Why IRC 951A Matters After the OBBBA

IRC 951A, enacted by the Tax Cuts and Jobs Act of 2017, created a new category of US shareholder income from controlled foreign corporations (CFCs) -- the Net CFC Tested Income (NCTI) inclusion, commonly called GILTI (global intangible low-taxed income). The regime was designed to impose a minimum level of US tax on CFC earnings that exceed a deemed return on tangible assets, targeting income attributable to intangible property held offshore. Since its enactment, the IRC 951A NCTI GILTI framework has been among the most complex and economically significant provisions in US international tax.

The One Big Beautiful Budget Act (OBBBA), enacted in 2025 with key provisions effective January 1, 2026, substantially restructured the regime in ways that increase the US tax burden on most CFC groups. Three changes are paramount: (1) the elimination of qualified business asset investment (QBAI) and the resulting net deemed tangible income return (NDTIR) offset, meaning the entire net CFC tested income now flows into the US shareholder's inclusion; (2) the reduction of the IRC 250 deduction from 50 percent to 40 percent, raising the effective rate on NCTI from 10.5 percent to 12.6 percent; and (3) the reduction of the IRC 960(d) deemed-paid foreign tax credit from 80 percent to 10 percent of CFC-level tested foreign income taxes. Verify all OBBBA changes and their effective dates at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending.

This guide walks through every layer of the IRC 951A NCTI GILTI computation, from the per-CFC tested income calculation through the US shareholder's NCTI inclusion amount, the available elections and credits, and the form reporting requirements, with attention throughout to how the OBBBA changes alter the pre-existing planning landscape.

IRC 951A(a): The NCTI Inclusion in Gross Income

IRC 951A(a) provides the core inclusion rule: each person who is a US shareholder of any CFC for a taxable year of the CFC that ends with or within the taxable year of the US shareholder shall include in gross income for the taxable year of the US shareholder the NCTI inclusion amount for that taxable year. This is a mandatory gross income inclusion -- not an election, not a deemed dividend, not a Subpart F analog that requires a distribution -- it is an annual charge to gross income. Verify the current statutory text of IRC 951A(a) at IRS.gov.

The term "US shareholder" for IRC 951A purposes has the same meaning as in IRC 951(b), which generally covers any US person who owns (directly, indirectly, or constructively under IRC 958) 10 percent or more of the total combined voting power or value of a CFC's stock. Verify the current US shareholder definition, including post-TCJA changes to include value-based ownership, at IRS.gov. The NCTI inclusion amount is computed at the level of the US shareholder and reflects that US shareholder's pro-rata shares of tested income and tested losses across all of its CFCs.

The NCTI inclusion is separate from and in addition to any Subpart F income inclusion under IRC 951(a). A US shareholder may have both a Subpart F income inclusion and an NCTI inclusion for the same taxable year; the two regimes operate independently but interact in several important respects described later in this guide. Verify all current interaction rules at IRS.gov.

Tested Income and Tested Loss: IRC 951A(c)(1)(A) and (B)

The IRC 951A computation begins at the individual CFC level with the determination of each CFC's tested income or tested loss. These are defined in IRC 951A(c)(2):

Tested Income (IRC 951A(c)(2)(A))

A CFC's tested income for a taxable year is the excess (if any) of the CFC's gross income for the year, reduced by deductions (including taxes) properly allocable to such gross income, over zero. Gross income is computed under US tax principles, not foreign accounting standards. Several categories of gross income are excluded before computing tested income:

  • Subpart F income as defined in IRC 952 (these amounts are already captured under the Subpart F regime);
  • Income effectively connected with the conduct of a trade or business within the United States;
  • Dividends received from a related person (as defined in IRC 954(d)(3));
  • Foreign oil and gas extraction income;
  • Any income excluded under the high-tax exclusion election (discussed below);
  • Certain income of a CFC that is subject to tax as a domestic corporation.

Verify the complete list of excluded income categories and the current regulatory definitions at IRS.gov. After these exclusions, the CFC's remaining gross income is reduced by deductions properly allocable to that income -- including taxes paid or accrued on the tested income -- under the principles of Treas. Reg. 1.951A-2 (verify the current regulatory citation at IRS.gov). If the result is positive, the CFC has tested income for the year. Deductions exceed gross tested income, the CFC has a tested loss.

