During this session, attendees will gain deeper insight and guidance into the business-oriented provisions of the Tax Cuts and Jobs Act. Led by Brian Kempf, CPA, and Christopher Axene, CPA, attendees will learn more about the numerous provisions guaranteed to impact business owners moving forward. The duo will also facilitate question and answer session to address concerns specific to your industry and business. To listen to the webinar, visit: https://www.gotostage.com/channel/9304d57ec3364029b126b39d3950ebb6/recording/d0452ad1eb614d2086f65bd036368a83/watch?source=CHANNEL For additional tax reform information, including podcasts, articles, webinars and more, visit: http://www.reacpa.com/insight/tax-reform-guidance/

2. Housekeeping
• Enter your questions in the chat box
• Watch your inbox for a webinar evaluation and a copy
of the webinar recording
• Tweet along with #ReaTaxReform

3. Upcoming webinars
• Wed., Feb. 14 | Individual tax planning insight
• Thurs., Feb. 15 | Considerations for nonprofits
• Learn more or register at www.reacpa.com/taxreform
• High-level overview recording available at
www.reacpa.com/taxreform

4. Agenda
• Business provisions (Brian Kempf & Chris Axene)
• Pass-through entity provisions (Brian Kempf & Chris
Axene)
• International provisions (Chris Axene)

5. Brian Kempf
Business provisions, pass-through entity provisions

6. Christopher Axene, CPA
International provisions, business provisions, pass-through entity
provisions

7. Lesley Mast, CPA, Macc – Taxation
Moderator

8. Let’s start the show!

9. Business Provisions

10. Business Tax Reform: Corporate
• 21% corporate tax rate,
– Personal Service Corporations are the same
• Graduated corporate rate structure eliminated
• Rate effective for taxable years beginning after Dec. 31,
2017

11. Business Tax Reform: Corporate
• Note corporations with taxable income of $90,400 or
more will pay a lower tax. Tax under old rates =
$18,986, @ 21% flat rate = $18,984
• Alternative Minimum Tax (AMT) repealed for tax years
beginning after Dec. 31, 2017

12. Business Tax Reform: Corporate
• Fiscal year end
• Prorated tax rates
• Example
– March 31, 2018 year end
– $400,000 taxable income
• $400,000 x 35% x (9 months /12 months) = $105,000
• $400,000 x 21% x (3 months /12 months) = $21,000
• Total tax = $126,000
• Blended effective tax rate = 31.5%

13. Business Tax Reform: Corporate
• Dividend Received deduction for corporations changed
• Dividend received from other taxable domestic
corporations are allowed a deduction
• 70% deduction is reduced to 50%
• 80% deduction is reduced to 65%
• Effective for taxable years beginning after Dec. 31, 2017

14. Business Tax Reform: Entity Selection
• C-Corp vs. pass-through
– Lower top tax bracket in C-Corp
– What industry are you in?
• Do you reinvest profits back into the company?
• Can a change be done tax free?

15. Business Tax Reform: Entity Selection
• Long term ramifications
– Sell to outside party?
– Gift to family?
– Sell to family?
– Intangibles to sell?

16. Business Tax Reform: Bonus Depreciation
• Expands qualified property to include used property
• Increases bonus depreciation from 50% to 100%
• For property acquired and placed in service after
September 27, 2017
• Phase-down after Dec. 31, 2022 (2023 for long
production period property and aircraft)

17. Business Tax Reform: Bonus Depreciation
• Bonus Depreciation Property acquired before
Sept. 28, 2017, and placed in service after Sept. 27, 2017

18. Business Tax Reform: Bonus Depreciation

19. Business Tax Reform: Bonus Depreciation
• Example
– Robert purchases two assets during 2017
• Asset A for $35,000 on 3/17/17
• Asset B for $42,000 on 11/21/17
• Profit equals $275,000
• How to maximize depreciation?
• 179 limited to $510,000
• Bonus depreciation – 50% before 9/28/17
• Bonus depreciation – 100% from 9/28/17 – 12/31/17

20. Business Tax Reform: Bonus Depreciation
• Example
– Asset A
• Would be eligible for up to $35,000 179 depreciation
• Would be eligible for $17,500 bonus depreciation (50%)
– Asset B
• Would be eligible for up to $42,000 179 depreciation
• Would be eligible for $42,000 bonus depreciation (100%)
– Which to use?

