§250 — Foreign-derived deduction eligible income and net CFC tested income
17 citing cases
Statute Text — 26 U.S.C. §250
In the case of a domestic corporation for any taxable year, there shall be allowed as a deduction an amount equal to the sum of—
33.34 percent of the foreign-derived deduction eligible income of such domestic corporation for such taxable year, plus
40 percent of—
the net CFC tested income amount (if any) which is included in the gross income of such domestic corporation under section 951A for such taxable year, and
the amount treated as a dividend received by such corporation under section 78 which is attributable to the amount described in clause (i).
If, for any taxable year—
the sum of the foreign-derived deduction eligible income and the net CFC tested income amount otherwise taken into account by the domestic corporation under paragraph (1), exceeds
the taxable income of the domestic corporation (determined without regard to this section),
then the amount of the foreign-derived deduction eligible income and the net CFC tested income amount so taken into account shall be reduced as provided in subparagraph (B).
For purposes of subparagraph (A)—
foreign-derived deduction eligible income shall be reduced by an amount which bears the same ratio to the excess described in subparagraph (A) as such foreign-derived deduction eligible income bears to the sum described in subparagraph (A)(i), and
the net CFC tested income amount shall be reduced by the remainder of such excess.
For purposes of this section—
The term “foreign-derived deduction eligible income” means, with respect to any taxpayer for any taxable year, any deduction eligible income of such taxpayer which is derived in connection with—
property—
which is sold by the taxpayer to any person who is not a United States person, and
which the taxpayer establishes to the satisfaction of the Secretary is for a foreign use, or
services provided by the taxpayer which the taxpayer establishes to the satisfaction of the Secretary are provided to any person, or with respect to property, not located within the United States.
For purposes of this subsection—
The term “foreign use” means any use, consumption, or disposition which is not within the United States.
If a taxpayer sells property to another person (other than a related party) for further manufacture or other modification within the United States, such property shall not be treated as sold for a foreign use even if such other person subsequently uses such property for a foreign use.
If a taxpayer provides services to another person (other than a related party) located within the United States, such services shall not be treated as described in paragraph (1)(B) even if such other person uses such services in providing services which are so described.
If property is sold to a related party who is not a United States person, such sale shall not be treated as for a foreign use unless—
such property is ultimately sold by a related party, or used by a related party in connection with property which is sold or the provision of services, to another person who is an unrelated party who is not a United States person, and
the taxpayer establishes to the satisfaction of the Secretary that such property is for a foreign use.
If a service is provided to a related party who is not located in the United States, such service shall not be treated described 11 So in original. Probably should be preceded by “as”. in subparagraph (A)(ii) 22 So in original. Probably should be “(B)(ii)”. unless the taxpayer established to the satisfaction of the Secretary that such service is not substantially similar to services provided by such related party to persons located within the United States.
For purposes of this clause, a sale of property shall be treated as a sale of each of the components thereof.
For purposes of this paragraph, the term “related party” means any member of an affiliated group as defined in section 1504(a), determined—
by substituting “more than 50 percent” for “at least 80 percent” each place it appears, and
without regard to paragraphs (2) and (3) of section 1504(b).
Any person (other than a corporation) shall be treated as a member of such group if such person is controlled by members of such group (including any entity treated as a member of such group by reason of this sentence) or controls any such member. For purposes of the preceding sentence, control shall be determined under the rules of section 954(d)(3).
For purposes of this subsection (other than paragraph (3)(A)(i)(VII)), the terms “sold”, “sells”, and “sale” shall include any lease, license, exchange, or other disposition.
The term “deduction eligible income” means, with respect to any domestic corporation, the excess (if any) of—
gross income of such corporation determined without regard to—
any amount included in the gross income of such corporation under section 951(a)(1),
the net CFC tested income included in the gross income of such corporation under section 951A,
any financial services income (as defined in section 904(d)(2)(D)) of such corporation,
any dividend received from a corporation which is a controlled foreign corporation of such domestic corporation,
any domestic oil and gas extraction income of such corporation,
any foreign branch income (as defined in section 904(d)(2)(J)), and
except as otherwise provided by the Secretary, any income and gain from the sale or other disposition (including pursuant to the deemed sale or other deemed disposition or a transaction subject to section 367(d)) of—
intangible property (as defined in section 367(d)(4)), and
any other property of a type that is subject to depreciation, amortization, or depletion by the seller, over
expenses and deductions (including taxes), other than interest expense and research or experimental expenditures, properly allocable to such gross income.