Tested Loss (IRC 951A(c)(2)(B))

A CFC's tested loss is the excess (if any) of the allowable deductions properly allocable to gross tested income over the gross tested income itself. A CFC with a tested loss reduces the US shareholder's aggregate net CFC tested income dollar-for-dollar (but cannot reduce NCTI below zero). Tested losses do not carry forward to future years at the US shareholder level; they are absorbed only against current-year tested income in the aggregation step. Verify the current treatment of tested losses and any pending guidance on carryforward rules at IRS.gov.

Practice Note: Deduction Allocation to Tested Income

The allocation of deductions to tested income versus other income categories is a significant planning and compliance issue. Regulations under IRC 861 and Treas. Reg. 1.951A-2 govern which deductions reduce tested income (and thus tested loss) versus income in other baskets. Interest expense, research and experimental expenditures, and general and administrative costs are all subject to allocation and apportionment rules that affect the tested income computation. Errors in deduction allocation at the CFC level flow directly into the Form 5471 Schedule I-1 and, ultimately, into the US shareholder's Form 8992 NCTI computation. Verify the current allocation regulations and any pending Treasury guidance at IRS.gov before finalizing CFC-level deduction allocation positions.

Net CFC Tested Income: Aggregation Under IRC 951A(c)(1)

Net CFC tested income (NCTI) is determined at the US shareholder level by aggregating the US shareholder's pro-rata shares of per-CFC tested income and tested loss results across all CFCs for the year. The formula is:

Net CFC Tested Income = Aggregate Pro-Rata Shares of Tested Income across all CFCs minus Aggregate Pro-Rata Shares of Tested Losses across all CFCs (but not below zero)

The US shareholder's pro-rata share of each CFC's tested income or tested loss is generally determined under IRC 951(a)(2) principles -- that is, based on the shareholder's ownership percentage in the CFC stock. The OBBBA modified the pro-rata share computation to require apportionment based on the ownership period rather than solely on year-end ownership; verify this modification and its precise application rules at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending.

The result of the aggregation -- net CFC tested income -- is the starting point for the NCTI inclusion amount. Under the pre-OBBBA regime, the inclusion amount was then reduced by the net deemed tangible income return (NDTIR), equal to 10 percent of aggregate QBAI. As described in the next section, QBAI has been eliminated by the OBBBA, so the NCTI inclusion amount for covered taxable years equals net CFC tested income in full. Verify at IRS.gov.

QBAI Eliminated by OBBBA: NDTIR Is Now Zero

Under the original IRC 951A regime as enacted in 2017, the NCTI inclusion amount was not the full net CFC tested income. Rather, the inclusion amount was net CFC tested income minus the net deemed tangible income return (NDTIR). The NDTIR equaled 10 percent of the US shareholder's aggregate qualified business asset investment (QBAI) across all CFCs. QBAI was defined as the aggregate of each CFC's tangible depreciable property used in the production of tested income, measured at its adjusted basis under the alternative depreciation system (ADS) and averaged over the four quarter-end measurements in the CFC's taxable year.

The NDTIR mechanism was designed to carve out from the NCTI inclusion a deemed normal return on CFC tangible assets -- effectively exempting what Congress characterized as a routine return on capital invested in physical property overseas. The practical effect was that CFC groups with substantial depreciable tangible property (manufacturing equipment, facilities, and the like) generated large QBAI offsets that reduced or eliminated the NCTI inclusion even when net CFC tested income was significant.

The OBBBA eliminated QBAI entirely, effective for taxable years beginning on or after January 1, 2026; verify this effective date and the precise statutory language at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending. With QBAI gone, the NDTIR is zero for all covered taxable years, and the NCTI inclusion amount equals net CFC tested income in full. There is no tangible asset exemption under the post-OBBBA regime.

IRC 250 Deduction: From 50% to 40% -- Effective Rate Now 12.6%

A domestic corporation that has an NCTI inclusion under IRC 951A may deduct a percentage of that inclusion under IRC 250 in computing its taxable income. The IRC 250 deduction reduces the gross inclusion to arrive at the net taxable amount, and the interaction of the deduction with the 21 percent corporate rate determines the effective US tax rate on NCTI.

Under the pre-OBBBA regime, IRC 250 allowed a 50 percent deduction of the NCTI inclusion. With a 21 percent statutory corporate rate applied to 50 percent of the inclusion, the effective tax rate on NCTI was 10.5 percent (21% x 50% = 10.5%). This rate was central to much of the pre-OBBBA planning around GILTI -- for example, the effectiveness of the IRC 962 election for individuals depended significantly on this 10.5 percent rate and the available FTC.

