Section 962 Election - What is a 962 Election for Corporate Tax Rates

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How Section 962 Election for GILTI Works: Before getting into the mechanics of making an Internal Revenue Code Section 962 election, it is important to understand the basics of why a US Person would want to make an IRC 962 election in the first place. Until recently, Internal Revenue Code section 962 was not used much by Taxpayers, since the US tax rate for individuals has dropped significantly than in years past. An IRC 962 election is an election to be taxed as a Corporation. And, most taxpayers would not want to elect to be treated as a corporation and then become double taxed. Then, came the Tax Cuts and Jobs Act TCJA — and the introduction of GILTI and FDII. FDII is Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI). The US corporate tax rate in the United States was reduced to 21%. Thus, depending on a specific individual’s facts and circumstances, a Taxpayer may benefit from making an election to be subject to tax at corporate rates for GILTI (and sometimes Subpart F) — and take a 50% deduction along with utilizing up to 80% of Foreign Tax Credits that were paid by a foreign corporation and therefore not generally applicable for a US Person filing their individual tax return. Let’s go to the basics of this section 962 election and how it impacts individual taxpayers for GILTI.

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