NCTI (Net CFC Tested Income, formerly GILTI) and Form 8992: OBBBA Changes Practitioner Guide

The One Big Beautiful Bill Act restructured the international tax inclusion regime that has governed U.S. shareholders of controlled foreign corporations since the Tax Cuts and Jobs Act of 2017. What practitioners knew as GILTI (Global Intangible Low-Taxed Income) under IRC 951A is now called Net CFC Tested Income (NCTI), and the calculation has changed in ways that affect virtually every CFC client beginning with the 2026 tax year. This guide walks enrolled agents, CPAs, and tax attorneys through what changed, what stayed the same, and what to watch in the proposed regulations before advising clients on NCTI planning.

For enrolled agents and CPAs advising clients affected by OBBBA across multiple areas, see also the PTET election OBBBA guide for pass-through entity tax changes and the Section 199A QBI deduction OBBBA guide for the Section 250 analog in the domestic deduction context. OBBBA changed multiple business tax regimes simultaneously; coordinating the analysis across areas is essential for clients with both domestic pass-through and CFC exposure. For the broader OBBBA international overview, including the FDDEI (formerly FDII) side of the Section 250 deduction and the FTC haircut changes, see the NCTI (formerly GILTI) and FDDEI (formerly FDII) OBBBA Section 250 practitioner guide.

This guide is for informational purposes only and does not constitute legal or tax advice. NCTI and IRC 951A involve complex, fact-specific computations that require qualified professional judgment on each client's particular facts. Verify all OBBBA provisions, rates, and thresholds at IRS.gov and in the current Form 8992 instructions before advising clients.

Section 1: From GILTI to NCTI -- What the OBBBA Changed

Background: GILTI under IRC 951A (2018-2025)

The TCJA enacted IRC 951A effective for tax years of foreign corporations beginning after December 31, 2017, requiring U.S. shareholders of controlled foreign corporations to include their share of "global intangible low-taxed income" in gross income annually. The GILTI inclusion worked by aggregating each CFC's "tested income" (broadly, gross income reduced by allocable deductions, with certain items excluded), then subtracting a deemed tangible income return based on the CFC's "qualified business asset investment" (QBAI). The result was that companies with large foreign tangible asset bases effectively excluded a portion of their tested income from the GILTI inclusion.

C-corporations could then take a Section 250 deduction to reduce their effective GILTI tax rate, and could apply a foreign tax credit (subject to a haircut) to reduce the residual U.S. tax on the GILTI inclusion. The regime created a minimum effective tax rate on foreign income for large multinationals, but the QBAI exclusion, Section 250 deduction, and FTC mechanics interacted to produce widely varying effective rates depending on each client's asset mix and foreign effective tax rate.

What OBBBA Changed: Three Structural Elements

OBBBA retained the underlying architecture of IRC 951A (annual U.S. shareholder inclusion, tested income computation, Form 8992 computational vehicle) but changed three structural elements and renamed the regime:

Section 2: The NCTI Computation and Form 8992

Form 8992 remains the computational vehicle for the NCTI inclusion. The worksheets and line calculations have been updated to reflect OBBBA, including the elimination of the QBAI subtraction and the revised Section 250 and FTC mechanics. Always use the current version of Form 8992 and its instructions from IRS.gov; prior-year versions are not valid for 2026 NCTI computations.

Before starting the Form 8992 computation, confirm that the entity is a controlled foreign corporation under IRC 958. CFC attribution and ownership rules (IRC 958) were not changed by OBBBA; they remain the threshold issue for whether NCTI applies at all. Do not proceed to the NCTI analysis until CFC status is confirmed.

Step-by-Step NCTI Computation

Section 3: The QBAI Elimination -- Practical Impact

The QBAI elimination is the most consequential mechanical change in the OBBBA NCTI regime for clients with CFC operations that involve significant tangible assets. Understanding who it hits hardest is the starting point for 2026 NCTI planning conversations.

How QBAI Worked Under Prior GILTI

Under prior law (GILTI, applicable through 2025 for calendar-year filers), the GILTI inclusion base was reduced by a percentage of the CFC's QBAI -- the adjusted basis of tangible property used in the CFC's trade or business and held at the close of each quarter of the CFC's tax year. This meant that CFCs with large tangible asset bases (manufacturing equipment, facilities, inventory assets) had a lower effective GILTI inclusion, and in some cases a QBAI amount large enough to reduce the tested income inclusion to zero. Companies that had invested heavily in foreign tangible assets were, by design, less exposed to GILTI than companies that held primarily intangible or financial assets.