The OBBBA reduced the IRC 250 deduction from 50 percent to 40 percent, effective for taxable years beginning on or after January 1, 2026; verify this rate change and effective date at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending. With a 40 percent deduction, 60 percent of the NCTI inclusion is subject to the 21 percent corporate rate, producing an effective rate of 12.6 percent (21% x 60% = 12.6%). Verify the current effective rate computation at IRS.gov and consult independent counsel.

The IRC 250 deduction is available only to domestic corporations. Individual US shareholders are not eligible for the deduction unless they make an IRC 962 election (discussed below), which treats them as having been taxed as a domestic corporation for purposes of the NCTI inclusion. Verify the current IRC 250 eligibility rules and the interaction with IRC 962 elections at IRS.gov.

Practice Note: IRC 250 Deduction Limitation -- Taxable Income Floor

The IRC 250 deduction is limited to the amount that does not reduce taxable income below zero; it cannot create or increase a net operating loss. This limitation is particularly relevant for corporate US shareholders with large NCTI inclusions in years when other deductions reduce taxable income. If the IRC 250 deduction is limited, the effective rate on NCTI exceeds 12.6 percent in that year. Verify the current IRC 250 limitation rules and any carryforward treatment at IRS.gov. State tax treatment of the IRC 250 deduction varies significantly; many states do not conform to the federal deduction, resulting in state income tax on the full NCTI inclusion without the federal partial exemption. Verify state-specific treatment with state tax counsel.

IRC 960(d) Foreign Tax Credit Haircut: From 80% to 10%

IRC 960(d) provides that a domestic corporation that has an NCTI inclusion under IRC 951A is deemed to have paid a portion of the CFC-level foreign taxes that are attributable to the tested income giving rise to that inclusion. This deemed-paid foreign tax credit (FTC) offsets the US tax liability on the NCTI inclusion, subject to the IRC 904 basket limitation applicable to the NCTI basket.

Under the pre-OBBBA regime, IRC 960(d) provided that 80 percent of the CFC-level foreign taxes allocable to tested income were deemed paid by the US shareholder. The 80 percent haircut (meaning 20 percent of CFC tested-income foreign taxes were permanently disallowed) was already a departure from the full FTC generally available for Subpart F income under IRC 960(a). The 80 percent creditable fraction was nonetheless substantial and, in combination with the 10.5 percent effective rate, allowed US shareholders with CFCs in high-tax countries to reduce their net US NCTI tax to near zero in many cases.

The OBBBA reduced the creditable portion from 80 percent to 10 percent, effective for taxable years beginning on or after January 1, 2026; verify this percentage change and effective date at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending. Only 10 percent of the foreign taxes actually paid by CFCs on tested income is now available as a deemed-paid FTC credit against the US shareholder's NCTI tax liability. This change is the most dramatic of the OBBBA modifications in terms of its potential to create double taxation for CFC groups operating in high-tax jurisdictions.

The FTC is computed on Form 1118 and is subject to the NCTI basket rules under IRC 904; excess credits in the NCTI basket do not cross-credit into other baskets. Verify the current basket rules and any pending guidance on the post-OBBBA FTC at IRS.gov and consult independent counsel.

Practice Note: Double Taxation Risk for High-Tax CFC Groups

For a CFC operating in a country with a 25 percent statutory rate, the combination of the post-OBBBA IRC 250 deduction (producing a 12.6 percent US effective rate on NCTI) and the 10 percent IRC 960(d) FTC haircut may result in significant residual US tax even after the FTC. If the CFC pays $250 of foreign tax on $1,000 of tested income, only $25 (10 percent) is creditable against the approximately $126 US tax on the inclusion (12.6 percent of $1,000). The net US tax after the partial FTC is approximately $101, in addition to the $250 of foreign tax already paid. This potential double-taxation outcome is a central planning issue for post-OBBBA years; verify all figures and the applicable FTC computation at IRS.gov and consult independent counsel before drawing conclusions for any specific fact pattern.

Pro-Rata Share: Ownership-Period Apportionment Under the OBBBA

A US shareholder's NCTI inclusion reflects only its pro-rata share of each CFC's tested income or tested loss, not the full CFC-level amount. Under the pre-OBBBA framework, pro-rata share rules for NCTI generally followed the Subpart F framework of IRC 951(a)(2), which allocates a US shareholder's share of CFC income based on ownership at year-end (or, more precisely, based on ownership during the period the US shareholder owned the CFC stock during the CFC's taxable year).

