Page 734 - Large Business IRS Training Guides

Section 965(c)
Deduction: Example (cont’d)

Section 965(a) Deficit US SH's Section 965(a)
earnings USSH prorata Allocation Aggregate Inclusion 2017
amount share Ratio Foreign E&P Amount
12/31/2017 Deficit
FC1 400 100% 400 0.6667 200 200 200
FC2 200 100% 200 0.3333 100 100 100
600 300 300 300
Section 965(c) deduction calculation
Section 965(a) inclusion 300
Aggregate Foreign Cash Position 300
300
2017 15.5% Rate Equivalent Percentage 0.557142857

Section 965(c) Deduction Related to 15.5% Rate Equivalent Percentage - 167

2017 8% Rate Equivalent Percentage 0.771428571

Section 965(c) Deduction Related to 8%Rate Equivalent Percentage 0
Section 965(c) deduction 167
Section 965(a) inclusion 300
Section 965(c) deduction 167
133
35% 47
Effective tax rate 15.5%

1. FC3’s deficit is allocated to FC1 and FC2.

FC1: (400/600) X 300 = 200; FC2 (200/600) X 300 = 100.

2. The inclusion amount with respect to FC1 is 400-200 = 200.

3. The inclusion amount with respect to FC2 is 200-100 = 100.

4. USP’s aggregate foreign cash position: 300.
5. Assume 35% applicable rate: USP claims deduction of ~$167, yielding an effective tax rate 56

of 15.5%.