• Section 179 Expensing:
o The expensing limitation is increased to $1 million and the phase out amount to $2.5 million. The new limitations are to be adjusted for inflation. The act further expands the definition of §179 property and the definition of qualified real property for improvements made to nonresidential real property.
• Research and Development Credit:
o The research and development credit is preserved.
• Deductions for Income Attributable to Domestic Production Activities:
o Beginning in 2018, the deduction for income attributable to domestic production activities is repealed.
• Entertainments Expenses Deductions:
o Beginning in 2018, no deduction is allowed generally for entertainment, amusement, or recreation; membership dues for a club organized for business, pleasure, recreation, or other social purposes; or a facility used in connection with any of the above.
• NOL Deduction:
o Beginning in 2018, the limit on the NOL deduction is 80% of the taxpayer's taxable income and provides that amounts carried to other years be adjusted to account for the limitation. Amounts are to be carried forward indefinitely.
• Corporate Tax Rate:
o Beginning in 2018, there is a 21% flat corporate tax rate; there is no special tax rate for personal service corporations.
• Alternative Minimum Tax:
o Beginning in 2018, the alternative minimum tax is repealed. In 2018, 2019 and 2020, if taxpayer has AMT credit carryforward, taxpayer is able to claim a refund of 50% of remaining credits (to extent credits exceed regular tax for year). For 2021, taxpayer is able to claim a refund of all remaining credits.
• Pass-Through Tax Rate:
o Beginning in 2018, generally a 20% deduction for qualified business income is provided in lieu of tax rate changes. Special rules apply when computing the deduction. The deduction expires after December 31, 2025.
• U.S. shareholders of CFCs are subject to current U.S. taxation on “global intangible low-taxed income” (GILTI) with a 37.5% deduction for foreign-derived intangible income. There is a revised definition of intangible property for purposes of §367(d) and §482. Clarification of Commissioner's authority to specify method used to determine value of intangible property has also been provided. There is now a denial of deduction for certain related-party amounts paid or accrued in hybrid transactions or with hybrid entities. Dividends received by an individual shareholder of a surrogate foreign corporation are not eligible for reduced rates on dividends in §1(h).
• New §245A, which provides a 100% deduction for the foreign-source portion of dividends received from “specified 10-percent owned foreign corporations” by a domestic corporation that is a U.S. shareholder with respect to the specified 10% owned foreign corporation. Section 245A disallows the foreign tax credit and deduction for any taxes paid or accrued on the with respect to any dividend for which the deduction is allowed and provides special rules for “hybrid dividends.”
• New §91, which provides rules for certain foreign branch loss transfers by a domestic corporation to a specified 10% owned foreign corporation, where the domestic corporation is a U.S. shareholder of the specified 10% owned foreign corporation after the transfer. The Act also repeals the active trade or business exception under §367(a) for transfers of assets to foreign corporations.
• New §965 imposes a current tax on the accumulated post-1986 deferred foreign income determined as of a choice of two dates. Each U.S. corporate shareholder must include its pro rata share of such post-1986 deferred foreign income in taxable income and the amount that represents the “aggregate foreign cash position” is taxed at 8%, while the remaining amount is taxed at a 15.5% rate. New §965 includes rules that allow U.S. shareholders to reduce amounts included in gross income with deficits in earnings and profits from other foreign corporations in which the U.S. corporate shareholder is also a U.S. shareholder. New §965 also includes special rules for U.S. shareholders that are subchapter S corporations and U.S. shareholders that are real estate investment trusts (REITs).
• Repeal of the indirect foreign tax credit under former §902; amendment of the deemed paid credit for subpart F inclusions under §960 so that the foreign tax credit is determined on a current year basis and to provide rules for distributions from previously tax earnings and profits. The Act also amends the foreign tax credit limitation rules by adding a new limitation basket for foreign branch income and adding an election to increase to increase the percentage of domestic taxable income offset by overall domestic loss treated as foreign source.
• Changes to subpart F of subtitle A, chapter 1, subchapter N, part III of the Code, including adjustments to the definition of a controlled foreign corporation (CFC) (repeal of the 30 day waiting period and definition of stock ownership) and U.S. shareholder (repeal of the no attribution from foreign persons rule); the repeal of former §955 addressing the current taxation of previously excluded qualified investments; and repeal of foreign base company oil related income as subpart F income under §954.
• New §250 which allows a deduction to domestic corporations of 37.5% of the foreign-derived intangible income of the domestic corporation plus 50% of the “global intangible low-taxed income” (GILTI) (if any) included in gross income of the corporation under subpart F and the §78 gross-up attributable to the subpart F inclusion. This provision is intended to be a base erosion provision and contains limitations and detailed definitions. Other amendments include limitations on income shifting through intangible property transfers (§936(h)); the denial of a deduction for certain related party amounts paid or accrued in hybrid transactions or with hybrid entities (new §267A, which applies to interest and royalty payments).
• The ineligibility of dividends received by an individual shareholder of a surrogate foreign corporation for the reduced rate of tax under §1(h); and a revised definition of “intangible property.”
• Inbound base erosion and anti-abuse provisions in the Act include new §59A which imposes a tax in addition to the regular tax liability due under §11, equal to the “base erosion minimum tax amount,” which is an amount equal to 10% (5% for taxable years beginning in 2018) of the modified taxable income of applicable taxpayers (generally corporations with average annual gross receipts of at least $500 million over a specified period of time) over an amount equal to the regular tax liability of the taxpayer reduced (but not below zero) by the excess (if any) of certain amounts. The base erosion minimum amount increases to 12.5% beginning in 2026. The base erosion minimum amount is increased in each instance by one percentage point for certain banks and securities dealers.
The changes made by the Tax Cuts and Jobs Act of 2017 are significant and far-reaching. If you have any questions on how these changes may affect you and your business, attorneys at The Feldman Law Firm LLP are available to discuss these matters.