The OBBBA modified the pro-rata share computation to require apportionment based on the ownership period rather than solely year-end ownership; verify the precise mechanics and effective date of this change at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending. For US shareholders who acquire or dispose of CFC interests during a taxable year, the ownership-period basis of apportionment will affect the amount of tested income and tested loss attributed to that shareholder. Practitioners should carefully track CFC ownership changes during the year and confirm how the post-OBBBA pro-rata share rules apply to mid-year acquisitions and dispositions pending Treasury guidance; verify at IRS.gov and consult independent counsel.

High-Tax Exclusion: CFC-Level Election at 18.9%

The high-tax exclusion (HTE) provides a CFC-level mechanism to remove items of gross income from tested income when the effective rate of foreign tax on that income exceeds 18.9 percent -- which is 90 percent of the 21 percent US corporate rate. Verify the current HTE threshold and the computation rules at IRS.gov.

The HTE is made under the final GILTI high-tax exclusion regulations (verify the current regulatory citation at IRS.gov). It is an annual election made at the controlling domestic shareholder level and applies consistently to all CFCs in the group. Income excluded under the HTE is not tested income and does not flow into the US shareholder's NCTI computation. However, income excluded under the HTE also cannot generate the IRC 960(d) deemed-paid FTC against the NCTI inclusion -- because excluded income is not tested income to begin with.

The HTE effective rate is not simply the statutory tax rate of the foreign country. It is computed as the ratio of the net foreign taxes actually imposed on the item of income (reduced by any foreign tax credits claimed at the foreign level) to the gross tested income of the CFC's qualified business unit (QBU) for the applicable period. In many cases, the blended effective rate for a CFC QBU is below the country's statutory rate due to deductions, incentives, or structures. Practitioners should model the effective rate computation per QBU carefully before relying on the HTE to exclude an item. Verify current HTE computation rules at IRS.gov.

Post-OBBBA, the relative economics of the HTE have shifted. Without the QBAI offset, more tested income flows into the NCTI inclusion, which raises the gross inclusion -- making the HTE potentially more valuable as a per-item exclusion mechanism. At the same time, the 10 percent FTC haircut means the benefit of retaining tested income in the NCTI basket (to generate FTC against the US tax) is much reduced. The post-OBBBA HTE modeling requires fresh analysis for each CFC group; consult independent counsel, as implementation guidance may be pending.

IRC 962 Election for Individual US Shareholders

Individual US shareholders who receive NCTI inclusions under IRC 951A are not eligible for the IRC 250 deduction or the IRC 960 deemed-paid FTC absent an IRC 962 election. Without that election, the NCTI inclusion is taxed at the individual's ordinary income tax rate (verify the current top individual rate at IRS.gov), which is substantially higher than the 12.6 percent effective rate available to corporate US shareholders under the post-OBBBA regime.

The IRC 962 election allows an individual US shareholder (including a partner in a partnership or a shareholder in an S corporation that is itself a US shareholder of a CFC) to elect to be taxed on the NCTI inclusion as if it were income of a domestic corporation. The election enables the individual to: (1) apply the 21 percent corporate rate to the NCTI inclusion; (2) claim the IRC 250 deduction (producing a 12.6 percent effective rate post-OBBBA, verify at IRS.gov); and (3) claim the IRC 960(d) deemed-paid FTC (limited to the 10 percent creditable fraction post-OBBBA, verify at IRS.gov and consult independent counsel).

The IRC 962 election does not eliminate the eventual second-level tax on CFC distributions. When the CFC later distributes earnings previously included under an IRC 962 election, the distribution is taxed again to the extent it exceeds the individual's previously paid tax under IRC 962, as prescribed by IRC 962(d) and related regulations. The second-level tax effectively converts the IRC 962 benefit into a deferral benefit rather than a permanent rate reduction. Post-OBBBA, with the 10 percent FTC haircut producing less FTC offset, the net cost of the IRC 962 election versus no election must be modeled carefully for each individual; consult independent counsel and verify the current IRC 962 election procedures, Form 1040 attachment requirements, and second-level tax computation at IRS.gov.

