Treasury on August 22 released Notice 2019-46 (the Notice), announcing its intent to issue regulations that will permit a domestic partnership or S corporation that would have been treated as a US shareholder of a controlled foreign corporation (CFC) under Prop. Reg. sec. 1.951A-5 (the Proposed Regulations) to apply the Proposed Regulations for tax years that ended before June 22, 2019.
The Proposed Regulations, published on October 10, 2018, provided guidance on determining the global intangible low-taxed income (GILTI) inclusion amount with respect to domestic partnerships and S corporations. The Proposed Regulations applied a hybrid approach (described below) to the treatment of domestic partnerships and S corporations that were treated as a US shareholder of a CFC under the Proposed Regulations. Final GILTI regulations, published on June 21, 2019 (the Final Regulations), substituted an aggregate approach for the Proposed Regulation’s hybrid approach.
In addition to allowing domestic partnerships and S corporations to apply the Proposed Regulations for tax years ending before June 22, 2019, the Notice provides penalty relief (if certain enumerated procedures are followed) for domestic partnerships or S corporations that provided Form K-1s consistent with the Proposed Regulations on or before June 21, 2019.
Domestic partnerships and S corporations may rely on the Notice prior to the issuance of regulations provided they satisfy the requirements set forth in the Notice.
The Notice provides guidance and potential relief to domestic partnerships and S corporations that already furnished Schedules K-1s to partners or shareholders in reliance on the Proposed Regulations. Domestic partnerships or S corporations should plan to comply with the reporting requirements set forth in the Notice in seeking penalty protection for filing a Form 1065 (or Form 1120S) tax return that is consistent with the Final Regulations but inconsistent with previously distributed Schedule K-1s that were based on the Proposed Regulations.
PwC Insight: IRS issues proposed rules on ‘GILTI’ under Section 951A (September 28, 2018)
Principal, M&A Tax, PwC US