Treasury to allow entity treatment for GILTI for S corporations

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September 2020


Treasury on September 1 issued Notice 2020-69, which, among other things, provides notice that regulations are expected that would allow certain S corporations to elect entity-level treatment for purposes of the Global Intangible Low-Taxed Income (GILTI) rule under Section 951A. The election can be made for a timely filed return (including extensions) for tax years ending on or after September 1, 2020.  For tax years ending prior to September 1, 2020 and after July 21, 2019, the S corporation and all of its shareholders must elect on a timely filed original return (including extensions) or an amended return filed by March 15, 2021. Until regulations are issued, Notice 2020-69 states that taxpayers may rely upon the Notice provided the S corporation and all shareholders that are US shareholders of the controlled foreign corporation consistently apply the rules of the Notice as stated therein.

The takeaway

The Notice is welcome relief for taxpayers that were concerned about the possibility of the taxation of distributions made to cover a shareholder’s GILTI tax liability with the protection the AAA usually provides with regard to items of S corporation income.  In addition, the election should ease the technical and administrative burdens that the current regulations have created.  Ideally, Treasury would provide such an election for all S corporations in order to ease compliance with the complex GILTI rules and the cumbersome reporting that will be required.

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Horacio Sobol

Partner, M&A Tax, PwC US

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