21. Business Tax Reform: Section 179
• Sec. 179 annual dollar limit increased to $1 million
• Phase-down threshold increased to $2.5 million
• Effective for property placed in service in tax years
beginning after Dec. 31, 2017
• Limits are indexed for inflation for tax years beginning
after 2018

22. Business Tax Reform: Section 179
• The definition of Sec. 179 property is expanded to
include:
– Any of the following improvements to nonresidential real
property placed in service after the date such property was
first place in service:
• Roofs
• Heating, ventilation, and air-conditioning property
• Fire protection and alarm systems
• Security systems

23. Business Tax Provisions: 280F
• Depreciation limitations under section 280F that apply to
listed property are increased
• For passenger automobiles placed in service after
Dec. 31, 2017, and for which bonus depreciation is not
claimed the maximum amount of depreciation is as
follows:
– First Year $10,000
– Second Year $16,000
– Third Year $ 9,600
– Fourth and Later Years $ 5,760

24. Business Tax Reform: Real Property
Improvements
• The separate definitions of qualified leasehold
improvement, qualified restaurant, and qualified retail
improvement property are eliminated
• Above property is replaced with a reference to qualified
improvement property (QIP)
• Effective for property place in service after Dec. 31, 2017

25. Business Tax Reform: Real Property
Improvements
• Qualified improvement property (QIP) is any
improvement to an interior portion of a building this is
nonresidential real property if the improvement is placed
in service after the date the building was first placed in
service, except for any improvement for which the
expenditure is attributable to:
– Enlargement of the building
– Any elevator or escalator
– The internal structural framework of the building

26. Business Tax Reform: Real Property
Improvements
• Qualified Improvement Property (QIP)
– 1/1/17 – 9/27/17
• 39 year property eligible for 50% bonus
– 9/28/17 – 12/31/17
• 39 year property eligible for 100% bonus
– After 1/1/18
• 39 year property eligible NOT for 100% bonus
• Was SUPPOSED to become 15 year property which would have
been eligible for bonus
• Expect a correction to make this qualified for bonus
depreciation

27. Business Tax Reform: Real Property
Improvements
• Example:
– James is trying to decide whether to purchase an existing
location for his manufacturing business for $100,000 that will
require $200,000 of improvements, or build a new facility that
will cost $300,000. The building will be finished by 8/1/17.
– Which will provide a better write-off?

28. Business Tax Reform: Real Property
Improvements
• Example:
– Old facility
• Capitalize $100,000 over 39 years
• Capitalize $200,000 over 39 years, but take 50% bonus
depreciation
– Total depreciation in year 1 = $105,128
– New facility
• Capitalize $300,000 over 39 years
– Total depreciation in year 1 = $7,692

29. Business Tax Reform: Accounting Method
• Cash vs. Accrual method of accounting
– Allowed to use cash method of annual average revenue for
three years does not exceed $25,000,000
• No difference between industries
• The $25 million amount is indexed for inflation for
taxable years beginning after 2018
• The exceptions for the required use of the accrual
method for qualified personal service corporations and
taxpayers other than C corps are retained

30. Business Tax Reform: Accounting Method
• Example:
– David's’ manufacturing business averages $10,000,000 in
revenue every year the last three years
– Using accrual method of accounting (forced to under old
rules)
– A/R = $700,000
– A/P = $300,000

31. Business Tax Reform: Accounting Method
• Example:
– A/R > A/P by $400,000
– 37% tax bracket
• $400,000 x 37% tax bracket
– Possible savings of $148,000
– This is a one year savings because of timing

