Form 8992 for GILTI

Form 8992 & Schedule A for GILTI

Taking a Romp Through Form 8992 for GILTI Calculations: GILTI refers to Global Intangible Low-Taxed Income. This IRS law was developed in association with the TCJA (Tax Cuts and JOBS Act of 2017) and the development of Internal Revenue Code section 951A. It involves US Shareholders — and despite the name, it is not really limited to intangibles — or what a Taxpayer may consider as Low-Taxed income. It is important to note that not all US shareholders with foreign corporations will have to calculate GILTI as part of their U.S. tax return. Rather, it is limited to shareholders who own Controlled Foreign Corporations or CFC — and meet other requirements as well. Prior to the enactment of GILTI, Controlled Foreign Corporations were already subject to Subpart F income — and so GILTI is just another layer of tax on foreign corporations which are owned primarily by US persons. Let’s take a (short) romp through IRS Form 8992 — which is a common reason why Taxpayers with foreign corporations find themselves out of compliance.

Who Must File For GILTI

US Shareholders who have ownership in accordance with section 958(a) in a Controlled Foreign Corporation — or multiple CFCs — may have a form 8992 GILTI requirement.

When and Where To File Attach Form 8992

The form 8992 and accompanying schedule is filed along with the tax return.

As provided by the IRS:

• • • Attach Form 8992 and Schedule A to your income tax return (or partnership or exempt organization return, as applicable) and file both by the due date (including extensions) for that return

Part I of Form 8992

Net Controlled Foreign Corporation (CFC) Tested Income is defined as follows:

As provided by 26 USC 951(A)(c)(1)

(1) In general

• The term “net CFC tested income” means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—

• • • (A) the aggregate of such shareholder’s pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over

    • (B) the aggregate of such shareholder’s pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).

An important takeaway from the definition of net CFC tested income is that it is based on the aggregate value of each controlled foreign corporation combined — so that if there are positive income in one CFC and negative income in another, it may net out to zero or negative.

(Part I) Form 8992 Form Requirements

Net Controlled Foreign Corporation (CFC) Tested Income is defined as follows:

• • • Sum of Pro Rata Share of Net Tested Income: If the U.S. shareholder is not a member of a U.S. consolidated group, enter the total from Form 8992, Schedule A, line 1, column (e).

      • • If the U.S. shareholder is a member of a U.S. consolidated group, enter the amount from Schedule B (Form 8992), Part II, column (c), that pertains to the U.S. shareholder.

    • Sum of Pro Rata Share of Net Tested Loss: If the U.S. shareholder is not a member of a U.S. consolidated group, enter the total from Form 8992, Schedule A, line 1, column (f). If the U.S. shareholder is a member of a U.S. consolidated group, enter the amount from Schedule B (Form 8992), Part II, column (f), that pertains to the U.S. shareholder.

      • Net CFC Tested Income: Combine lines 1 and 2. If zero or less, stop here

(Part II) Form 8992 Form Requirements

Calculation of Global Intangible Low-Taxed Income (GILTI):

1. 1. 1. Net CFC Tested Income: Enter amount from Part I, line 3

      2. Deemed Tangible Income Return (DTIR): If the U.S. shareholder is not a member of a U.S. consolidated group, multiply the total from Form 8992, Schedule A, line 1, column (g), by 10% (0.10). If the U.S. shareholder is a member of a U.S. consolidated group, enter the amount from Schedule B (Form 8992), Part II, column (i), that pertains to the U.S. shareholder.

• • • • Sum of Pro Rata Share of Tested Interest Expense If the U.S. shareholder is not a member of a U.S. consolidated group, enter the total from Form 8992, Schedule A, line 1, column (j).

      • If the U.S. shareholder is a member of a U.S. consolidated group, leave line 3a blank.

      • Sum of Pro Rata Share of Tested Interest Income

      • If the U.S. shareholder is not a member of a U.S. consolidated group, enter the total from Form 8992, Schedule A, line 1, column (i).

      • If the U.S. shareholder is a member of a U.S. consolidated group, leave line 3b blank.

