9100 relief for late GILTI high-tax exclusion elections triggered by a treaty MAP adjustment

Plain-English summary

A US corporation owned a group of controlled foreign corporations (CFCs). US owners of CFCs generally must pay tax each year on "GILTI," a category of their foreign subsidiaries' income, but they can elect a "high-tax exclusion" to leave out income already taxed abroad at a high enough rate. For the four years at issue, the taxpayer originally had no GILTI because its CFCs' losses exceeded their income, so it had no reason to make the election. Later, a Mutual Agreement Procedure between the US and a foreign country's tax authority retroactively treated one CFC as having transferred the group's intellectual property to the US parent and recharacterized related transactions, which would have created GILTI for all four years. By the time that agreement was finalized, the normal 24-month window to make the high-tax election on amended returns had already closed. The taxpayer asked the IRS for an extension of time under Treasury Regulation section 301.9100-3. The IRS found the taxpayer was reasonably unaware of the need for the election and did not use hindsight, because the recharacterized transactions were deemed to have happened before each original election deadline. It granted 120 days to make the high-tax exclusion elections for all four years on amended returns.

Ruling snapshot

• Question: May a US shareholder get an extension of time to make late GILTI high-tax exclusion elections after a treaty MAP retroactively created foreign income?
• Outcome: approved
• Key authorities: IRC § 951A; Treas. Reg. §§ 1.951A-2(c)(7), 301.9100-1, 301.9100-3

Full text (IRS public release)

Internal Revenue Service                                       Department of the Treasury
                                                               Washington, DC 20224

Number: 202505015                                              Third Party Communication: None
Release Date: 1/31/2025                                        Date of Communication: Not Applicable
Index Number: 9100.00-00, 9100.22-00,
              951A.00-00, 951A.02-00                           Person To Contact:
                                                               --------------, ID No. -----------------
-------------------                                            Telephone Number:
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-----------------------------                                  Refer Reply To:
--------------------------------------                         CC:INTL:B02
                                                               PLR-112032-24
                                                               Date:
                                                               October 31, 2024




                TY: --------------------------------

Legend

Taxpayer                       =                       ----------------------------------------
Members of                     =                            -------------------------------------------------------
Taxpayer’s CFC                                              -------------------------------------------------------
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PLR-112032-24                                2

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 CFC X                   =                 --------------
 Date 1                  =                 -------------------
 Tax Year 1              =                 -----------------------------------------------
 Tax Year 2              =                 --------------------------------------------
 Tax Year 3              =                 --------------------------------------------
 Tax Year 4              =                 --------------------------------------------
 Country X               =                 ---------------------
 Date 2                  =                 -----------------------
 Date 3                  =                 ------------------


Dear ---------------:

This letter responds to a letter dated Date 1 and supplemental correspondence submitted
on behalf of Taxpayer by its authorized representatives, requesting an extension of time
under §301.9100-3 for Taxpayer to file a global intangible low-taxed income (“GILTI")
high-tax exclusion election (“GILTI HTE Election”) under §1.951A-2(c)(7)(viii) with respect
to each controlled foreign corporation (as defined in section 957(a)) (“CFC”) that is a
member of Taxpayer’s CFC Group as defined in Treas. Reg. §1.951A-2(c)(7)(viii)(E)(2)(i),
for the CFC inclusion years (as defined in Treas. Reg. §1.951A-1(f)(1)) that end with or
within Taxpayer’s U.S. shareholder inclusion years (as defined in Treas. Reg. §1.951A-
1(f)(7)), Tax Year 1, Tax Year 2, Tax Year 3, and Tax Year 4.

FACTS

Taxpayer is a domestic corporation. During Tax Year 1, Tax Year 2, Tax Year 3, and Tax
Year 4, Taxpayer, directly or indirectly, wholly owned all of the members of the Taxpayer’s
CFC Group as provided in the Legend above. Taxpayer is the only controlling domestic
shareholder for each CFC in Taxpayer’s CFC Group.