32. Business Tax Reform: Accounting Method
• The provision expands the exception for small taxpayers
from the uniform capitalization rules
• Any producer or reseller that meets the $25 million gross
receipts test is exempted from the application of section
263A
• The provision retains the exemptions from the uniform
capitalization rules that are not based on a taxpayer’s
gross receipts

33. Business Tax Reform: Accounting Method
• The provision expands the exception for small
construction contracts from the requirement to use the
percentage-of-completion method
• Contracts within this exception are those contracts for
the construction of improvement of real property if the
contract:
– is expected, at the time such contract is entered into, to be
completed within two years of commencement of the contract
– is performed by a taxpayer that for the taxable year in which
the contract was entered into meets the $25 million gross
receipts test

34. Business Tax Reform: Accounting Method
• A taxpayer fails the $25 million gross receipts test would
not be eligible for any of the exceptions, that is
– from the accrual method
– from applying the uniform capitalization rules
– from using the percentage-of-completion method for such
taxable year

35. Business Tax Reform: S Corporations
• Section 481 adjustments resulting from a change in
accounting method that are positive are generally taken
into account ratably during the four-taxable-year period
beginning with the year of change
• Present law, in the case of an S corp that converts to a
C corp, distributions of cash by the C corp to its
shareholders during the post-termination transition
period (PTTP), to the extent of the amount in the
accumulated adjustment account, are tax-free to the
shareholders a and reduce the adjusted basis of the
stock
• The PTTP is generally the one-year period after the S
corp election terminates

36. Business Tax Reform: S Corporations
• Under the provision, any 481(a) adjustment of an eligible
terminated S corporation attributable to the revocation of its S
corporation election (i.e., a change from the cash method to an
accrual method) is taken into account ratable during the six-
taxable-year period beginning with the year of change.
• An eligible terminated S corporation is any C corp, which
– is an S corp Dec. 21, 2017 (the day before the enactment of this bill)
– during the two-year period beginning on the date of such enactment
revokes its S corporation election under section 1362(a)
– all of the owners of which on the date the S corporation election is
revoked are the same owners (and in identical proportions) as the
owners on Dec. 31, 2017 (the date of such enactment)

37. Business Tax Reform: S Corporations
• If an eligible terminated S corp makes a cash distribution
after the PTTP, the accumulated account is allocated to
the distribution, and the distribution is chargeable to
accumulated earnings and profits, in the same ratio as
the amount that the accumulated adjustments account
bears to the amount of such accumulated earnings and
profits
• Note it appears that the benefits of these rules will apply
only if the S corp election is terminated by a revocation,
not by a termination. Thus, it is necessary to revoke the
election, rather than terminate it by disqualifying the
corporation from S corp status

38. Business Tax Reform: Interest Deduction
• Interest expense limited to 30% of adjusted taxable
income
• For tax years beginning after Dec. 31, 2017, and before
Jan. 1, 2022.
• An exemption from these rules applies for taxpayers
with average annual gross receipts for the three year
period ending with the prior tax year that do not
exceed $25 million

39. Business Tax Reform: Interest Deduction
• Real property trades or businesses can elect out of the
provision if they use ADS to depreciate applicable real
property used in a trade or business
• Farming businesses can also elect out if they use ADS to
depreciate any property used in the farming business
with a recovery period of ten years or more
• An exception from the limitation on the business interest
deduction is also provided for floor plan financing (i.e.,
financing for the acquisition of motor vehicles, boats or
farm machinery for sale or lease and secured by such
inventory)

40. Business Tax Reform: Net Operating Loss
Deduction
• For NOL’s arising in tax years ending after Dec. 31, 2017,
– the two year carryback and the special carryback provisions are
repealed,
– but a two-year carryback applies in the case of certain losses
incurred in the trade or business of farming
• Will be another consideration when entity planning

41. Business Tax Reform: Net Operating Loss
Deduction
• For losses arising in tax years beginning after Dec. 31,
2017, the NOL deduction is limited to 80% of taxable
income, determined without regard to the deduction
• Doesn’t apply to property and casualty insurance
companies
• NOLs can be carried forward indefinitely

42. Business Tax Reform: Like-Kind Exchanges
• Effective for transfers after Dec. 31, 2017
• Only real property that is not held primarily for sale
qualifies for like-kind (1031) exchange
• May not make a big difference for business assets
because of increased depreciation deductions
• Could make a large difference on personal investment
property (antiques, collectibles, etc.)