The OBBBA Change: All Tested Income Is Now In

Under NCTI (OBBBA), the QBAI exclusion is eliminated. There is no subtraction for a deemed tangible income return. The entire aggregate net tested income across all CFCs is the NCTI inclusion base, regardless of how much tangible property the CFCs hold or how capital-intensive their operations are. A CFC that previously had zero GILTI exposure due to a large QBAI base now has full NCTI exposure on its tested income.

Who Is Most Affected

• Manufacturing and industrial companies with large foreign tangible asset bases. These clients previously relied on QBAI to reduce or eliminate their GILTI inclusion. Under NCTI, their entire tested income is in the inclusion base.
• Companies that previously zeroed out their GILTI inclusion via QBAI. If a client's prior GILTI planning relied on QBAI to produce a near-zero inclusion, that planning no longer applies for 2026. The client now has a material NCTI inclusion.
• CFCs in jurisdictions with moderate-to-low foreign effective tax rates and high tangible asset investment. These CFCs previously benefited from both the QBAI reduction and the FTC credit, compounding the shelter. Under NCTI, the QBAI shelter is gone; only the FTC (subject to the revised haircut) and the high-tax exception remain as potential offsets.

Section 4: The Section 250 Deduction Under OBBBA

Section 250 allows U.S. corporations to deduct a percentage of their NCTI inclusion, reducing the effective NCTI rate below the statutory corporate rate. OBBBA changed the Section 250 deduction percentage applicable to NCTI; the specific rate is hedged to per current IRS.gov guidance on IRC 951A and Section 250. Do not apply the prior GILTI Section 250 deduction rate to a 2026 NCTI computation without verifying the current rate at IRS.gov.

Who Can Take the Section 250 Deduction

The Section 250 deduction for NCTI is available only to C-corporations. S-corporations, partnerships, and individuals (whether individual shareholders of CFCs or partners/shareholders of pass-through entities owning CFCs) cannot take the Section 250 deduction directly on an NCTI inclusion. The Section 250 deduction is not passed through by S-corporations or partnerships to their owners. Individual shareholders of CFCs include NCTI at ordinary income rates without the benefit of the Section 250 deduction, unless the IRC 962 election is made (discussed in Section 6).

The Section 250 deduction operates in a structurally similar way to the domestic Section 199A deduction for qualified business income, in that it reduces the effective tax rate on a category of income rather than excluding the income from the base. For a detailed analysis of the Section 199A deduction under OBBBA, see the Section 199A QBI deduction OBBBA practitioner guide.

Ordering Rules

The Section 250 deduction is applied after the net operating loss deduction. Verify the complete ordering of the Section 250 deduction relative to other deductions per current IRS.gov guidance under OBBBA; ordering rules affect the final effective NCTI tax rate for taxpayers with net operating loss carryforwards.

Section 5: Foreign Tax Credit Interaction

NCTI inclusions generate foreign tax credits for income taxes paid by CFCs on their tested income. The FTC mechanism reduces the residual U.S. tax on NCTI, but the credits are subject to a "haircut" (meaning only a portion of the foreign taxes paid by the CFC is creditable) and are confined to a separate FTC basket.

The FTC Haircut

OBBBA changed the haircut percentage applied to foreign taxes associated with the NCTI inclusion. The specific haircut percentage applicable for 2026 is hedged to per current IRS.gov guidance on IRC 951A; do not apply the prior GILTI FTC haircut percentage to 2026 NCTI computations without verifying the current rate at IRS.gov and per proposed regulations as announced in IR-2026-03.

Separate NCTI Basket

NCTI inclusions and the associated FTCs remain in a separate FTC basket (the NCTI basket, formerly the GILTI basket under prior law). Excess FTCs in the general basket or the passive basket cannot be used to offset NCTI basket tax liability, and excess NCTI basket FTCs cannot be used to offset general basket tax liability. Basket-specific FTC planning remains as important as it was under prior GILTI law.