Interaction with Subpart F (IRC 951): Two Separate Inclusions

The NCTI inclusion under IRC 951A operates alongside, not instead of, the Subpart F income inclusion under IRC 951(a). A US shareholder of a CFC may have both an IRC 951(a) Subpart F income inclusion and an IRC 951A NCTI inclusion for the same taxable year. The two regimes are independent inclusion categories with different definitions, different FTC rules, and different IRC 904 baskets.

The connection between the two regimes runs through the tested income definition. Subpart F income is expressly excluded from the gross income used to compute a CFC's tested income under IRC 951A(c)(2)(A)(i). This means the same dollar of CFC income cannot be both Subpart F income and tested income; the Subpart F inclusion takes priority. If a CFC has a large Subpart F inclusion, its tested income base is correspondingly reduced (because Subpart F income is backed out before computing tested income), which may reduce or eliminate the CFC's contribution to the US shareholder's NCTI. Verify the current Subpart F exclusion mechanics for tested income at IRS.gov.

The FTC baskets for the two regimes are separate. Subpart F income taxes flow into the general basket or the passive basket (verify at IRS.gov), while NCTI-related FTCs flow into the NCTI basket. Excess NCTI basket credits cannot offset Subpart F basket tax liability and vice versa; verify current IRC 904 basket segregation rules at IRS.gov. The IRC 960(a) deemed-paid FTC for Subpart F income is not subject to the 10 percent haircut that applies to the IRC 960(d) NCTI FTC; verify the current IRC 960 provisions at IRS.gov.

Anti-Abuse Rules: Reg. 1.951A-3 and QBAI Manipulation

Although QBAI has been eliminated by the OBBBA for taxable years beginning on or after January 1, 2026, the anti-abuse rules in Treas. Reg. 1.951A-3 remain relevant for pre-OBBBA taxable years and may have ongoing relevance to the extent any transition provisions or prior-year adjustments involve QBAI. Verify the current status and scope of Reg. 1.951A-3 at IRS.gov.

Under Reg. 1.951A-3, certain transfers of property to a CFC with a principal purpose of inflating QBAI -- and thereby increasing the NDTIR offset to reduce the NCTI inclusion -- were treated as abusive and disregarded for QBAI measurement purposes. These rules were particularly relevant for arrangements in which a US parent transferred high-basis, low-income tangible assets to a CFC shortly before the quarter-end QBAI measurement dates. The regulations also addressed sale-leaseback arrangements and other structures designed to generate ADS basis at the CFC level disproportionate to the tangible income generated.

Post-OBBBA, because QBAI generates no NDTIR, these particular manipulation concerns do not arise in the same way for covered taxable years. However, the broader principle -- that the tested income definition and the allocation of deductions to tested income remain subject to regulatory scrutiny for artificial inflation or reduction -- continues to apply. Practitioners should verify the current scope of anti-abuse provisions under the NCTI regulations at IRS.gov and confirm that deduction allocation positions and CFC income characterizations do not trigger the general anti-avoidance principles reflected in the regulations. Consult independent counsel regarding any structures that were implemented with the pre-OBBBA QBAI mechanics in mind and that may need to be reconsidered post-OBBBA.

Computation Example: Post-OBBBA NCTI Inclusion

Amounts Are Illustrative Only -- Verify All Figures at IRS.gov

The following example uses round numbers to illustrate the mechanical sequence of the post-OBBBA NCTI computation. It does not constitute tax advice and does not reflect the specific circumstances of any taxpayer. All rates, percentages, and statutory provisions must be verified at IRS.gov and with qualified independent counsel before applying to any actual return or planning engagement. OBBBA provisions are recently enacted and implementation guidance may be pending.

Illustrative Example: US Parent Corp. with One CFC, Post-OBBBA Taxable Year

Facts (Illustrative Only): US Parent Corp. is a domestic C corporation. It owns 100 percent of CFC-1. For the taxable year beginning January 1, 2026, CFC-1 has $1,000,000 of gross income in the tested income category. After properly allocated deductions (excluding foreign taxes), deductions total $200,000. CFC-1 paid $120,000 of foreign income tax on the tested income. CFC-1 has no QBAI (eliminated by OBBBA). No high-tax exclusion election is in effect. US Parent Corp. has no other CFC interests. Verify all applicable figures at IRS.gov.