      • Specified Interest Expense If the U.S. shareholder is not a member of a U.S. consolidated group, subtract line 3b from line 3a. If zero or less, enter -0-. If the U.S. shareholder is a member of a U.S. consolidated group, enter the amount from Schedule B (Form 8992), Part II, column (m), that pertains to the U.S.

      • Net DTIR.

      • Subtract line 4 from line 1

Schedule A for GILTI

While the schedule a a Form 8992 may seem overwhelming, don’t let Tax Practitioners scare you into believing it’s anywhere near as bad as they want you to think.

First, let’s go through the different columns on Schedule A:

Name of CFC

• Enter the name of each controlled foreign corporation (CFC).

EIN

• Enter the employer identification number if applicable and refer to form 5471 for additional assistance.

Tested Income

• The term tested income means the excess (if any) of a controlled foreign corporation’s gross tested income for a CFC inclusion year, over the allowable deductions (including taxes) properly allocable to the gross tested income for the CFC inclusion year (a controlled foreign corporation with tested income for a CFC inclusion year, a tested income CFC).

Tested Loss

• The term tested loss means the excess (if any) of a controlled foreign corporation’s allowable deductions (including taxes) properly allocable to gross tested income (or that would be allocable to gross tested income if there were gross tested income) for a CFC inclusion year, over the gross tested income of the controlled foreign corporation for the CFC inclusion year (a controlled foreign corporation without tested income for a CFC inclusion year, a tested loss CFC).

Pro-Rata Share of Tested Income

• Pro Rata Share of Tested Income (Above)

Pro-Rata Share of Tested Loss

•  Pro Rata Share of Tested  (Above)

Pro Rata Share of Qualified Business Asset Investment (QBAI)

Pro rata share of

• The term qualified business asset investment means the average of a tested income CFC’s aggregate adjusted bases as of the close of each quarter of a CFC inclusion year in specified tangible property that is used in a trade or business of the tested income CFC and is of a type with respect to which a deduction is allowable under section 167. In the case of partially depreciable property, only the depreciable portion of the property is of a type with respect to which a deduction is allowable under section 167. A tested loss CFC has no qualified business asset investment.

Pro Rata Share of Tested Loss QBAI Amount

• The term tested loss QBAI amount means, with respect to a tested loss CFC for a CFC inclusion year, 10 percent of the amount that would be the qualified business asset investment of the tested loss CFC for the CFC inclusion year under section 951A(d) and § 1.951A-3 if the tested loss CFC were a tested income CFC for the CFC

Pro Rata Share of Tested Interest Income

• The term tested interest income means, with respect to a controlled foreign corporation for a CFC inclusion year, interest income included in gross tested income of the controlled foreign corporation for the CFC inclusion year, reduced by qualified interest income of the controlled foreign corporation for the CFC inclusion year. (ii) Interest income. The term interest income means any income or gain that is treated as interest income under section 163(j).

Pro Rata Share of Tested Interest Expense

•  The term tested interest expense means, with respect to a controlled foreign corporation for a CFC inclusion year, interest expense paid or accrued by the controlled foreign corporation that is allocated and apportioned to gross tested income of the controlled foreign corporation for the CFC inclusion year under § 1.951A-2(c)(3), reduced (but not below zero) by the sum of the qualified interest expense of the controlled foreign corporation for the CFC inclusion year and the tested loss QBAI amount of the controlled foreign corporation for the CFC inclusion year.

Completing Schedule A Form 8992

Let’s take a look at what the instructions provide for Form 8992

• In the case of a U.S. shareholder that is not a member of a U.S. consolidated group, the U.S. shareholder files Form 8992, Schedule A, to report its pro rata share of amounts for each CFC (the tax year of which ends with or within the shareholder’s tax year) from each CFC’s Schedule I-1 (Form 5471), Information for Global Intangible Low-Taxed Income, to determine the U.S. shareholder’s GILTI, if any, and to determine the amount of the U.S. shareholder’s GILTI, if any, allocated to each CFC. If a U.S. shareholder does not file a Schedule I-1 (Form 5471) for every CFC that is part of its GILTI computation, for instance, due to an exception for multiple filers of the same information, the U.S. shareholder will still need to provide amounts with respect to each CFC as if the U.S. shareholder filed Schedule I-1 (Form 5471) for that CFC.