High-Tax Exception

If the effective foreign tax rate on a CFC's tested income exceeds the high-tax exception threshold, the taxpayer may elect to exclude that income from the NCTI computation entirely, rather than including it and then applying the haircut FTC. OBBBA raised the high-tax exception threshold; the specific rate is hedged to per current IRS.gov guidance on IRC 951A. Key mechanics of the high-tax exception:

• The high-tax exclusion is a CFC-level election, made on a CFC-by-CFC basis. It is not an entity-wide election.
• Once made for a given CFC for a given year, the election applies to all tested income from that CFC for that year. It cannot be made selectively for some but not all tested income items within the same CFC.
• The election is annual; it must be affirmatively made for each CFC each year.
• Consult IRS.gov and the proposed regulations under IR-2026-03 for current election procedures. The proposed regulations are not final; monitor IRS.gov for finalized guidance before advising clients on high-tax exception election strategy.

Section 6: The IRC 962 Election for Individual Shareholders

Individual U.S. shareholders who own CFCs directly (or through disregarded entities or grantor trusts) include their NCTI on Form 8992 at ordinary individual income rates without the benefit of the Section 250 deduction. For high-income individuals, this produces a materially higher effective NCTI rate than a C-corporation shareholder would face on the same inclusion.

How the IRC 962 Election Works

IRC 962 allows an individual U.S. shareholder to elect to be taxed on their Subpart F income and NCTI inclusion as if they were a domestic corporation for that year. The practical effects of the election are:

• The individual is taxed on the NCTI inclusion at corporate income tax rates (rather than at ordinary individual rates).
• The individual can access the Section 250 deduction on the NCTI inclusion, using the OBBBA deduction rate (verify the current rate at IRS.gov).
• The individual can access the haircut FTC on the NCTI inclusion (verify the current haircut rate at IRS.gov).

OBBBA Impact on the IRC 962 Calculus

OBBBA changed the Section 250 deduction rate, which directly changes the calculus of whether the IRC 962 election is advantageous for a given individual. A different Section 250 rate produces a different effective corporate-equivalent rate on the NCTI inclusion, which in turn affects the comparison to the individual's ordinary rate. Hedge all IRC 962 calculation specifics to IRS.gov and the updated Form 8992 instructions under OBBBA; do not apply the prior GILTI IRC 962 modeling assumptions to a 2026 NCTI year without updating the calculation for the current Section 250 rate and FTC haircut rate.

Section 7: Transition Considerations for 2025 Returns

The most immediate risk for practitioners reading this guide in mid-2026 is a mistaken application of NCTI rules to 2025 returns that are still being completed, reviewed, or extended. This section lays out the transition rules clearly.

2025 Returns: Prior GILTI Rules Apply in Full

Calendar-year taxpayers filing 2025 returns -- including those on extension through October 15, 2026 -- must apply the pre-OBBBA GILTI rules in full:

• The QBAI subtraction applies. Compute QBAI for each CFC as under prior law and subtract the deemed tangible income return from aggregate net tested income.
• The prior Section 250 deduction rate applies. Do not use the OBBBA Section 250 rate on a 2025 return.
• The prior FTC haircut percentage applies. Do not use the OBBBA FTC haircut on a 2025 return.
• The prior GILTI high-tax exclusion threshold applies. The OBBBA-raised threshold does not apply to 2025 returns.
• The prior version of Form 8992 and its instructions apply. Use the version applicable to the 2025 tax year; do not use the updated NCTI version of Form 8992 for a 2025 return.

Fiscal-Year CFCs Straddling January 1, 2026

CFC shareholders with fiscal-year CFCs whose tax year begins before January 1, 2026, and ends after December 31, 2025 (straddle-year CFCs) face additional complexity. The transition rules under the proposed regulations (IR-2026-03) govern the allocation of tested income between the pre-NCTI and post-NCTI periods for straddle-year CFCs. These rules are hedged to per proposed regulations as announced in IR-2026-03; practitioners should monitor IRS.gov for finalized guidance before advising clients with straddle-year CFC exposure.

GILTI High-Tax Exclusion Elections for 2025

High-tax exclusion elections made for 2025 CFCs remain effective under the prior GILTI rules for the 2025 tax year. A 2025 election does not carry forward to 2026; the new NCTI high-tax exception election procedures (as described in the proposed regulations under IR-2026-03) govern 2026 elections. Practitioners should not assume that a 2025 GILTI high-tax exclusion election automatically continues or converts to a 2026 NCTI high-tax exception election.

