skip to main content
X

US INTERNATIONAL TAX REFORM AND IRC SECTION 962

February 16, 2018

US INTERNATIONAL TAX REFORM AND IRC SECTION 962

US individual shareholders of controlled foreign corporations (CFCs) are currently grappling with the one-time US transition tax on post-1986 deferred foreign income accumulated by their CFCs and the impact of new anti-deferral income inclusion rules referred to as the global intangible low-taxed income (GILTI) provisions, along with other generational changes to the US international tax rules, as the United States transitions from a worldwide tax system to a quasi-territorial tax system. Interestingly, an infrequently used election under IRC Section 962, which has been part of the US tax rules since 1962, may prove to be an effective solution for these US individual shareholders to mitigate or eliminate any negative tax consequences associated with the one-time US transition tax for fiscal year CFCs and the GILTI provisions.

Although a US individual shareholder making an IRC Section 962 election is subject to tax on the income inclusion attributable to their CFCs at a corporate tax rate (e.g., 21 percent in 2018), he/she is entitled to claim a foreign tax credit for the underlying foreign income taxes paid by the CFC as if the individual were a domestic C corporation. Essentially, these deemed-paid foreign tax credits may significantly reduce or eliminate his/her hypothetical corporate tax liability, thereby deferring US taxation until the CFC makes an actual distribution of earnings. In other words, an IRC Section 962 election has the potential to restore these US individual shareholders to their pre-international tax reform position and render these two new international tax provisions of little to no consequence.

International tax is a complex area of taxation, even more so after the Tax Cuts and Jobs Act was enacted. To discuss strategies to take advantage of the new tax rules and reduce your tax burden, contact your professional at UHY Advisors in one of our many locations

Hide Firm Disclaimer

©2021 UHY LLP. ALL RIGHTS RESERVED.

UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of "UHY Advisors." UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. "UHY" is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

On this website, (i) the term "our firm", "we" and terms of similar import, denote the alternative practice structure conducted by UHY LLP and UHY Advisors, Inc. and its subsidiary entities, and (ii) the term "UHYI" denotes the UHY international network, in each case as more fully described in the preceding paragraph.