43. Business Tax Reform: DPAD
• The domestic production activity deduction (DPAD) is
repealed for tax years beginning after Dec. 31, 2017

44. Business Tax Reform: Entertainment
• No deduction is allowed with respect to (1) an activity
generally considered to be entertainment, amusement or
recreation, (2) membership dues with respect to any club
organized for business, pleasure, recreation or other social
purposes, or (3) a facility or portion thereof used in
connection with any of the above items
• This is a repeal of the exception to the deduction
disallowance for entertainment, amusement, or recreation
that is directly related to or associated with the active
conduct of a taxpayer’s trade or business
• Effective for amounts incurred or paid after Dec. 31, 2017

45. Business Tax Reform: Entertainment
• The 50% deduction limit is expanded to meals provided
through an in-house cafeteria or otherwise on the
premises of the employer. (Formerly exempt as de
minimis fringe and for the convenience of the employer.)
• For amounts incurred and paid after Dec. 31, 2017, and
until Dec. 31, 2025
• Amounts incurred and paid after Dec. 31, 2025, are not
deductible

46. Meals & Entertainment
2017 – Old Rules 2018 – New Rules
Office Holiday Parties 100% deductible ???
Entertaining Clients-Meals 50% deductible ???
Entertaining Clients-
Entertainment
Event tickets, 50% deductible for
face value of ticket; anything
above face value is non-
deductible. Tickets to qualified
charitable events are 100%
deductible.
No deduction for
entertainment expenses
Employee Travel Meals 50% deductible 50% deductible
Meals Provided for
Convenience
of Employer
100% deductible provided they
are excludible from employees’
gross income as
de minimis fringe benefits;
otherwise, 50% deductible
50% deductible
(nondeductible after 2025)

47. Business Tax Reform: R&D Credit
• Reduced credit rate will increase from 13% to 15.8%
• After 1/1/2021 R&D costs will need to be capitalized and
amortized over 5 years instead of being expensed
– Much lobbying to change this provision will continue to years
to come

48. Business Tax Reform: Working children
• New standard deduction of $12,000
• Paying your children up the standard deduction
– Must actually work!
– Pay them a wage standard to what they are doing
• First $12,000 of wages would have $0 tax
– Next $9,525 taxed at 10%
• Wages are subject to FICA

49. Possible Planning Opportunities under New Tax
Act
• Businesses:
– Evaluate entity choices
– Explore Research and Development Credit
– Explore benefits of cost segregation with QIP
– Cost segregation study for 2017 at higher rates
– Review assets placed into service in 2017
– Evaluate cash basis accounting

50. Questions?
Christopher Axene, CPA
Principal, Dublin office
chris.axene@reacpa.com
614-889-8725
Brian Kempf, CPA
Principal, Millersburg office
brian.kempf@reacpa.com
330-674-6055

51. Pass-through Entity
Provisions

52. Qualified Business Income (QBI) Deduction
• 20% deduction of pass-through income on individual
owner’s personal tax return
• New code section (section 199A)
• Eligible - individuals with ownership in partnerships, S-
corporations, or sole-proprietorships that conduct trade or
business

53. Qualified Business Income (QBI) Deduction
• Limits for professional service type business (e.g.
lawyers, doctors, accountants, etc.)
• Not applicable to:
– Investment management/advisory/trading type businesses
excluded from eligibility
– Portfolio/investment income (e.g. investment interest,
dividends, short-term and long-term capital gain income