Section 8: Proposed Regulations (IR-2026-03) -- What to Watch

In January 2026, the IRS issued IR-2026-03 announcing proposed regulations under the new NCTI rules. These proposed regulations address the key mechanical questions raised by the OBBBA NCTI changes. They are not final regulations; practitioners should not rely on proposed regulation positions as settled law and must monitor IRS.gov for finalized guidance before advising clients on specific planning strategies that depend on those positions.

What the Proposed Regulations Cover

Per IR-2026-03, the proposed regulations address the following areas:

• QBAI elimination mechanics. Technical guidance on the transition from QBAI-based computation to the NCTI all-tested-income approach, including the treatment of QBAI-related items in progress at the effective date.
• Section 250 deduction calculation under OBBBA. Computational rules for the revised Section 250 deduction applicable to the NCTI inclusion, including ordering and limitation rules.
• Revised FTC haircut rules. Technical rules for computing the creditable portion of foreign taxes on NCTI tested income under the OBBBA haircut rate.
• Transition rules for straddle-year CFCs. Allocation methodology for CFCs with fiscal years that straddle January 1, 2026.

Key Open Questions as of the Proposed Regulation Stage

Several issues remain open or insufficiently clear pending finalization of the proposed regulations:

• Straddle-year allocation methodology and the treatment of prior-year QBAI positions for fiscal-year CFCs.
• High-tax exception election procedures for 2026, including whether a protective election should be filed and the mechanics for making or revoking an election under the new OBBBA threshold.
• IRC 962 ordering under the new Section 250 rate, including the two-tier tax computation for subsequent distributions from IRC 962 E&P.
• Interaction with Pillar Two global minimum tax rules and whether payments under Pillar Two qualify for the FTC under the NCTI basket analysis.

Section 9: Practitioner Checklist for 2026 NCTI Returns

Use this checklist before completing any NCTI analysis or advising clients on 2026 NCTI planning. Each item should be verified against current IRS.gov guidance and the updated Form 8992 instructions; this checklist does not substitute for professional judgment on the specific facts of each client matter.

1. Confirm CFC status under IRC 958. Before starting the NCTI analysis, confirm that each foreign corporation is a controlled foreign corporation under the IRC 958 attribution and ownership rules. CFC attribution rules were not changed by OBBBA but remain the threshold issue for whether NCTI applies at all. If CFC status is uncertain, resolve it before proceeding.
2. Determine applicable tax year. Identify which tax year applies to each CFC and the U.S. shareholder. For tax years beginning before January 1, 2026: use the prior GILTI framework (QBAI applies, prior Section 250 rate, prior FTC haircut). For tax years beginning on or after January 1, 2026: use the NCTI framework (no QBAI, updated Form 8992, current rates per IRS.gov). For straddle-year CFCs: consult proposed regulations under IR-2026-03 and monitor IRS.gov for finalized guidance.
3. Pull tested income and tested loss amounts from each CFC's books. Compute each CFC's tested income or tested loss per the IRC 951A rules and the current Form 8992 instructions. Verify the exclusions (Subpart F income, ECI, etc.) per current IRS.gov guidance.
4. Compute aggregate net NCTI inclusion (no QBAI subtraction for 2026). Net tested income and tested losses across all CFCs in the U.S. shareholder group. For 2026 and later years: do not subtract any QBAI amount. The aggregate net tested income is the NCTI inclusion base.
5. Evaluate the high-tax exception election for each CFC. For each CFC with an effective foreign tax rate near or above the OBBBA high-tax exception threshold (verify the specific threshold at IRS.gov), model the outcome under the high-tax exclusion election versus the haircut FTC approach. The high-tax exclusion is a CFC-level annual election and applies to all tested income from that CFC for the year. Consult proposed regulations under IR-2026-03 for election procedure; monitor IRS.gov for finalized guidance.
6. Apply the Section 250 deduction (C-corporations only). For C-corporation U.S. shareholders, apply the Section 250 deduction at the current OBBBA rate (verify at IRS.gov). Verify ordering rules per current IRS.gov guidance. Do not apply the Section 250 deduction to S-corporations, partnerships, or individual shareholders (see IRC 962 election item below).
7. Apply the FTC with the OBBBA haircut rate. Compute creditable foreign taxes on tested income using the OBBBA haircut rate (verify the specific rate at IRS.gov). Confirm basket allocation (NCTI basket). Verify that no general basket or passive basket FTCs are being applied against NCTI basket liability.
8. Evaluate the IRC 962 election for individual CFC shareholders. For individual U.S. shareholders, model the outcome under the IRC 962 election (corporate rate plus Section 250 plus FTC) versus the default (ordinary rate without Section 250). Complete a full distributable earnings and profits analysis to model the two-tier tax on subsequent distributions before recommending an election. Hedge all IRC 962 specifics to IRS.gov and the updated Form 8992 instructions under OBBBA.
9. Complete the updated Form 8992 using the current IRS.gov version. Do not use a prior-year Form 8992 for a 2026 NCTI return. Use the current version from IRS.gov that reflects the OBBBA changes. Follow the updated instructions for each line and worksheet.
10. Monitor IRS.gov for finalized regulations under IR-2026-03. Proposed regulations are not final. Any planning strategy that depends on proposed regulation positions (straddle-year allocations, high-tax exception procedures, IRC 962 ordering) should be re-evaluated when final regulations are issued. Subscribe to IRS.gov news releases and the Internal Revenue Bulletin.

