Insurance issues in the final Section 250 deduction regulations

Overview

Treasury and the IRS recently released final regulations (the Final Regulations) addressing the deduction for Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (collectively, the Section 250 deduction) as enacted by the 2017 tax reform act (the Act). Section 250 generally allows taxpayers to claim a deduction with respect to deemed intangible income earned from servicing foreign markets directly from the United States or through controlled foreign corporations (CFCs). This Tax Insight focuses on specific insurance issues associated with the Final Regulations.

The takeaway

The Final Regulations include several developments that may be relevant for insurance businesses, including the application of the taxable income limitations in Sections 163(j), 172, and 250; the acknowledgement of the issues faced by life-nonlife consolidated groups in applying the single-entity approach; and the continued exclusion of financial services income. Below are a few actions these businesses may want to consider:

• Submit comments on the application of the Section 250 deduction to life-nonlife consolidated groups and the application of the taxable income limitations in Sections 163(j), 172, and 250. 
• Model out the impact of using other reasonable methods in lieu of the ordering rule in the Proposed Regulations to compute the Section 250 deduction, as discussed in the Final Regulations.
• Monitor guidance on the definition of financial services income, and assess both potential favorable (e.g., increased FDII) and unfavorable (e.g., reduced FTCs) impacts of such changes.