Introduction and purpose
GILTI – found in IRC 951A – is one of the most problematic manifestations of U.S. citizenship taxation. It has caused huge compliance problems and costs for Americans abroad. The costs are composed of (1) the compliance costs of Form 5471 and (2) the possibility of the payment of U.S. taxes. All businesses understand that taxes are a cost of running a business. GILTI has imposed costs on the businesses run by Americans abroad that citizens of other countries do not have.
To put it simply:
As explained in the following short video done with Republicans Overseas Tax, GILTI imposes costs on U.S. citizens that citizens of other countries do not have.
Unsurprisingly, organizations representing Americans abroad have (independently of efforts to end citizenship taxation) worked to achieve relief from GILTI for Americans abroad. ACA (“American Citizens Abroad”) has consistently argued that Americans abroad should be exempt from the 2017 TCJA Transition Tax and GILTI provisions. For example:
“ACA continues its advocacy for the application of a de minimis ruling that would take out from the Transition Tax and GILTI regimes small businesses run by US citizens living and working overseas.”
https://www.americansabroad.org/tcja_and_gilti_regimes_us_businesses_overseas
The “Big Beautiful Bill” does NOT include any direct relief targeted for Americans abroad. Nevertheless, the “Big Beautiful Bill” includes some provisions that may be helpful to individual shareholders of CFCs (that include Americans abroad).
The purpose of this post is to identify three respects in which the Big Beautiful Bill impacts Americans abroad. I will refer to them as:
1. The Good – By extending the tax cuts, the GILTI income exclusion will remain at 50% and not be increased to 66 2/3% (as IRC 250 and the 2017 TCJA would require). This is relief for ALL shareholders of CFCs which therefore includes Americans abroad.
2. The Bad – Certain kinds of CFCs – with individual U.S. citizen shareholders – carrying on business in the U.S. Virgin Islands will have their income excluded from the GILTI inclusion. The Virgin Islands are a U.S. territory. There is no comparable provision for:
(a) U.S. citizens running small business corporations in foreign countries; or
(b) U.S. citizens running small business corporations in other U.S. territories
This is bad because it reflects an indifference to the special problems of Americans abroad.
For commentary see the following X.com thread …
3. The Ugly – Some (but not all) CFCs with C corporation shareholders are apparently receiving a “carveout” from GILTI inclusionsl The carveout is for certain kinds of income earned in the U.S. Virgin Islands. Washington Post reporter Jeffrey Stein suggests that this is the result of paid lobbying and not a conclusion based on sound tax policy. This allows for the inference that the application of U.S. tax laws, depends on your ability to “buy” the legislation you want.
For commentary, see the following X.com threads …
The “Big Beautiful Bill” And The Obfuscation Of What The Change Means
Changes to tax laws often appear in large Omnibus bills. Omnibus bills make it easier to hide the changes in tax laws. The ability to hide change is magnified in two ways.
First – Burying The Proposed Change In A Section That Appears To Describe Completely Unrelated Issues
The GILTI changes appear in SEC. 111110 Of The Big Beautiful Bill. Interestingly, SEC. 111110 appears under the following heading:
Part 2–Additional Tax Relief for American Families and Workers
It is quite obvious that the proposed GILTI changes have NOTHING to do with “Additional Tax Relief For American Families and Workers”.
Second – by including in the legislation ONLY the change in the language of the statute.
The language is meaningless without taking the time to go to the original legislation and parse the changes.
Therefore, in the following Appendixes, I have identified the text of the changes and incorporated those changes into the original legislation. This will allow (if you are interested) to see what the legislation will look like after the proposed changes are implemented.
Specifically:
Appendix A – Identifies the relevant text in the Big Beautiful Bill
Appendix B – Identifies the existing legislation (IRC 951A)
Appendix C – Incorporates Appendix A into Appendix B which results in the identification of what 951A (the GILTI rules) would be AFTER the changes proposed in SEC. 111110 of the Big Beautiful Bill
John Richardson – Follow me on X.com @ExpatriationLaw