120-day extension for a partnership to make a GILTI high-tax exclusion election for three CFCs

Plain-English summary

US shareholders of a controlled foreign corporation (CFC) generally must include the CFC's "global intangible low-taxed income" (GILTI) in their income each year, but they can elect a "high-tax exclusion" to leave out income that was already taxed abroad above a threshold rate. Here a domestic partnership that is a controlling shareholder of three CFCs wanted to make that GILTI high-tax exclusion election for a past year, to stay consistent with a related corporate owner that had made the election for the same CFC group. It then discovered that the 24-month regulatory window for making the election through an administrative adjustment request (AAR) had already closed, so it asked the IRS for a section 301.9100-3 extension. The IRS found the partnership acted reasonably and in good faith and that relief would not prejudice the government or lower anyone's total tax, so it granted 120 days to make the election for all three CFCs on a timely filed AAR. This matters to partnerships and their owners coordinating GILTI high-tax exclusion elections across a CFC group after the normal amended-return window has expired. (It is a companion ruling to PLRs 202240010 and 202240011, involving the same taxpayer group.)

Ruling snapshot

• Question: May the partnership receive a § 301.9100-3 extension to make a GILTI high-tax exclusion election for its three CFCs after the 24-month AAR window closed?
• Outcome: Approved (120 days to make the election via a timely filed AAR)
• Key authorities: IRC § 951A; Treas. Reg. § 1.951A-2(c)(7)(viii); Treas. Reg. §§ 301.9100-1 and 301.9100-3

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 202240009 Third Party Communication: None
Release Date: 10/7/2022 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.22-00,
951A.00-00, 951A.02-00 Person To Contact:
--------------------, ID No. -----------------
------------------------ Telephone Number:
-------------------------------- --------------------
--------------------- Refer Reply To:
------------------------------ CC:INTL:B02
PLR-104938-22
Date:
July 6, 2022

             TY:

Legend

X = ---------------------------------------------------------------------
CFC1 = -------------------------------
CFC2 = ------------------------------
CFC3 = -----------------------
Partnership Representative = ------------------------------------------------
Company = ------------------------------------
Tax Year = -------------------------------------------------------

Dear -------------------------:

This letter responds to a letter dated March 2, 2022 and subsequently furnished
additional information, submitted on behalf of X by its authorized representatives,
requesting an extension of time under Treas. Reg. §301.9100-3 of the Procedure and
Administration Regulations for X to file a global intangible low-taxed income (GILTI)
high-tax exclusion election (GILTI HTE Election) under Treas. Reg. §1.951A-2(c)(7)(viii)
with respect to its controlled foreign corporations (as defined in section 957(a)) (CFCs)
CFC1, CFC2, and CFC3 for the CFC inclusion years (as defined in Treas. Reg.
§1.951A-1(f)(1)) that end with or within X’s U.S. shareholder inclusion year (as defined
in Treas. Reg. §1.951A-1(f)(7)), Tax Year.

FACTS

X is a domestic partnership and a controlling domestic shareholder (as defined in Treas.
Reg. §1.964-1(c)(5)) of CFC1, CFC2, and CFC3. In Tax Year, X timely filed (before the
issuance of the final GILTI HTE Election regulations1) Form 1065 for Tax Year. X is

1 T.D. 9902, 85 FR 44620.
PLR-104938-22 2

subject to the centralized partnership audit regime in Subchapter C of Chapter 63 of the
Code.

After X’s Form 1065 for Tax Year was filed, Partnership Representative decided to
make a GILTI HTE Election for Tax Year with respect to CFC1, CFC2, and CFC3. This
was necessary because Company, a domestic corporation that indirectly owns a
majority interest in X, chose to make for the CFC inclusion years that end with or within
Company’s U.S. shareholder inclusion year a GILTI HTE Election for CFCs with respect
to which it is a controlling domestic shareholder, which are in the same CFC group (as
defined in Treas. Reg. §1.951A-2(c)(7)(viii)(E)(2)) as CFC1, CFC2, and CFC3.
However, during the preparation of Company’s amended return for Tax Year, it was
discovered that the 24-month period described in Treas. Reg. §1.951A-
2(c)(7)(viii)(A)(2)(ii) for X to make the GILTI HTE Election for Tax Year with respect to
CFC1, CFC2, and CFC3 on an administrative adjustment request (AAR) (as described
in section 6227 and Treas. Reg. §301.6227-1) had expired.