Frequently Asked Questions

Related Practitioner Guides

The following guides cover international tax provisions and post-OBBBA obligations that practitioners analyze alongside the Form 8992 NCTI computation.

• IRC 959 and 961 PTEP Mechanics, Ordering Rules, and Basis Adjustments: OBBBA Practitioner Guide -- PTEP generated by NCTI inclusions under IRC 951A: three-tier ordering, LIFO rules, Section 960(d)(4) disallowance, IRC 961 basis adjustments, and Notice 2025-77 transition reclassification guidance.
• IRC 250 NCTI, GILTI, FDII, and FDDEI OBBBA International Tax Guide -- the Form 8992 computation and the IRC 250 NCTI deduction are part of the same international tax return workflow; Form 8992 computes the NCTI inclusion that IRC 250 then partially deducts; the two guides are read together to understand the complete NCTI computational chain.
• Foreign Tax Credit Form 1116 and Form 1118 OBBBA Guide -- the Form 8992 NCTI basket feeds directly into the Form 1118 FTC limitation calculation; the 90% haircut on the NCTI FTC basket under OBBBA affects how much of the foreign tax paid on CFC income is creditable; the Form 8992 and FTC guides must be prepared in sequence.
• Form 5471 and Form 5472 Foreign Corporation Reporting Guide -- the tested income and tested loss inputs to Form 8992 are derived from Form 5471 Schedule I-1; errors in the Form 5471 CFC-level tested income schedules propagate into the Form 8992 NCTI computation; the two forms are always prepared together.
• CAMT Corporate Alternative Minimum Tax Form 4626 Guide -- AFSI-based CAMT and the NCTI basket under Form 8992 represent two parallel post-OBBBA obligations for large C-corporations with CFCs; book income from CFCs in the AFSI base and the tested income amounts on Form 8992 may differ; the CAMT and Form 8992 guides are modeled together for multinational groups subject to both regimes.

A Note on Regulatory Developments

The OBBBA NCTI regime is recently enacted legislation, subject to ongoing regulatory interpretation and IRS.gov guidance. This guide reflects the statutory changes as enacted and the proposed regulations as announced in IR-2026-03 (January 2026). Proposed regulations are not final. Every rate, threshold, and deduction percentage described in this guide is hedged to per current IRS.gov guidance and should be verified at IRS.gov before advising any client.

Americas Tax will update this guide as the IRS issues finalized regulations and additional guidance under IRC 951A and the NCTI regime. Practitioners with complex international CFC structures, straddle-year CFCs, or significant legacy QBAI positions should consult qualified international tax counsel before completing 2026 NCTI computations or advising clients on NCTI planning strategies.

This guide is for informational purposes only. It does not constitute legal or tax advice and does not create a practitioner-client relationship. Tax laws and IRS guidance change frequently. Verify all information at IRS.gov before advising clients.