For purposes of subparagraph (A), the term “domestic oil and gas extraction income” means income described in section 907(c)(1), determined by substituting “within the United States” for “without the United States”.
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
Treasury Regulations
-
Treas. Reg. §1.250-0Table of contents
This section contains a listing of the headings for §§ 1.250-1, 1.250(a)-1, and 1.250(b)-1 through 1.250(b)-6.
(a) Overview.
(b) Applicability dates.
(a) Scope.
(b) Allowance of deduction.
(1) In general.
(2) Taxable income limitation.
(3) Reduction in deduction for taxable years after 2025.
(4) Treatment under section 4940.
(c) Definitions.
(1) Domestic corporation.
(2) Foreign-derived intangible income (FDII).
(3) Global intangible low-taxed income (GILTI).
(4) Section 250(a)(2) amount.
(5) Taxable income.
(i) In general.
(ii) [Reserved]
(d) Reporting requirement.
(e) Determination of deduction for consolidated groups.
(f) Example: Application of the taxable income limitation.
(a) Scope.
(b) Definition of FDII.
(c) Definitions.
(1) Controlled foreign corporation.
(2) Deduction eligible income.
(3) Deemed intangible income.
(4) Deemed tangible income return.
(5) Dividend.
(6) Domestic corporation.
(7) Domestic oil and gas extraction income.
(8) FDDEI sale.
(9) FDDEI service.
(10) FDDEI transaction.
(11) Foreign branch income.
(12) Foreign-derived deduction eligible income.
(13) Foreign-derived ratio.
(14) Gross RDEI.
(15) Gross DEI.
(16) Gross FDDEI.
(17) Modified affiliated group.
(i) In general.
(ii) Special rule for noncorporate entities.
(iii) Definition of control.
(18) Qualified business asset investment.
(19) Related party.
(20) United States shareholder.
(d) Treatment of cost of goods sold and allocation and apportionment of deductions.
(1) Cost of goods sold for determining gross DEI and gross FDDEI.
(2) Deductions properly allocable to gross DEI and gross FDDEI.
(i) In general.
(ii) Determination of deductions to allocate.
(3) Examples.
(e) Domestic corporate partners.
(1) In general.
(2) Reporting requirement for partnership with domestic corporate partners.
(3) Examples.
(f) Determination of FDII for consolidated groups.
(g) Determination of FDII for tax-exempt corporations.
(a) Scope.
(b) Definition of qualified business asset investment.
(c) Specified tangible property.
(1) In general.
(2) Tangible property.
(d) Dual use property.
(1) In general.
(2) Definition of dual use property.
(3) Dual use ratio.
(4) Example.
(e) Determination of adjusted basis of specified tangible property.
(1) In general.
(2) Effect of change in law.
(3) Specified tangible property placed in service before enactment of section 250.
(f) Special rules for short taxable years.
(1) In general.
(2) Determination of when the quarter closes.
(3) Reduction of qualified business asset investment.
(4) Example.
(g) Partnership property.
(1) In general.
(2) Determination of partnership QBAI.
(3) Determination of partner adjusted basis.
(i) In general.
(ii) Sole use partnership property.
(A) In general.
(B) Definition of sole use partnership property.
(iii) Dual use partnership property.
(A) In general.
(B) Definition of dual use partnership property.
(4) Determination of proportionate share of the partnership's adjusted basis in partnership specified tangible property.
(i) In general.
(ii) Proportionate share ratio.
(5) Definition of partnership specified tangible property.
(6) Determination of partnership adjusted basis.
(7) Determination of partner-specific QBAI basis.
(8) Examples.
(h) Anti-avoidance rule for certain transfers of property.
(1) In general.
(2) Rule for structured arrangements.
(3) Per se rules for certain transactions.
(4) Definitions related to anti-avoidance rule.
(i) Disqualified period.
(ii) FDII-eligible related party.
(iii) Specified related party.
(iv) Transfer.
(5) Transactions occurring before March 4, 2019.
(6) Examples.
(a) Scope.
(b) Definitions.
(1) Digital content.
(2) End user.
(3) FDII filing date.
(4) Finished goods.
(5) Foreign person.
(6) Foreign related party.
(7) Foreign retail sale.
(8) Foreign unrelated party.
(9) Fungible mass of general property.
(10) General property.
(11) Intangible property.
(12) International transportation property.
