Treasury, IRS issue final and proposed regulations on income subject to a high rate of foreign tax

The Department of the Treasury and the Internal Revenue Service today issued a final regulation addressing the treatment of income earned by certain foreign corporations that is subject to a high rate of foreign tax.

The final regulations allow taxpayers to exclude certain high-taxed income of a controlled foreign corporation from their Global Intangible Low Taxed Income (GILTI) computation on an elective basis.

Treasury and the IRS today also issued a proposed regulation regarding the high-tax exception with the GILTI high-tax exclusion. Treasury and the IRS welcome public comments.

IR-2020-165

IRS Notice

The Treasury Department and the IRS released a proposed redesigned partnership form for tax year 2021 (filing season 2022). The proposed form is designed to provide greater clarity for partners on how to compute their U.S. income tax liability with respect to items of international tax relevance, including claiming deductions and credits.

The redesigned form and instructions provide guidance to partnerships on how to report international tax information to their partners in a standardized format. This proposed form would apply to a partnership required to file Form 1065 only if the partnership has items of international tax relevance (generally foreign activities or foreign partners). The proposed changes would not affect domestic partnerships with no international tax items to report.

This early release is intended to afford time for stakeholder input and engagement. Treasury and IRS invite comments from affected stakeholders through Sept. 14, 2020. Written comments should be sent to the following email address: lbi.passthrough.international.form.changes@irs.gov with the subject line: “International Form Changes.”
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Summary

On January 30, 2014, Treasury and the IRS issued Proposed Regulations with respect to the disguised sale rules and the rules for allocating partnership liabilities (REG-119305-11). A major driving force behind these Proposed Regulations was the IRS’s victory in Canal Corporation and Subsidiaries, formerly Chesapeake Corporation and Subsidiaries v. Commissioner, 135 T.C. No. 9. (2010). In Canal, the Tax Court shot down a leveraged partnership structure by concluding that the contributing partner did not have a payment obligation with respect to the partner’s indemnity in large part because the terms of the indemnity were not commercially reasonable. Read More