Prior to Tax Year 1, CFC X, a foreign corporation organized under the laws of Country X,
became a wholly owned subsidiary and, thus, a CFC of Taxpayer. CFC X was the legal
owner of all of the intellectual property (IP) of the group. CFC X contracted with Taxpayer
and its other affiliates to provide research and development (R&D) services and sales
and marketing support.
PLR-112032-24                                3

For Tax Year 1, Tax Year 2, Tax Year 3, and Tax Year 4, Taxpayer was the sole
controlling domestic shareholder of CFC X and the other CFCs in the Taxpayer’s CFC
Group. For Tax Year 1, Tax Year 2, Tax Year 3, and Tax Year 4, Taxpayer timely filed
its original Form 1120 for each year. As originally computed for Tax Year 1, Tax Year 2,
Tax Year 3, and Tax Year 4, Taxpayer did not have net CFC tested income within the
meaning of section 951A(c)(1) and Treas. Reg. §1.951A-1(c)(2) because its pro rata
share of tested losses from its CFCs exceeded its pro rata share of tested income from
its CFCs. Therefore, Taxpayer did not report any GILTI inclusions for those years and
did not have a reason to consider or make the GILTI HTE Election.

On or around Date 2, the Country X tax authority began its review of the activities of CFC
X and its affiliates. Pursuant to a Mutual Agreement Procedure (MAP) between the U.S.
Competent Authority and the Country X tax authority, it was agreed that CFC X should
have been treated as distributing the group’s IP to Taxpayer on the last day of Tax Year 1.
The MAP also extended the statute of limitations of Taxpayer for Tax Year 1, Tax Year 2,
and Tax Year 3. However, the MAP was not completed until Date 3, which was more
than 24 months after the unextended due date of the original tax return for Tax Year 4.
As a result of the deemed transfer of IP from CFC X to Taxpayer, CFC X would have
been treated as earning tested income in Tax Year 1. In addition, as of the first day of
Tax Year 2, all transactions in which Taxpayer had been treated as a service provider to
CFC X would be reversed and CFC X would instead be treated as a limited risk distributor
and R&D service provider. Therefore, for Tax Year 2, Tax Year 3, and Tax Year 4, CFC
X would have been treated as earning tested income as a result of providing R&D services
and serving as a limited risk distributor for Taxpayer.

The tested income from both the deemed IP transfer on the last day of Tax Year 1 and
provision of services in Tax Year 2, Tax Year 3, and Tax Year 4 would result in GILTI
inclusions for Taxpayer unless GILTI HTE Elections were made for each of those years.
Taxpayer is not able to make GILTI HTE Elections on amended returns as described in
Treas. Reg. §1.951A-2(c)(7)(viii)(A)(2)(i) because more than 24 months have passed
since the unextended due date of the original tax return for Tax Year 4. Prior to the
Country X review and completion of the MAP, Taxpayer was unaware of the necessity for
a GILTI HTE Election for the affected tax years and was not advised to make a GILTI
HTE Election in any of those years.

Taxpayer is not currently under examination for Tax Year 1, Tax Year 2, Tax Year 3, or
Tax Year 4 or any other year in which any issue with respect to the election is presented
on a return. Taxpayer represents that no facts have changed that would indicate the use
of hindsight. Taxpayer represents that granting the relief requested will not result in
Taxpayer having a lower tax liability in the aggregate for all affected years than Taxpayer
would have had if the election had been timely made. Taxpayer represents that the
statute of limitations under section 6501(a) has not expired for the tax year of Taxpayer
or any of the affected taxpayers for any periods affected by the election. Further,
Taxpayer is the only U.S. shareholder that directly or indirectly owns stock in each
PLR-112032-24                                 4

member of Taxpayer’s CFC Group, and therefore, Taxpayer is the only taxpayer affected
by the GILTI HTE Election.

LAW AND ANALYSIS

Section 951A(a) provides that a U.S. shareholder of any CFC for any taxable year of the
U.S. shareholder must include in gross income the shareholder’s GILTI for that taxable
year.

