US Tax Guide for Expats (2020): Form 8992
Form 8992, U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)
Prior to 2017, if you were a U.S. shareholder who owned shares of a controlled foreign corporation (CFC), you did not pay US tax on corporate income until you distributed it to yourself as a dividend. The Tax Cuts and Jobs Act of 2017 (the Act) created new IRC Section 965 and IRC Section 951A that totally took the deferral away in most cases.
Section 965 is effective only for 2017, and requires you to pay tax on your corporation's accumulated earnings after 1986 and before 2018 (at a reduced rate with an installment provision). Section 951A requires U.S. shareholders of CFCs to include in their gross income their Global Intangible Low-Taxed Income (GILTI) for tax years of CFCs beginning after 2017. Form 8992 is used to compute a U.S. shareholder’s GILTI inclusion. Here are the Instructions.
What Is A Controlled Foreign Corporation?
This is a foreign corporation that is owned more than 50% by "U.S. shareholders" on any day (yes, even if just for one day) of the corporation's tax year. More than 50% ownership is determined by ownership of 1) the total voting power of all classes of its voting stock, or 2) the total value of its stock.
What (or Who) Is A U.S. Shareholder?
This is where it gets a little tricky. A "U.S. shareholder" (defined in IRC Sec. 951(b)) is a "U.S. person" (defined in IRC Sec. 957(c)) who owns (directly, indirectly and constructively) 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation, or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation.
A U.S. person is defined about the same here as for FBAR Form 114, with just a couple of twists relating to U.S. possessions. We could spend a lot of time talking about the meaning of "indirectly and constructively," but won't. Basically, those words mean that stock of a foreign corporation owned by entities you own or by your family members is considered as owned by you.
So, if five unrelated U.S. persons own exactly 10% of the stock of a foreign corporation, and another unrelated U.S. person owns 2% of the same foreign corporation, the foreign corporation is not a "controlled foreign corporation" subject to the GILTI tax, as long as long as the remaining stock is not owned by U.S. shareholders. Even though "U.S. persons" own 52% of the stock, "U.S. shareholders" only own 50% of the stock.
However, if the U.S. person who owns 2% of the stock is related to any of the other U.S. persons through corporate or family attribution, then 52% of the stock would be deemed owned by "U.S. shareholders," and the corporation would be a controlled foreign corporation. That means all the U.S. shareholders would be subject to the GILTI tax.
What Is Global Intangible Low-Taxed Income (GILTI)?
This means, with respect to any U.S. shareholder, "the excess (if any) of such shareholder's net CFC tested income for such taxable year, over such shareholder's net deemed tangible income return for such taxable year."
I won't delve into what this really means, because it would take several more pages and you would be off on some other site watching cat videos before you got to the end of it. Just know that it's basically all the corporate income allocated to your shares of stock, other than income already being taxed to you for some other reason.
If you really want to dig into it, it is defined in IRC Sec. 951A(b). Enjoy.
What Happens If You Don't File Form 8992?
Form 8992 is filed with and is due at the same time as your individual tax return. Like other information returns pertaining to foreign corporations, the penalty is $10,000 for failure to file this form, or provide all the required information. Failure to file after notification by the IRS incurs an additional penalty per month of up to $50,000. (Treasury Reg. Section 1.6038-5.)