X represents that granting the relief requested will not result in X or its partners having a
lower tax liability in the aggregate for all affected years than X or its partners would have
had if the election had been timely made. X further represents that the granting of relief
will not result in any deficiency in tax that the government would be precluded from
assessing.

LAW AND ANALYSIS

Section 951A(a) provides that every person that is a United States shareholder (as
defined in section 951(b)) (U.S. shareholder) of any CFC for any taxable year of the
U.S. shareholder must include in gross income the shareholder’s GILTI for that taxable
year.

Section 951A(b) provides that the term GILTI means, with respect to any U.S.
shareholder for any taxable year of such U.S. shareholder, the excess (if any) of such
shareholder’s net CFC tested income for such taxable year, over such shareholder’s net
deemed tangible income return for such taxable year.

Section 951A(c)(1) generally provides that the term “net CFC tested income” means,
with respect to any U.S. shareholder for any taxable year of such U.S. shareholder, the
excess (if any) of the aggregate of such shareholder’s pro rata share of the tested
income of each CFC with respect to which such shareholder is a U.S. shareholder for
such taxable year of such U.S. shareholder, over the aggregate of such shareholder’s
pro rata share of the tested loss of each CFC with respect to which such shareholder is
a U.S. shareholder for such taxable year of such U.S. shareholder.

Section 951A(c)(2)(A) provides that the term “tested income” means, with respect to any
CFC for any taxable year of such CFC, the excess (if any) of the gross income of such
corporation determined without regard to certain items of income, including any gross
PLR-104938-22 3

income excluded from the foreign base company income (as defined in section 954)
and the insurance income (as defined in section 953) of such corporation by reason of
section 954(b)(4), over the deductions (including taxes) properly allocable to such gross
income under rules similar to the rules of section 954(b)(5) (or to which such deductions
would be allocable if there were such gross income).

Section 1.951A-2(c)(7)(i) generally provides that for purposes of determining the tested
income of a CFC, a tentative gross tested income item (determined under Treas. Reg.
§1.951A-2(c)(7)(ii)(A)) qualifies for the exception described in section 954(b)(4) only if a
GILTI HTE Election is effective with respect to the CFC for the CFC inclusion year (as
defined in Treas. Reg. §1.951A-1(f)(1)) and the tentative tested income item with
respect to the tentative gross tested income item was subject to an effective rate of
foreign tax that is greater than 90 percent of the maximum rate of tax specified in
section 11.

Section 1.951A-2(c)(7)(viii) provides that the GILTI HTE Election is made by the
controlling domestic shareholder with respect to a CFC for a CFC inclusion year by filing
the statement required under Treas. Reg. §1.964-1(c)(3)(ii) with a timely filed original
federal income tax return, or with an amended federal income tax return, for the U.S.
shareholder inclusion year of each controlling domestic shareholder in which or with
which such CFC inclusion year ends; providing any notices required under Treas. Reg.
§1.964-1(c)(3)(iii); and providing any additional information required by applicable
administrative pronouncements.

Section 1.951A-2(c)(7)(viii)(A)(2)(i) generally provides that a controlling domestic
shareholder may make the election with an amended federal income tax return, duly
filed within 24 months of the unextended due date of the original federal income tax
return for the U.S. shareholder inclusion year with or within which the CFC inclusion
year ends.