(13) IP address.
(14) Recipient.
(15) Renderer.
(16) Sale.
(17) Seller.
(18) United States.
(19) United States person.
(20) United States territory.
(c) Foreign military sales and services.
(d) Transactions with multiple elements.
(e) Treatment of partnerships.
(1) In general.
(2) Examples.
(f) Substantiation for certain FDDEI transactions.
(1) In general.
(2) Exception for small businesses.
(3) Treatment of certain loss transactions.
(i) In general.
(ii) Reason to know.
(A) Sales to a foreign person for a foreign use.
(B) General services provided to a business recipient located outside the United States.
(iii) Multiple transactions.
(iv) Example.
(a) Scope.
(b) Definition of FDDEI sale.
(c) Presumption of foreign person status.
(1) In general.
(2) Sales of property.
(d) Foreign use.
(1) Foreign use for general property.
(i) In general.
(ii) Rules for determining foreign use.
(A) Sales that are delivered to an end user by a carrier or freight forwarder.
(B) Sales to an end user without the use of a carrier or freight forwarder.
(C) Sales for resale.
(D) Sales of digital content.
(E) Sales of international transportation property used for compensation or hire.
(F) Sales of international transportation property not used for compensation or hire.
(iii) Sales for manufacturing, assembly, or other processing.
(A) In general.
(B) Property subject to a physical and material change.
(C) Property incorporated into a product as a component.
(iv) Sales of property subject to manufacturing, assembly, or other processing in the United States
(v) Examples.
(2) Foreign use for intangible property.
(i) In general.
(ii) Determination of end users and revenue earned from end users.
(A) Intangible property embedded in general property or used in connection with the sale of general property.
(B) Intangible property used in providing a service.
(C) Intangible property consisting of a manufacturing method or process.
(1) In general.
(2) Exception for certain manufacturing arrangements.
(3) Manufacturing method or process.
(D) Intangible property used in research and development.
(iii) Determination of revenue for periodic payments versus lump sums.
(A) Sales in exchange for periodic payments.
(B) Sales in exchange for a lump sum.
(C) Sales to a foreign unrelated party of intangible property consisting of a manufacturing method or process.
(iv) Examples.
(3) Foreign use substantiation for certain sales of property.
(i) In general.
(ii) Substantiation of foreign use for resale.
(iii) Substantiation of foreign use for manufacturing, assembly, or other processing. outside the United States.
(iv) Substantiation of foreign use of intangible property.
(v) Examples.
(e) Sales of interests in a disregarded entity.
(f) FDDEI sales hedging transactions.
(1) In general.
(2) FDDEI sales hedging transaction.
(a) Scope.
(b) Definition of FDDEI service.
(c) Definitions.
(1) Advertising service.
(2) Benefit.
(3) Business recipient.
(4) Consumer.
(5) Electronically supplied service.
(6) General service.
(7) Property service.
(8) Proximate service.
(9) Transportation service.
(d) General services provided to consumers.
(1) In general.
(2) Electronically supplied services.
(3) Example.
(e) General services provided to business recipients.
(1) In general.
(2) Determination of business operations that benefit from the service.
(i) In general.
(ii) Advertising services.
(iii) Electronically supplied services.
(3) Identification of business recipient's operations.
(i) In general.
(ii) Advertising services and electronically supplied services.
(iii) No office or fixed place of business.
(4) Substantiation of the location of a business recipient's operations outside the United States.
(5) Examples.
(f) Proximate services.
(g) Property services.
(1) In general.
(2) Exception for service provided with respect to property temporarily in the United States.
(h) Transportation services.
(a) Scope.
(b) Definitions.
(1) Related party sale.
(2) Related party service.
(3) Unrelated party transaction.
(c) Related party sales.
(1) In general.
(i) Sale of property in an unrelated party transaction.
(ii) Use of property in an unrelated party transaction.
(2) Treatment of foreign related party as seller or renderer.
(3) Transactions between related parties.
(4) Example.
(d) Related party services.
(1) In general.
(2) Substantially similar services.
(3) Special rules.
(i) Rules for determining the location of and price paid by recipients of a service provided by a related party.
(ii) Rules for allocating the benefits provided by and price paid to the renderer of a related party service.
(4) Examples.
-
Treas. Reg. §1.250-0(a)Scope.
Scope.
-
Treas. Reg. §1.250-0(b)Definitions.
Definitions.
(1) Related party sale.