Step Item Amount (Illustrative Only)
1 CFC-1 gross tested income (before deductions and taxes) $1,000,000
2 Less: properly allocable deductions (excluding taxes) ($200,000)
3 Less: foreign taxes paid on tested income ($120,000)
4 CFC-1 tested income (IRC 951A(c)(2)(A)) $680,000
5 Net CFC tested income (IRC 951A(c)(1)) -- one CFC, no tested losses $680,000
6 Less: NDTIR (QBAI eliminated by OBBBA, verify at IRS.gov) $0
7 NCTI inclusion amount (IRC 951A(a)) $680,000
8 Less: IRC 250 deduction (40%, post-OBBBA, verify at IRS.gov) ($272,000)
9 Taxable NCTI after IRC 250 deduction $408,000
10 US tax before FTC (21% corporate rate, illustrative) $85,680
11 IRC 960(d) deemed-paid FTC: 10% of $120,000 foreign taxes (post-OBBBA, verify at IRS.gov) ($12,000)
12 Net US federal tax on NCTI after partial FTC (subject to IRC 904 limitation) $73,680

Amounts are illustrative only. Verify all rates, deduction percentages, and FTC mechanics at IRS.gov. Consult independent counsel before applying to any actual return. OBBBA provisions are recently enacted and implementation guidance may be pending.

Note the material difference from the pre-OBBBA regime. Under the pre-OBBBA rules, if CFC-1 had $400,000 of QBAI, the NDTIR (10 percent of $400,000) would have reduced the NCTI inclusion by $40,000; the 50 percent IRC 250 deduction and the 80 percent FTC haircut would have applied, yielding a significantly different net US tax figure. Verify the historical pre-OBBBA computation mechanics at IRS.gov for comparison in transition-year analysis.

State Conformity Considerations

State income tax treatment of the IRC 951A NCTI GILTI inclusion varies substantially across jurisdictions. Some states conform to the federal NCTI inclusion and allow the IRC 250 deduction, some conform to the inclusion but disallow the deduction, and some states have decoupled entirely from the NCTI regime. The OBBBA changes further complicate the conformity landscape because states that adopt static conformity (conforming to the Code as of a fixed date) may not automatically incorporate the OBBBA amendments, while states with rolling conformity (conforming to the Code as currently in effect) may incorporate the changes subject to any specific state-law decoupling provisions.

Practitioners advising US shareholders with state income tax obligations must verify each state's current conformity position with respect to the NCTI inclusion, the IRC 250 deduction (as amended by the OBBBA), the QBAI elimination, and the FTC haircut. Some states that previously conformed to the NCTI inclusion but decoupled from the IRC 250 deduction now face a changed equation post-OBBBA; the state tax cost for those shareholders may shift materially. Verify applicable state law with state tax counsel in each relevant jurisdiction; do not assume any state's conformity based solely on prior-year analysis.

Form Reporting: Form 5471 Schedule I-1, Form 8992, Form 1118

The NCTI regime requires coordination across three federal tax forms:

Form 5471, Schedule I-1

Schedule I-1 of Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) reports each CFC's tested income or tested loss, tested foreign income taxes (the CFC-level taxes attributable to tested income), and QBAI (for taxable years in which QBAI still applies; zero for taxable years subject to the OBBBA elimination; verify at IRS.gov). Schedule I-1 is the foundational data source for the US shareholder's Form 8992 computation. Form 5471 is filed with the US shareholder's federal income tax return for the year that includes the end of the CFC's taxable year. Verify current Form 5471 and Schedule I-1 instructions, including the post-OBBBA line items reflecting the QBAI elimination, at IRS.gov. Penalties for failure to file or timely file Form 5471 are substantial; verify the current penalty amounts and reasonable cause standards at IRS.gov.

Form 8992

Form 8992 (U.S. Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)) is the US shareholder's NCTI computation form. It aggregates the pro-rata shares of tested income and tested loss from all Schedule I-1s, computes net CFC tested income, applies the NDTIR (zero post-OBBBA for covered taxable years; verify at IRS.gov), and arrives at the NCTI inclusion amount. The NCTI inclusion flows from Form 8992 to the US shareholder's federal income tax return (Schedule C of Form 1120 for domestic corporations; Form 1040 with appropriate attachment for individuals making the IRC 962 election). Verify current Form 8992 instructions, including the post-OBBBA line items reflecting the QBAI elimination, at IRS.gov.