54. QBI Deduction: Definitions
• Qualified business income – the net amount of
qualified items of income, gain, deduction, and loss with
respect to any qualified trade or business of the taxpayer
– does not include any qualified REIT dividends, qualified
cooperative dividends, or qualified publicly traded
partnership income
• Qualified items of income, gain, deduction, and loss
– income, gains, deductions, and losses to the extent they are
related to activities in the US and used in determining taxable
income (exceptions: capital gains, interest, dividends, et al)

55. QBI Deduction: Definitions
• Qualified trade or business – any trade or business
other than
– a specified service or trade business (excluding architects or
engineers), meaning – any trade or business involving the
performance of services in the field of health, law, accounting,
actuarial science, performing arts, consulting, athletics,
financial services, brokerage services, or any trade or
business where the principal asset of such trade or business
is the reputation or skill of 1 or more of its employees
– the trade or business of performing services as an employee

56. QBI Deduction: Definitions
• W-2 wages – any wages paid to employees,
– does not include guaranteed payments or payments to
independent contractors
• Qualified property – tangible property being
depreciated and used in a trade or business,
depreciation period is the latter of the regular
depreciation period or 10-years (excludes land)
• Unadjusted basis – equal to basis immediately after
acquisition, not adjusted for depreciation

57. QBI Deduction: Limitations
• Service related businesses
– Limited if taxable income is more than $315,000 (MFJ)
– Phased out completely if taxable income more than $415,000
• Non-services related businesses
– No taxable income phase out

58. QBI Deduction: Service business
• Taxable income is less than $315,000
• The deduction is the lesser of:
– 20% of qualified business income
– Combined QBI
– 20% of total taxable income less capital gains (modified
taxable income)

59. QBI Deduction: Service business
• Taxable income is between $315,000 – 415,000
• The following formula is used:

60. QBI Deduction: Service business
• Taxable income is greater than $415,000
• Deduction is no longer available

61. QBI Deduction: Service business example
• Jenny & Jordan are married. Jordan receives a W-2 for
$30,000. Jenny has a small business (Schedule C) as
an attorney and has a profit of $100,000
– Taxable income is $106,000 ($100,000+30,000-24,000)
• Deduction is the lesser of
– $100,000 x 20% = $20,000
– $106,000 x 20% = $21,200
• Tax bracket is 22%
• TAX SAVINGS = $4,400
• $20,000 X 22%
• Effective tax savings is 4.4% of net profit

62. QBI Deduction: Service business example
• Jenny & Jordan are married. Jordan receives a W-2 for
$230,000. Jenny has a small business (Schedule C) as
an attorney and has a profit of $150,000.
• Taxable income is $356,000 ($150,000+230,000-24,000)
• Phase out applies

63. QBI Deduction: Service business example
• Deduction is the lesser of
– $150,000 x 20% = $30,000
– Limitation ratio
• 1- (($356,000-315,000) / $100,000) = 59%
• 59% x $150,000 x 20% = 17,700
• Actual deduction = $17,700
• Tax bracket is 32%
• TAX SAVINGS = $5,664
– Effective tax savings is 3.8% of net profit

64. QBI Deduction: Non-Service business
• Taxable income is less than $315,000
• The deduction is the lesser of:
– 20% of qualified business income
– Combined QBI
– 20% of total taxable income less capital gains (modified
taxable income)

65. QBI Deduction: Non-Service business
• Taxable income is between $315,000 – 415,000
– Deduction is 20% of QBI less:
• 20% of QBI less the greater of
– The greater of
» 50% of W-2 wages from pass-through entity
» 2.5% of cost of unadjusted basis plus 25% of W-2 wages
• Multiplied by:

66. QBI Deduction: Non-Service business
• Taxable income exceeds $415,000 the QBI deduction
will be:
– lesser of:
• 20% of QBI; or
• Greater of:
– 50% of W-2 wage income from pass-through entity (not
applicable to sole proprietorships)
– 2.5% of cost of qualified business assets plus 25% of W-2
wage income.

