The IRS has issued proposed regulations on the GILTI deduction under Code §250. The proposed regulations indicate that a GILTI deduction will be available for an individual who makes a Code §962 election to be taxed at corporate rates.
The preamble to the proposed regulations provides in part:
Congress enacted section 962 to ensure that individuals’ tax burdens with respect to undistributed foreign earnings of their CFCs “will be no heavier than they would have been had they invested in an American corporation doing business abroad.” S. Rept. 1881, 1962-3 C.B. 784, at 798. Existing §1.962-1(b)(1)(i) provides that a deduction of a U.S. shareholder does not reduce the amount included in gross income under section 951(a) for purposes of computing the amount of tax that would be imposed under section 11. However, allowing a section 250 deduction with respect to GILTI of an individual (including an individual that is a shareholder of an S corporation or a partner in a partnership) that makes an election under section 962 is consistent with the purpose of that provision of ensuring that such individual’s tax burden with respect to its CFC’s undistributed foreign earnings is no greater than if the individual owned such CFC through a domestic corporation. Accordingly, the proposed regulations provide that, for purposes of section 962, “taxable income” as used in section 11 of an electing individual is reduced by the portion of the section 250 deduction that would be allowed to a domestic corporation with respect to the individual’s GILTI and the section 78 gross-up attributable to the shareholder’s GILTI. See proposed §1.962-1(b)(1)(i)(B)(3).