuts and Jobs Act are supposed to curb tax avoidance by multinational corporations and keep them from relocation their tax domiciles abroad, but the provisions were hastily drafted as the bill sped to passage in December 2017 and left many corporate tax experts uncertain about its implications. The IRS released proposed regulations last September spelling out how the GILTI rules should be applied and how they would affect U.S. shareholders of controlled foreign corporations, or CFCs.

In response to the proposed rules, the AICPA recommended that the Treasury Department and the IRS draft regulations allowing a U.S. shareholder of CFCs with a “net tested loss” in any tax year the ability to carryforward the amount of the net tested loss to offset net CFC income of that U.S. shareholder in future tax years. A “net tested loss” is when the total tested losses exceeds total tested income.

The AICPA also suggested the IRS and the Treasury modify the pro-rata share anti-abuse rule to allow for a specific and narrow application of the rule that would apply only in cases where abuse is clearly intended, such as non-economic transactions designed to minimize the tax under this provision. It also believes the regulations should provide an explicit exclusion for transactions conducted with unrelated parties within the meaning of sections 267(b) and 707(b), as well as provide an explicit exclusion for transactions conducted with related parties located in the same country of tax residence as the relevant controlled foreign corporation. The Institute also wants to provide a small business exception to the provision for U.S. shareholders with worldwide gross receipts under $25 million, as determined under section 448(e) of the tax code.

In addition, the AICPA recommended the IRS and the Treasury modify the proposed anti-abuse rule for temporarily held property to exclude assets acquired or disposed to/from unrelated parties (within the meaning of sections 267(b) and 707(b)) provided that the taxpayer can reasonably establish that the transaction occurred in the ordinary course of a trade or business.

The Institute also said the IRS and the Treasury should permit a CFC to claim the section 245A dividends received deduction when calculating its subpart F income in the final regulations.

U.S. President Donald Trump sits next to a tax-overhaul bill after singing it into law in the Oval Office of the White House in Washington, D.C., U.S., on Friday, Dec. 22, 2017. This week House Republicans passed the most extensive rewrite of the U.S. tax code in more than 30 years, hours after the Senate passed the legislation, handing Trump his first major legislative victory providing a permanent tax cut for corporations and shorter-term relief for individuals. Photographer: Mike Theiler/Pool via Bloomberg
The Tax Cuts and Jobs Act, signed into law.

For reprint and licensing requests for this article, click here.