TAX 9869 Lecture Notes - Lecture 54: Carried Interest, Foreign Tax Credit

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11 Aug 2020
Mechanics (U.S. C-Corporation)
1.Aggregate pro rata share of Tested Income of all CFCs minus Aggregate pro rata share of
Tested Loss of all CFCs equals U.S. Shareholder’s Net CFC Tested Income.
2.U.S. Shareholder’s Net CFC Tested Income minus Net Deemed Tangible Return equals GILTI
3.GILTI Amount plus Section 78 Gross-Up equals U.S. Shareholder Inclusion.
4.U.S. Shareholder Inclusion minus 50% deduction times 21% rate equals Tentative GILTI Tax.
5.Tentative GILTI Tax minus Deemed Paid Credits equals U.S. Tax Liability.
Useful slide once we have our discussion
o Goes through steps to compute GILTI
o The US C corp add up all pro rata shares, 10%, 10%, 40%, 40%
o Only USSH on last day of CFC year, picks up GILTI
o Aggregate tested income of CFCs, subtract all losses, net CFC tested income
o Take net CFC tested income - net deemed tangible return (10% of QBAI)- interest
expense= GILTI amt
o Figure out S78 gross up
o GILTI + S78 gross up, how much USSH has to include in taxable income
o Whatever amt is with GILTI and S78 gross up, take 50% deduction on that, multiply
that amt by 21%= US tax liability
o May have deemed paid credit= 80% of taxes allocated to GILTI- deemed paid credit
from his US tax liability, the amt of tax he has to pay to the IRS
Other rules
•Interest in partnership: A CFC that holds an interest in a partnership at the close of its taxable
year will include as part of its QBAI, its distributive share of the partnership’s aggregate adjusted
bases in tangible property.
•Regulations: The Treasury Department has broad authority to issue regulations or other
Other rules:
o Come back to pships and S-corps= flow through
o With GILTI (final), Sub F (proposed form)
o Can a US pship be a USSH of a CFC? Yes, if you have a US pship that owns
a foreign corporation 100%, and there are 100 partners, each partner owns 1%,
the US pship is a USSH, foreign corp= CFC
o Do I have to do a GILTI calculation and pick up on pship’s income
computation and then it passes through the GILTI on a K-1 (thats 1 option)
o Or let’s view the US pship as though it doesn’t exist, look through to
the partners, only partners 10% shareholders of CFC have to pick up
o Final rules say second way is the answer
o What does this mean for your purposes?
Let’s say I have a US pship that owns 100% of CFC, let’s say that the US
pship has 100 partners and each owns 1%, I have a USSH here, but
don’t have any partner (individual/corporation) that is a 10% shareholder
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