67. QBI Deduction: Non-Service business
• NOTE: Deduction cannot exceed 20% of modified
taxable income (service and non-service)
– Modified taxable income = taxable income less net capital
gain income

68. QBI Deduction: Non-Service example
• Alex & Tina are married. Tina receives a W-2 for
$30,000. Alex has a small business (Schedule C) as an
contractor and has a profit of $100,000
– Taxable income is $106,000 ($100,000+30,000-24,000)
• Deduction is the lesser of
– $100,000 x 20% = $20,000
– $106,000 x 20% = $21,200
• Tax bracket is 22%
• TAX SAVINGS = $4,400
• $20,000 X 22%
• Tax savings is 4.4% of net profit

69. QBI Deduction: Non-Service example
• Alex & Tina are married. Tina receives a W-2 for
$230,000. Alex has a small business (Schedule C) as
an contractor and has a profit of $150,000. He has one
employee which he pays $35,000
• Taxable income is $356,000 ($150,000+230,000-24,000)
• Phase out applies

70. QBI Deduction: Non-Service example
• Deduction is the lesser of
– $150,000 x 20% = $30,000
– Wage limitation
• $35,000 x 50% = $17,500
• Additional deduction = $12,500 (30,000-17,500)
– Limitation ratio
• ($356,000-315,000) / $100,000 = 41%
• Reduction in additional deduction = $12,500 x 41% = $5,125
• Actual deduction = $24,875 ($30,000 – $5,125)

71. QBI Deduction: Non-Service example
• Tax bracket is 32%
• TAX SAVINGS = $7,960
• $24,875 X 22%
• Tax savings is 5.3% of net profit

72. QBI Deduction: Non-Service example
• Alex & Tina are married. Tina receives a W-2 for
$65,000. Alex has a small business (Schedule C) as an
contractor and has a profit of $500,000. He has two
employees which he pays $125,000
• Taxable income is $541,000 ($500,000+65,000-24,000)
• W-2 limitation applies

73. QBI Deduction: Non-Service example
• Deduction is the lesser of
– $500,000 x 20% = $100,000
– Wage limitation
• $125,000 x 50% = $62,500
• Actual deduction = $62,500
• Tax bracket is 35%
• TAX SAVINGS = $21,875
• $62,500 X 35%
• Tax savings is 4.4% of net profit

74. QBI Deduction: Example: Real Estate
• Loretta owns a warehouse she leases to furniture
distributor
• She purchased the building for $1,000,000 ten years ago
and has since repaid the debt she incurred to do so
• The taxable income after expenses and depreciation is
subtracted from rent is about $20,000
• She hires outside contractors for all the labor needed
and therefore has no employees
• Her §199A is the lesser of:
– $20,000 x 20% = $4,000
– $1,000,000 x 2.5% = $25,000

75. QBI Deduction: Example: Real Estate
• John and Melissa also own two homes they rent to others.
They have taxable income greater than $415,000
• The first:
– Generates $7,000 of QBI for a deduction of $1,400 [$7,000 x 20%]
– Property is fully depreciated
– No employees
– Therefore, the QBI deduction is $0

76. QBI Deduction: Example: Real Estate
• The second:
– Generates $20,000 of QBI for a potential deduction of $4,000
[$20,000 x 20%]
– Property is not fully depreciated and was purchased for $100,000
(less land)
– No employees
– Therefore, the QBI deduction is $2,500
• Lesser of:
– (A) $4,000 or
– (B) greater of:
» (i) $0 ($0 W-2 wages x 50%) or
» (ii) $2,500 ([$0 W-2 wages x 25%] + [$100,000 property x
2.5%])