Section 951A(b) provides that the term “GILTI” means, with respect to any U.S.
shareholder for any taxable year of such U.S. shareholder, the excess (if any) of such
shareholder’s net CFC tested income for such taxable year, over such shareholder’s net
deemed tangible income return for such taxable year.

Section 951A(c)(1) generally provides that the term “net CFC tested income” means, with
respect to any U.S. shareholder for any taxable year, the excess (if any) of the aggregate
of such shareholder’s pro rata share of the tested income of each CFC with respect to
which such shareholder is a U.S. shareholder for such taxable year of such U.S.
shareholder, over the aggregate of such shareholder’s pro rata share of the tested loss
of each CFC with respect to which such shareholder is a U.S. shareholder for such
taxable year of such U.S. shareholder.

Section 951A(c)(2)(A) provides that the term “tested income” means, with respect to any
CFC for any taxable year of such CFC, the excess (if any) of the gross income of such
corporation determined without regard to certain items of income, including any gross
income excluded from the foreign base company income (as defined in section 954) and
the insurance income (as defined in section 953) of such corporation by reason of section
954(b)(4), over the deductions (including taxes) properly allocable to such gross income
under rules similar to the rules of section 954(b)(5) (or to which such deductions would
be allocable if there were such gross income).

Section 1.951A-2(c)(7)(i) generally provides that for purposes of determining the tested
income of a CFC, a tentative gross tested income item (determined under §1.951A-
2(c)(7)(ii)(A)) qualifies for the exception described in section 954(b)(4) only if a GILTI HTE
Election is effective with respect to the CFC for the CFC inclusion year (as defined in
§1.951A-1(f)(1)) and the tentative tested income item with respect to the tentative gross
tested income item was subject to an effective rate of foreign tax that is greater than 90
percent of the maximum rate of tax specified in section 11.

Section 1.951A-2(c)(7)(viii) provides that the GILTI HTE Election is made by the
controlling domestic shareholders with respect to a CFC for a CFC inclusion year by filing
the statement required under §1.964-1(c)(3)(ii) with a timely filed original federal income
tax return, or with an amended federal income tax return, for the U.S. shareholder
inclusion year of each controlling domestic shareholder in which or with which such CFC
inclusion year ends; providing any notices required under §1.964-1(c)(3)(iii); and
PLR-112032-24                                  5

providing any additional        information    required    by    applicable    administrative
pronouncements.

Section 1.951A-2(c)(7)(viii)(E)(1) provides that if a CFC is a member of a CFC group, the
GILTI HTE Election is made with respect to all CFCs that are members of the CFC group.

Section 1.951A-2(c)(7)(viii)(E)(2)(i) provides that a CFC group means an affiliated group
as defined in section 1504(a) without regard to section 1504(b)(1) through (6), except that
section 1504(a) is applied by substituting “more than 50 percent” for “at least 80 percent”
each place it appears, and section 1504(a)(2)(A) is applied by substituting “or” for “and.”
For purposes of §1.951A-2(c)(7)(viii)(E)(2)(i), stock ownership is determined by applying
the constructive ownership rules of section 318(a), other than section 318(a)(3)(A) and
(B), by applying section 318(a)(4) only to options (as defined in §1.1504-4(d)) that are
reasonably certain to be exercised as described in §1.1504-4(g), and by substituting in
section 318(a)(2)(C) “5 percent” for “50 percent.”

Section 1.951A-2(c)(7)(viii)(A)(2)(i) generally provides that a controlling domestic
shareholder may make the election with an amended federal income tax return, duly filed
within 24 months of the unextended due date of the original federal income tax return for
the U.S. shareholder inclusion year with or within which the CFC inclusion year ends.

Section 1.951A-2(c)(7)(viii)(D) provides that a GILTI HTE Election is valid only if all of the
requirements in Treas. Reg. §1.951A-2(c)(7)(viii)(A) are satisfied.

