Making a Section 962 Election to Reduce Income Taxes Associated with a GILTI Inclusion? Don’t Forget About the Second Layer of Tax and the Ordering Rules
By Anthony Diosdi Internal Revenue Code Section 951A requires US shareholders of a controlled foreign corporation (‘CFC”) to include the corporation’s income determined to be in excess of specified return on investment in depreciable tangible personal property (i.e., GILTI). For most purposes, a GILTI liability operates in a similar manner as a subpart F inclusion. To offset GILTI inclusions, Internal Revenue Code Section 250 allows US C corporate CFC shareholders to deduct a portion (currently 50 percent, but decreases to 37.5 percent for taxable years beginning after December 31, 2025). The current Section 250 limitation may result in US C corporate CFC shareholders being subject to federal tax on a GILTI inclusion at a rate of only 10.5 percent. Typically, US C corporations are taxed at a rate of 21…