  • Due to space limitations, if you need to list more CFCs than fit on one Schedule A, attach Schedule A—Continuation Sheet(s) to continue listing the CFCs and their respective information. Do not write “See attached” in the section and attach additional sheets.

  • Column (a): Enter the name of each CFC. If the name of any of the CFCs being reported on Form 8992, Schedule A, changed within the past 3 years, show the prior name(s) in parentheses after the current name.

  • Column (b): Please refer to the instructions for the Form 5471, item 1b(2), Reference ID Number.

  • Column (c): Enter the U.S. dollar amount of tested income, if any, from line 6 of Schedule I-1 (Form 5471) for each CFC listed in column (a).

  • Column (d): Enter the U.S. dollar amount of tested loss, if any, from line 6 of  Schedule I-1 (Form 5471) for each CFC listed in column (a).

  • Column (e): Enter your pro rata share (as determined under Regulations section 1.951A-1(d)(2)) of the tested income listed in column (c).

  • Column (f): Enter your pro rata share (as determined under Regulations section 1.951A-1(d)(4)) of the tested loss listed in column (d). Important: See the instructions for Form 8992, Part I, earlier, to determine if you are required to complete columns (g) through (l).

  • Column (g): Enter your pro rata share (as determined under Regulations section 1.951A-1(d)(3)) of the U.S. dollar amount of QBAI from line 8 of Schedule I-1 (Form 5471) for each tested income CFC. Note. If you have a tested loss for a particular CFC, no entry should be made for that CFC in this column. See Regulations section 1.951A-3(b).

  • Column (h): Enter your pro rata share (as determined under Regulations section 1.951A-1(d)(3)) of the tested loss QBAI amount of any tested loss CFC. The tested loss QBAI amount of a tested loss CFC is the amount reported on Schedule I-1 (Form 5471), line 9c, that the tested loss CFC would have had if it were instead a tested income CFC. See Regulations sections 1.951A-4(b)(1)(i) and 1.951A-4(b)(1)(iv), and example 5 of Regulations section 1.951A-4(c)(5).

  • Column (i): Enter your pro rata share (as determined under Regulations section 1.951A-1(d)(6)) of the amount of tested interest income from Schedule I-1 (Form 5471), line 10c, for each CFC.

  • Column (j): Enter your pro rata share (as determined under Regulations section 1.951A-1(d)(5)) of tested interest expense from Schedule l-1 (Form 5471), line 9d.

  • Column (k): Before completing column (k), enter the totals (including amounts from any Schedule A—Continuation Sheet(s)) of columns (c) through (j) on line 1 for each column and complete Form 8992, Parts I and II. Then, for each CFC with an amount in column (e), divide that amount by the total on line 1, column (e). Enter the result here to four decimal places. See section 951A(f)(2).

  • Column (l): For each CFC with an amount in column (e), multiply the column (k) ratio for that CFC by the Form 8992, Part II, line 5, amount and enter the result in column (l) in whole dollars only. This information is used in completing Schedule J (Form 5471), Accumulated Earnings and Profits (E&P) of CFC, and Schedule P (Form 5471), Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations, for each CFC.

Line 1

• On line 1 of the first completed page of Schedule A, enter the totals for columns (c) through (f) for Schedule A and any Schedule A—Continuation Sheets. If the amount on your Form 8992, Part I, line 3, is positive, you are required to complete Schedule A, columns (g) through (l), and should also enter on line 1 of the first completed page of Schedule A the totals for columns (g) through (l) for Schedule A and any Schedule A—Continuation Sheets.

Solving GILTI Errors with Offshore Disclosure

When a Taxpayer is out of compliance for not properly reporting GILTI (and usually form 5471) the IRS has developed various amnesty programs that can facilitate the taxpayer. There are several different programs, so it is important to evaluate the taxpayers facts and circumstances to determine which program(s) is best for them.

International Tax Lawyer Specialist Team

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