Form 1118

Form 1118 (Foreign Tax Credit -- Corporations) is used to claim the IRC 960(d) deemed-paid FTC arising from the NCTI inclusion. The FTC is limited to the 10 percent creditable portion of CFC tested foreign income taxes for taxable years subject to the OBBBA (verify at IRS.gov and consult independent counsel). The NCTI FTC is separately limited within the NCTI basket under IRC 904; excess credits do not carry into other baskets. Verify the current Form 1118 instructions, the NCTI basket computation, and any carryforward or carryback rules for excess NCTI basket FTCs at IRS.gov. Individual shareholders making an IRC 962 election also use Form 1118 (or the applicable individual FTC form; verify at IRS.gov) to claim the IRC 960(d) credit on the NCTI inclusion.

Regime Comparison Table: Pre-OBBBA vs. Post-OBBBA NCTI Parameters

The following table compares the key IRC 951A NCTI GILTI regime parameters before and after the OBBBA. All figures are subject to the hedging caveats noted throughout this guide; verify each parameter at IRS.gov and consult independent counsel regarding post-OBBBA provisions, as these are recently enacted and implementation guidance may be pending.

Parameter Pre-OBBBA Regime (through taxable years ending before Jan. 1, 2026) Post-OBBBA Regime (taxable years beginning on or after Jan. 1, 2026)
Inclusion trigger (IRC 951A(a)) US shareholder's NCTI inclusion in gross income Same; verify at IRS.gov
Tested income computation Per-CFC gross tested income minus allocable deductions and taxes; IRC 951A(c)(2)(A) Same; verify at IRS.gov
Net CFC tested income Aggregate pro-rata shares of tested income minus tested losses across all CFCs Same; verify at IRS.gov
QBAI / NDTIR offset 10% of aggregate QBAI (ADS-basis tangible depreciable property at CFC level) subtracted from NCTI QBAI eliminated; NDTIR = $0; full net CFC tested income is the inclusion amount; verify at IRS.gov and consult independent counsel
IRC 250 deduction percentage 50% of NCTI inclusion; effective corporate rate 10.5% 40% of NCTI inclusion; effective corporate rate 12.6%; verify at IRS.gov and consult independent counsel
IRC 960(d) FTC creditable fraction 80% of CFC tested foreign income taxes deemed paid 10% of CFC tested foreign income taxes deemed paid; verify at IRS.gov and consult independent counsel
Pro-rata share basis IRC 951(a)(2) principles; generally ownership-based Ownership-period apportionment; verify at IRS.gov and consult independent counsel
High-tax exclusion threshold 18.9% (90% of 21%); CFC-level annual election Same threshold; verify current threshold at IRS.gov; model HTE anew post-OBBBA
IRC 962 election availability Available to individual US shareholders; provides corporate rate and IRC 960(d) FTC access Same; now based on 12.6% effective rate and 10% FTC; verify at IRS.gov and consult independent counsel
Form reporting Form 5471 Schedule I-1, Form 8992, Form 1118 Same forms; verify post-OBBBA line items and instructions at IRS.gov

Frequently Asked Questions: IRC 951A NCTI GILTI

What is tested income under IRC 951A(c)(1)(A), and what deductions are allowable in computing it?

Tested income for a controlled foreign corporation (CFC) is the CFC's gross income for the taxable year -- excluding Subpart F income, income effectively connected with a US trade or business, dividends from related persons, and certain other excluded items -- reduced by the deductions (including taxes) properly allocable to that gross income under regulations. The result is a per-CFC figure that can be positive (tested income) or negative (tested loss). Gross income items subject to the high-tax exclusion are also excluded if the effective foreign tax rate on that income exceeds 18.9 percent; verify the current threshold at IRS.gov. The allocation of deductions follows Treas. Reg. 1.951A-2; verify the current regulatory framework at IRS.gov.

How is net CFC tested income (NCTI) computed under IRC 951A(c)(1)?

Net CFC tested income is the aggregate of the US shareholder's pro-rata shares of tested income from each CFC, reduced (but not below zero) by the aggregate pro-rata shares of tested losses from each CFC, as provided in IRC 951A(c)(1). Tested losses do not carry forward once absorbed against current-year tested income. The OBBBA modified the pro-rata share computation to require ownership-period apportionment; verify this change and its effective date at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending.

What did the OBBBA 2025 do to qualified business asset investment (QBAI), and what is the effect on the NCTI inclusion?

