A US Internal Revenue Service “practice unit” released January 4 offers an overview of the rules relating to the dividends received deduction for certain foreign income of US corporations under Internal Revenue Code section 245A.
Enacted by the 2017 Tax Cuts and Jobs Act, IRC section 245A allows a 100% dividends received deduction for the foreign-source portion of dividends received by certain corporate US shareholders from specified 10%-owned foreign corporations. The deduction is effective for distributions made in 2018 or later. The deduction is generally available only for distributions of residual untaxed foreign-source earnings and profits remaining after application of the “subpart F” and global intangible low-taxed income (GILTI) provisions.
Treasury regulations limit the dividends received deduction in the case of certain dividends from current or former controlled foreign corporations. The regulations also address situations in which the dividends received deduction could apply to distributions of earnings and profits not previously taxed under subpart F or GILTI provisions due to differences in their effective dates. The regulations further limit application of an exception with respect to certain dividends paid by a lower-tier to an upper-tier controlled foreign corporation. Additionally, the regulations include special rules for hybrid dividends.
The new IRS practice unit describes and highlights key applicable aspects of these rules. IRS practice units are internal training materials developed for agency employees.
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