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FDII: Claiming New IRC 250 Foreign Derived Intangible Income Deduction on Form 8993

Determining Eligibility, Identifying QBAI and Deduction-Eligible Income (DEI), Calculating FDII Deduction

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

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Conducted on Thursday, May 16, 2019

Recorded event now available

This course will provide tax advisers with a practical guide to calculating and reporting the Section 250 tax deduction for foreign-derived intangible income (FDII). The panel will go through the steps required to identify qualified business asset investment (QBAI) property, deduction-eligible income (DEI), and foreign-derived deduction-eligible income (FDDEI), and determine the deemed intangible income and calculate the deduction. The webinar will detail how to report the deduction claim on new Form 8993 and what documentation requirements must be met to obtain the FDII deduction.

Description

The Section 250(a) FDII deduction passed in the 2017 tax reform legislation provides a significant tax-savings opportunity for U.S. domestic corporations providing goods or services to foreign markets. Designed to counter the impact of the onerous GILTI provisions, the FDII deduction reduces the effective tax rate on qualifying income to 13.125% by 37.5% through tax years ending Dec. 31, 2025.

Determining the FDII deduction requires complex analysis involving multiple steps. The corporation must first calculate gross income, extract certain income items such as foreign branch income, income included under Subpart F, and dividends received from controlled foreign corporations, and allocate deductions to determine DEI. Then the taxpayer must identify what portion of this DEI is foreign, based on the definitions provided by Section 250. The corporation must also calculate the deemed intangible income, which is the excess of the corporation's DEI over a set 10% portion of its QBAI.

Both the qualitative (determining what income, deductions and assets correctly apply in an FDII calculation) and quantitative (arriving at accurate calculations) aspects of calculating the FDII deduction are complicated and will present significant reporting challenges for corporate tax professionals. However, the benefits are substantial: Income qualifying for the deduction is taxed at a rate of 13.125%, providing a significant tax incentive for U.S. corporations to keep certain operations and possibly intangibles assets situated domestically.

Listen as our experienced panel provides a practical guide to the planning opportunities and reporting challenges of the FDII deduction for U.S. corporations.

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Outline

  1. Section 250(a) FDII deduction
    1. Taxpayers eligible for deduction
    2. Interplay with GILTI provisions
    3. Rate structure
    4. Export incentive
  2. Definitions
  3. Gross income calculations and exclusions to determine DEI
  4. Calculating deemed intangible income
  5. Determining foreign derived ratio
  6. Calculating FDII
  7. Reporting on Form 8993 and FDII documentation requirements

Benefits

The panel will discuss these and other relevant topics:

  • How Section 250(a) FDII deduction ties back to the GILTI provisions in the 2017 tax legislation
  • How to go through the multi-step process to identify, calculate and claim the FDII deduction
  • Which assets qualify as QBAI and which assets do not
  • Planning opportunities around the FDII deduction

Faculty

Karnis, Daniel
Daniel Karnis
Partner
Ernst & Young

Mr. Karnis has over 20 years of experience assisting U.S. multinational businesses with U.S. tax planning and...  |  Read More

Tassone, Marianne
Marianne Tassone
Atty
Fenwick & West

Ms. Tassone concentrates her practice on a broad variety of tax matters to support clients in the high technology and...  |  Read More

Ushakova-Stein, Julia
Julia Ushakova-Stein
Atty
Fenwick & West

Ms. Ushakova-Stein focuses her practice on U.S. tax planning and tax controversy matters, with an emphasis on...  |  Read More