Recent changes may eliminate some of the deemed distributions from controlled foreign corporations (CFCs) for US Shareholders, reducing the number of forms or complexity in completing them. In certain cases, this might even reduce the amount of state taxes, especially for individual taxpayers in states (e.g., Michigan) where the income flows through from the federal return without any credits (as can be the case for the federal return).

Because the changes also allow for the making of an election on tax returns back to 2018, this may offer an opportunity to file amended returns and obtain a tax refund.

The changes relate to the ability to make an election to exclude certain income that is subject to a tax rate in the foreign country that is greater than 18.9% from the new GILTI deemed taxation provisions. The changes also allow for the election to be made on an annual basis rather than having to stick with the election for five years once made. This provides taxpayers greater flexibility, especially with the constantly changing tax environment (and possible change in the US administration!).

If you have a situation where you are a US Shareholder of a CFC and have been paying taxes on GILTI (and Subpart F) deemed distribution, you should review your situation and determine if this is a beneficial tax change. This might include the opportunity to file amended returns (although you only have 24 months from the original due date - without extensions - to file). If your 2019 tax return has not been filed yet, be sure to consider this change, which may not have been considered up to now. Contact your Moore Doeren Mayhew representative, or click here for further information and assistance.