IRS Releases 2020 Final Regulations Related to GILTI

The IRS, nearly three years after the fact, continues to implement, clarify and regulate the Tax Cuts and Jobs Act of 2017 (TCJA), reflected by the issuance of the 2020 Final Regulations, which was released on July 20, 2020. While there is some welcome news in these regulations, it also makes the reporting of foreign income more complex for certain U.S. persons who gain income from foreign companies. This blog will provide some background on these regulations and attempt to lay out some implications for U.S. shareholders (explained below). 

What is GILTI?

The TCJA created the GILTI provision to address the issue of offshore intangible assets for U.S. persons. While the TCJA has the reputation of simplifying the tax code and lowering the tax burdens for many corporations, the GILTI provision added a new tax on certain income derived from overseas. It generally applies to U.S. shareholders. U.S. shareholders, in this context, are U.S. persons who own 10 percent or more of the vote or value of a foreign entity. Additionally, at least 50 percent of the foreign entity must be owned by U.S. persons. 

If both of those conditions apply to a U.S. person, then that person is considered to be a U.S. shareholder of a controlled foreign corporation for certain tax purposes. To prevent significant artificial deferral of intangible income (passive income derived from intangible assets, such as intellectual property), U.S. persons are required to report this as part of their gross income. 

What are the Effects of the 2020 Final Regulations?

Subpart F, which allows U.S. shareholders to except certain income from their reported gross income, is, essentially, applied to the GILTI provision of the TCJA. Subpart F, which was instituted in 1962, allowed income items that were taxed at 90 percent or higher of the highest U.S. corporate income tax rate. In 2020, that rate was 18.9 percent (90 percent of 21 percent, the highest rate at which U.S. businesses are taxed). 

The 2020 Final Regulations essentially allow U.S. shareholders to apply exceptions from Subpart F to the GILTI provision. The exception amount may be different depending on the type of entity being taxed (and many other factors). 


This blog is intended to provide a surface-level overview of the 2020 Final Regulations. As evidenced, the rules and regulations surrounding the taxation of foreign income is extremely complex; therefore, it is exceedingly easy to perform an erroneous action that will get the attention of the IRS. 

Weisberg Kainen Mark is a firm with extensive experience handling a wide variety of tax disputes. If you are dealing with IRS agents and don’t know where to turn, give us a call today at 305-374-5544 to discuss your options with a member of our team.

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