The OBBBA eliminated QBAI and the net deemed tangible income return (NDTIR) offset effective for taxable years beginning on or after January 1, 2026; verify this effective date at IRS.gov and consult independent counsel, as these provisions are recently enacted and implementation guidance may be pending. Before the OBBBA, the NCTI inclusion amount equaled net CFC tested income minus 10 percent of aggregate QBAI. With QBAI eliminated, the NDTIR is zero, and the entire net CFC tested income now flows into the US shareholder's NCTI inclusion. CFC groups with significant tangible depreciable assets will see materially larger NCTI inclusions for covered taxable years.

How did the OBBBA change the IRC 250 deduction rate, and what is the effective tax rate on NCTI after the change?

The OBBBA reduced the IRC 250 deduction from 50 percent to 40 percent of the NCTI inclusion, effective for taxable years beginning on or after January 1, 2026; verify at IRS.gov and consult independent counsel. The pre-OBBBA effective rate was 10.5 percent (21% x 50%). The post-OBBBA effective rate is 12.6 percent (21% x 60%). Individual US shareholders cannot use the IRC 250 deduction unless they make an IRC 962 election; verify current IRC 250 eligibility rules at IRS.gov.

What is the IRC 960(d) foreign tax credit haircut on NCTI, and how did the OBBBA change it?

IRC 960(d) provides a deemed-paid foreign tax credit for CFC-level foreign taxes attributable to the NCTI inclusion. The pre-OBBBA haircut allowed 80 percent of those taxes to be credited. The OBBBA reduced the creditable portion to 10 percent, effective for taxable years beginning on or after January 1, 2026; verify at IRS.gov and consult independent counsel. Only 10 percent of actual CFC tested-income foreign taxes is now available to offset the US shareholder's NCTI tax liability, substantially increasing the risk of double taxation for CFC groups in high-tax countries. The FTC is claimed on Form 1118 and is subject to the NCTI basket under IRC 904.

When should a US shareholder consider the IRC 962 election for NCTI, and what are its tradeoffs?

The IRC 962 election allows an individual US shareholder to be taxed on the NCTI inclusion at corporate rates and to claim the IRC 960(d) FTC. Post-OBBBA, the election provides access to the 12.6 percent effective rate and the 10 percent FTC haircut rather than the individual marginal rate with no FTC access. The primary disadvantage is the second-level tax when the CFC distributes earnings previously included under IRC 962. With the post-OBBBA rate and FTC changes, the cost-benefit analysis of the election requires fresh modeling; consult independent counsel and verify current IRC 962 election procedures at IRS.gov, as implementation guidance may be pending.

What is the high-tax exclusion for NCTI/GILTI, and how does it interact with the OBBBA changes?

The high-tax exclusion (HTE) is a CFC-level annual election that removes items of gross income from tested income when the effective foreign tax rate on that income exceeds 18.9 percent (90 percent of the 21 percent corporate rate); verify the current threshold and computation rules at IRS.gov. Income excluded under the HTE is not tested income and does not enter the NCTI inclusion. Post-OBBBA, the elimination of the QBAI offset and the 10 percent FTC haircut shift the relative economics of the HTE. Practitioners should re-model the HTE election for each CFC group under post-OBBBA assumptions; consult independent counsel, as implementation guidance may be pending.

What forms must be filed to report the NCTI inclusion, and what are the key reporting requirements?

Three forms govern NCTI reporting. Form 5471 Schedule I-1 reports each CFC's tested income or tested loss and tested foreign income taxes. Form 8992 computes the US shareholder's aggregate net CFC tested income, the NDTIR (zero post-OBBBA for covered taxable years; verify at IRS.gov), and the NCTI inclusion amount. Form 1118 is used to claim the IRC 960(d) deemed-paid FTC, limited to 10 percent of tested foreign income taxes for post-OBBBA years (verify at IRS.gov), subject to the IRC 904 NCTI basket limitation. All three forms are due with the US shareholder's federal income tax return. Verify current instructions and any post-OBBBA form changes at IRS.gov.

Disclaimer. This guide is published for general informational purposes only and does not constitute legal, tax, accounting, or financial advice. The IRC 951A NCTI GILTI regime and the OBBBA 2025 amendments are complex and subject to regulatory interpretation; all statutory provisions, rates, deduction percentages, effective dates, and form requirements described herein must be verified at IRS.gov before being applied to any actual tax return or planning engagement. OBBBA provisions are recently enacted and implementation guidance may be pending; consult independent tax and legal counsel regarding your specific facts and the current state of the law. Americas Tax does not guarantee the accuracy, completeness, or currency of the information in this guide and accepts no liability for reliance thereon. This guide does not create an attorney-client or accountant-client relationship.