(2) Related party service.
(3) Unrelated party transaction.
-
Treas. Reg. §1.250-0(c)Related party sales.
Related party sales.
(1) In general.
-
Treas. Reg. §1.250-0(d)Related party services.
Related party services.
(1) In general.
(2) Substantially similar services.
(3) Special rules.
-
Treas. Reg. §1.250-0(e)General services provided to business recipients.
General services provided to business recipients.
(1) In general.
(2) Determination of business operations that benefit from the service.
-
Treas. Reg. §1.250-0(f)Proximate services.
Proximate services.
-
Treas. Reg. §1.250-0(g)Property services.
Property services.
(1) In general.
(2) Exception for service provided with respect to property temporarily in the United States.
-
Treas. Reg. §1.250-0(h)Transportation services.
Transportation services.
-
Treas. Reg. §1.250-0(i)Rules for determining the location of and price paid by recipients of a service provided by a related party.
Rules for determining the location of and price paid by recipients of a service provided by a related party.
(ii) Rules for allocating the benefits provided by and price paid to the renderer of a related party service.
(4) Examples.
-
Treas. Reg. §1.250-0(v)Examples.
Examples.
-
Treas. Reg. §1.250-1Introduction
(a) Overview. Sections 1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 provide rules to determine a domestic corporation's section 250 deduction. Section 1.250(a)-1 provides rules to determine the amount of a domestic corporation's deduction for foreign-derived intangible income and global intangible low-taxed income. Section 1.250(b)-1 provides general rules and definitions regarding the computation of foreign-derived intangible income. Section 1.250(b)-2 provides rules for determining a domestic corporation's qualified business asset investment. Section 1.250(b)-3 provides general rules and definitions regarding the determination of gross foreign-derived deduction eligible income. Section 1.250(b)-4 provides rules regarding the determination of gross foreign-derived deduction eligible income from the sale of property. Section 1.250(b)-5 provides rules regarding the determination of gross foreign-derived deduction eligible income from the provision of a service. Section 1.250(b)-6 provides rules regarding the sale of property or provision of a service to a related party.
(b) Applicability dates. Except as otherwise provided in this paragraph (b), §§ 1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 apply to taxable years beginning on or after January 1, 2021. Section 1.250(b)-2(h)
applies to taxable years ending on or after March 4, 2019. The last sentence in § 1.250(b)-2(e)(2) applies to taxable years beginning after December 31, 2017.
-
Treas. Reg. §1.250-1(a)Overview.
Overview. Sections 1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 provide rules to determine a domestic corporation's section 250 deduction. Section 1.250(a)-1 provides rules to determine the amount of a domestic corporation's deduction for foreign-derived intangible income and global intangible low-taxed income. Section 1.250(b)-1 provides general rules and definitions regarding the computation of foreign-derived intangible income. Section 1.250(b)-2 provides rules for determining a domestic corporation's qualified business asset investment. Section 1.250(b)-3 provides general rules and definitions regarding the determination of gross foreign-derived deduction eligible income. Section 1.250(b)-4 provides rules regarding the determination of gross foreign-derived deduction eligible income from the sale of property. Section 1.250(b)-5 provides rules regarding the determination of gross foreign-derived deduction eligible income from the provision of a service. Section 1.250(b)-6 provides rules regarding the sale of property or provision of a service to a related party.
-
Treas. Reg. §1.250-1(b)Applicability dates.
Applicability dates. Except as otherwise provided in this paragraph (b), §§ 1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 apply to taxable years beginning on or after January 1, 2021. Section 1.250(b)-2(h)
applies to taxable years ending on or after March 4, 2019. The last sentence in § 1.250(b)-2(e)(2) applies to taxable years beginning after December 31, 2017.
17 Citing Cases
227, 265–66, augmented the authority of the Committee on Appeals and Review by granting the committee the authority to hear administrative appeals from taxpayers and to redetermine their deficiencies. Relatively soon after its inception, the Committee on Appeals and Review was replaced by the Board of Tax Appeals, the predecessor
227, 266. 2. Pre-assessment judicial review of IRS deficiency determinations is assigned to the Tax Court. Congress was soon unsatisfied with a lone administrative remedy for pre-payment review of deficiency determinations, and in the Revenue Act of 1924, ch. 234, § 900, 43 Stat. 253, 336, it established the Board of Tax Appeals
Evolution of the Statute Section 250 (d) of the Revenue Act of 1918 (Pub.