Because FS has positive post-1986 earnings and profits as of November 2, FS does not have a “deficit in post-1986 earnings and profits” and is therefore also not a deficit corporation.For both testing dates, FS’s “post-1986 earnings and profits” is 10 (100 PTI – 90 deficit of non-PTI E&P).FS has a deficit of 90 in “accumulated post-1986 deferred foreign income” (which excludes ECI and PTI) per Sec. 965(d)(2)and is therefore not a DFIC.969(c)(3), non-PTI E&P, determined as of both November 2 and Decemtesting dates. In the example, FS, a SFC, has 100 of Sec. Second, determine whether the SFC is a deficit corporation. Counterintuitively, it is possible that a SFC can be neither a DFIC nor a deficit corporation.Įxample 2 in section 3.01 of the notice clarifies these rules as used throughout Sec. The notice clarifies the rules for determining whether a specified foreign corporation (SFC) is a deferred income foreign corporation (DFIC) or an E&P deficit foreign corporation (deficit corporation). The first step is to determine whether the SFC is a DFIC. If the SFC is a DFIC, it cannot be a deficit corporation. Determination of Status of a SFC as a DFIC or an E&P Deficit Foreign Corporation 965. In this update to our previous post on the toll tax, we highlight the key proposals in Notice 2018-13, noting particularly where changes will affect clients’ ongoing work to model the toll tax for end-of-year provision purposes. In its most relevant sections, the notice provides for when a specified foreign corporation has a deficit and indirectly states that a deficit must be reduced by previously taxed income (PTI) and provides clarification of the exchange rates to be used in calculating Sec. On January 19, the IRS issued IRS Notice 2018-13 providing further clarification on the calculation of the Sec. IRS Notice 2018-13: How it Affects Your Toll Tax Model
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