Section 301.9100-1(c) provides that the Commissioner may grant a reasonable extension
of time to make a regulatory election, or a statutory election (but no more than six months
except in the case of a taxpayer who is abroad), under all subtitles of the Internal Revenue
Code, except subtitles E, G, H, and I.

Section 301.9100-1(b) defines the term “regulatory election” as an election whose due
date is prescribed by a regulation published in the Federal Register or a revenue ruling,
revenue procedure, notice, or announcement published in the Internal Revenue Bulletin.

Section 301.9100-2 provides automatic extensions of time for making certain elections.

Section 301.9100-3 provides rules for requesting extensions of time for regulatory
elections that do not meet the requirements of Treas. Reg. §301.9100-2. It provides that
these requests for relief are granted when the taxpayer provides the evidence (including
affidavits) to establish to the satisfaction of the Commissioner that the taxpayer acted
reasonably and in good faith, and the grant of relief will not prejudice the interests of the
Government. A taxpayer is deemed to have acted reasonably and in good faith if the
taxpayer requests relief before the failure to make the regulatory election is discovered
by the IRS. Treas. Reg. §301.9100-3(b)(i). A taxpayer is deemed to have acted
reasonably and in good faith if the taxpayer failed to make the election because, after
exercising reasonable diligence (taking into account the taxpayer’s experience and the
PLR-112032-24                                 6

complexity of the return or issue), the taxpayer was unaware of the necessity for the
election. Treas. Reg. §301.9100-3(b)(iii).

Section 301.9100-3(b)(3)(ii) provides that a taxpayer is not deemed to have acted
reasonably and in good faith if the taxpayer was informed in all material respects of the
required election and related tax consequences, but chose not to file the election.

Section 301.9100-3(b)(3)(iii) provides that a taxpayer is not deemed to have acted
reasonably and in good faith if the taxpayer uses hindsight in requesting relief. If specific
facts have changed since the due date for making the election that make the election
advantageous to the taxpayer, the IRS will not ordinarily grant relief. In such a case, the
IRS will grant relief only when the taxpayer provides strong proof that the taxpayer’s
decision to seek relief did not involve hindsight.

Section §301.9100-1(a) provides that granting an extension of time for making an election
is not a determination that a taxpayer is otherwise eligible to make the election or that a
taxpayer complied with the other requirements for a valid election.

CONCLUSION

Based on the facts provided and representations made, we conclude that the
requirements of Treas. Reg. §§301.9100-1 and 301.9100-3 have been satisfied.
Specifically, Taxpayer represents that it met one or more of the conditions in Treas. Reg.
§301.9901-3(b)(1), including that it failed to make the election because, after exercising
reasonable diligence, Taxpayer was unaware of the necessity for the election. Although
the MAP was not completed until Date 3, because the MAP relates to transactions that
are deemed to have occurred prior to each of the respective due dates for making the
GILTI HTE Election for Tax Year 1, Tax Year 2, Tax Year 3, and Tax Year 4, Taxpayer
did not use hindsight in requesting relief because no facts have changed since those
respective due dates.

Taxpayer is hereby granted an extension of time of one hundred twenty (120) days from
the date of this letter to make GILTI HTE Elections with respect to the Taxpayer’s CFC
Group for the CFC inclusion years that end with or within Taxpayer’s U.S. shareholder
inclusion years, Tax Year 1, Tax Year 2, Tax Year 3, and Tax Year 4. Taxpayer should
make the elections in written statements attached to duly filed Forms 1120X for Tax Year
1, Tax Year 2, Tax Year 3, and Tax Year 4.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted in
support of the request for ruling, it is subject to verification on examination.
PLR-112032-24                                            7

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in this
letter.

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.

Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of the letter
ruling.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to your authorized representative.


                                                   Sincerely,

                                                   /s/ Melinda E. Harvey

                                                   Melinda E. Harvey
                                                   Branch Chief, Branch 2
                                                   Associate Chief Counsel (International)



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