Corporation received 120-day relief for a late GILTI high-tax election

Plain-English summary

A domestic corporation sought to make the GILTI high-tax exclusion election for its wholly owned controlled foreign corporation on an amended return. The election regulations were not final when the original return was filed, and the corporation later directed its accounting firm to prepare the amended return before the 24-month deadline expired. The completed return was not signed and filed until after that deadline because neither the corporation nor the accounting firm understood the timing rule. The corporation represented that relief would not reduce its aggregate tax across affected years, could not create an underpayment in a closed year, and affected no other taxpayer. The IRS found the late-election standards satisfied and deemed the election timely, giving the corporation 120 days to make it.

Ruling snapshot

• Question: Could the corporation make a late GILTI high-tax exclusion election for its controlled foreign corporation?
• Outcome: approved, 120-day extension and the filed election deemed timely
• Key authorities: IRC § 951A; Treas. Reg. §§ 1.951A-2(c)(7), 1.964-1(c), 301.9100-1, and 301.9100-3

Full text (IRS public release)

 Internal Revenue Service                                   Department of the Treasury
                                                            Washington, DC 20224

 Number: 202249012                                          Third Party Communication: None
 Release Date: 12/9/2022                                    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-109338-22
                                                            Date:
                                                            September 08, 2022




                 TY

Legend

X = ---------------------------------------------------------
CFC = ----------------------------------------------
Tax Year 1 = ----------------------------------------------------------
Tax Year 2 = ----------------------------------------------------------

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

This letter responds to a letter dated May 9, 2022, 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 CFC, X’s controlled foreign
corporation (as defined in section 957(a)) (a CFC), for the CFC inclusion year (as
defined in Treas. Reg. §1.951A-1(f)(1)) that ends with or within X’s U.S. shareholder
inclusion year (as defined in Treas. Reg. §1.951A-1(f)(7)), Tax Year 1.

PLR-109338-22                                       2

FACTS

X, a domestic corporation, is the sole owner and controlling domestic shareholder (as
defined in Treas. Reg. §1.964-1(c)(5)) of CFC. X’s federal tax compliance was the
responsibility of its Controller and President but X had engaged the tax consulting and
tax return preparation services of an accounting firm to supplement its tax function. X
timely filed (before the issuance of the final GILTI HTE Election regulations1) a Form
1120 for Tax Year 1.

During the preparation of X’s Form 1120 for Tax Year 2, X’s accounting firm informed X
of the availability and benefit of making a GILTI HTE Election on an amended return for
Tax Year 1. At this point (before the 24-month period described in Treas. Reg.
§1.951A-2(c)(7)(viii)(A)(2)(ii) had expired), X directed its accounting firm to prepare the
amended return. Once the accounting firm finalized the amended return and the GILTI
HTE Election (on a date after the 24-month period described in Treas. Reg. §1.951A-
2(c)(7)(viii)(A)(2)(ii) had expired), X reviewed, signed, and filed it.

Neither X nor its accounting firm knew that X’s amended return had to be filed within the
24-month period described in Treas. Reg. §1.951A-2(c)(7)(viii)(A)(2)(ii) for the GILTI
HTE Election to be valid. X’s accounting firm discovered the error after X had filed its
amended return when the timeliness of the election arose with respect to another tax
client. As of the filing of the request, X had not received any correspondence from the
IRS relating to the amended return or the GILTI HTE Election for Tax Year 1.

X represents that granting the relief requested will not result in X having a lower tax
liability in the aggregate for all affected years than X would have had if the election had
been timely made. X also represents that the effect of the election is an increase to the
amount of an NOL carryforward into open tax years and the election could not produce
any underpayment in any closed year. Further, X is the only U.S. shareholder (as
defined in section 951(b)) of CFC in the CFC group (as defined in Treas. Reg. §1.951A-
2(c)(7)(viii)(E)(2)); X is the only taxpayer affected by the GILTI HTE Election; and each
of X’s affected tax years remain open for assessment as of the date of this letter.

LAW AND ANALYSIS

Section 951A(a) provides that a 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


1 T.D. 9902, 85 FR 44620.  Before the filing of X’s original Form 1120 for Tax Year 1, X could not make
the GILTI HTE Election because the GILTI HTE Regulations had not been finalized and the election was
not available. As such, X had not discussed the effect of the election with its accounting firm.

PLR-109338-22                                 3

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
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 §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 §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 §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 §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)(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.

PLR-109338-22                                4


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. 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). A taxpayer is also deemed to have acted
reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election. Treas. Reg.
§301.9100-3(b)(v).

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.

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. X is
hereby granted an extension of time of one hundred twenty (120) days to make a GILTI
HTE Election with respect to CFC for the CFC inclusion year that ends with or within X’s
U.S. shareholder inclusion year. Therefore, the GILTI HTE Election filed by X for CFC
for Tax Year 1 is deemed timely.

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.

PLR-109338-22                                           5

Except as expressly provided herein, no opinion 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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                                    Sincerely,

                                                    /s/ Larry R. Pounders

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


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