
Is a 962 Election the Cure for the Hardships Caused by GILTI or Subpart F Inclusions?
By Anthony Diosdi IntroductionU.S. shareholders of a controlled foreign corporation (“CFC”) must include any subpart F income or global low-taxed income (“GILTI”) as ordinary income on their taxable income. The current highest federal tax rate applicable to individual CFC shareholders is 37 percent. Individuals receiving GILTI inclusions may also be subject to an additional Medicare tax of 3.8 percent. To make matters worse, individual CFC shareholders cannot offset their federal income tax liability with foreign tax credits paid by their CFCs. 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. On the other hand, for federal tax purposes, domestic C corporations that are shareholders of CFCs are…