Section 1.951A-2(c)(7)(viii)(A)(2)(ii) provides that in the case of an election filed with an
amended return, each U.S. shareholder that owns within the meaning of section 958(a)
stock of the CFC as of the end of the CFC's taxable year to which the election relates
must file an amended federal income tax return reflecting the effect of such election for
the U.S. shareholder inclusion year with or within which the CFC inclusion year ends as
well as for any other taxable year in which the U.S. tax liability of the U.S shareholder
would be increased by reason of the election within a single period no greater than six
months within the 24-month period starting with the unextended due date of the original
income tax return of the controlling domestic shareholder for the U.S. shareholder
inclusion year with or within which the CFC inclusion year ends.

Section 1.951A-2(c)(7)(viii)(A)(2)(iii) provides that each U.S. shareholder in the CFC as
of the end of the CFC’s taxable year to which the election relates must pay any tax due
as a result of such adjustments within a single period no greater than six months within
the 24-month period starting with the unextended due date of the original income tax
PLR-104938-22 4

return for the U.S. shareholder’s inclusion year with or within which the CFC inclusion
year ends.

Section 1.951A-2(c)(7)(viii)(A)(3) provides that in applying Treas. Reg. §1.951A-
2(c)(7)(viii)(A)(2) to a U.S. shareholder that is a domestic partnership, references to a
“federal income tax return” are replaced with “Form 1065 (or successor form)” and
references to an “amended federal income tax return” are replaced with “amended Form
1065 (or successor form) or administrative adjustment request (as described in Treas.
Reg. §301.6227-1), as applicable.”

Section 1.951A-2(c)(7)(viii)(D) provides that a GILTI HTE election is valid only if all of
the requirements in Treas. Reg. §1.951A-2(c)(7)(viii)(A) are satisfied.

Section 1.951A-2(c)(7)(viii)(E)(1) provides that the GILTI HTE Election must be made
with respect to all CFCs that are members of a CFC group (as determined under Treas.
Reg. §1.951A-2(c)(7)(viii)(E)(2)).

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable
extension of time to make a regulatory election, or a statutory election (but no more than
six months except in the case of a taxpayer who is abroad), under all subtitles of the
Internal Revenue Code, except subtitles E, G, H, and I.

Section 301.9100-1(b) defines the term “regulatory election” as an election whose due
date is prescribed by a regulation published in the Federal Register or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides automatic extensions of time for making certain elections.

Section 301.9100-3 provides rules for requesting extensions of time for regulatory
elections that do not meet the requirements of Treas. Reg. §301.9100-2. It provides
that these requests for relief are granted when the taxpayer provides the evidence
(including affidavits) to establish to the satisfaction of the Commissioner that the
taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice the
interests of the Government. It also provides that a taxpayer is deemed to have acted
reasonably and in good faith if, among other reasons, the taxpayer failed to make the
election because, after exercising reasonable diligence (taking into account the
taxpayer's experience and the complexity of the return or issue), the taxpayer was
unaware of the necessity for the election. Treas. Reg. §301.9100-3(b)(iii).

Section 301.9100-1(a) provides that the granting of an extension of time for making an
election is not a determination that a taxpayer is otherwise eligible to make the election
or that a taxpayer has complied with the other requirements for a valid election.
PLR-104938-22 5

CONCLUSION

Based on the facts provided and representations made, we conclude that the
requirements of Treas. Reg. §§301.9100-1 and 301.9100-3 have been satisfied.
Therefore, X is granted an extension of time of one hundred twenty (120) days from the
date of this letter to make a GILTI HTE Election with respect to CFC1, CFC2, and CFC3
for the CFC inclusion year that ends with or within X’s U.S. shareholder inclusion year,
Tax Year, on a timely filed AAR.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
in support of the request for ruling, it is subject to verification on examination.

Except as expressly provided herein, no opinion, or determination is expressed or
implied concerning the tax consequences of any aspect of any transaction or item
discussed or referenced in this letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the
letter ruling.

                                       Sincerely,

                                       /s/ Larry R. Pounders

                                       Larry R. Pounders
                                       Senior Counsel, Branch 2
                                       (International)

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