77. QBI Deduction: Example: Real Estate
Apartment Building 1
• Acquired by Green Acre LP in
1995 for $4,200,000
• Similar building & identical
partners
• $3,400,000 of depreciable
assets
• No debt
• QBI of approximately $480,000
• 199A Deduction = lesser of:
– 20% x $480,000 = $96,000
– 2.5% x $3,400,000 = $85,000
Apartment Building 2
• Acquired by Black Acre LP in
1995 for $4,200,000
• Similar building & identical
partners
• $3,400,000 of depreciable
assets
• • Debt of $7,000,000
• QBI of approximately
$200,000
• 199A Deduction = lesser of:
– 20% x $200,000 = $40,000
- 2.5% x $3,400,000 = $85,000

78. QBI Deduction: Additional Information
• All calculations, including the wage and unadjusted basis
limitation are all on an entity by entity basis
– Rental properties (non-entities) are grouped together
• Losses carried over from prior years must be applied
when calculating QBI
• Partner/shareholder must use their allocable share for all
calculations
• 10% accuracy penalty for taxpayers who claim the
deduction but are ineligible
• Net Investment Income Tax is unaffected

79. Possible Planning Opportunities under New Tax
Act
• Pass-through Entity Deduction:
– Increase W-2 wages (employees or S corp election)
– Increase qualified property
– Spin-out applicable entity within a service entity to take
deduction
– Move independent contractors to employees

80. QBI Deduction: Take-Aways
• We need additional guidance from the IRS regarding:
– What truly constitutes as a service business?
– Clearly defining “trade or business”
– Additional definitions and clarifications

81. Questions?
Christopher Axene, CPA
Principal, Dublin office
chris.axene@reacpa.com
614-889-8725
Brian Kempf, CPA
Principal, Millersburg office
brian.kempf@reacpa.com
330-674-6055

82. International Provisions

83. International Provisions: Deemed Repatriation
Tax
• Applies to all 10% or greater shareholders in foreign
corporation (i.e. individuals, corps, partnerships, etc)
• One-time special tax on balance of “earnings” not
previously returned to U.S. shareholders in the form of
dividends.
– Applies whether or not cash is actually “brought home”
• Two rates of tax based on foreign entity’s balance sheet:
– 15.5% on cash/cash equivalents (e.g. A/R net of A/P)
– 8% on all other assets
• Tax can be paid in installments over 8 yrs if election to
defer is made on timely filed tax return

84. Repatriation Tax
• Key item to consider for non-corporate shareholders:
– Tax applies if foreign entity meets definition of controlled
foreign corporation.
– Controlled Foreign Corporation:
• Any foreign corporation where 50% or more of vote or value is
owned by one or more US shareholders on any day during the
taxable year.
– Special election to be taxed as a C-corporation for purposes
of this tax.
• Doing so allows use of foreign tax credit offset against income
otherwise not available to non-corporate shareholders.
• But you also get C-corp tax rules on repatriated cash.

85. Simplified Example
Individual A owns 100% of Foreign Corp. As of 12/31/17
foreign corporation has $5,000 of accumulated earnings
and profits that has not previously been distributed via
dividend to U.S. shareholder.
Balance sheet is as follows:
Assets 12/31/17 Avg FY 15-16
Aggregate Cash 1,100 750
A/R (net of A/P) 100 100
Non-Cash Assets 100 n/a
Total 1,300 850

86. Example (cont.)
Transition Tax Calculation – The way it should work
Item Amount
Total E&P Inclusion 5,000
Amount related to cash 1,200
Amount related to non-cash 3,800
Tax on cash equivalent (1,200 x 15.5%) 186
Tax on balance of E&P (3,800 x 8%) 304
Total Expected Transition Tax 490
Note: 5,000 will be included in U.S. income subject to notional tax @
regular tax rate. Thus a deduction mechanism is required to arrive at
next tax on repatriated foreign E&P. See next slide for example

87. Example (cont.)
Transition Tax Calculation – The way it actually works
Item Amount
Total E&P Inclusion 5,000
Notional U.S Tax @ 37% rate 1,850
Actual Transition Tax (1,325x 37%) 490
Target Income inclusion (490/.37%) 1,325
Deduction required (5,000-1,325) (3,675)

88. Deemed Repatriation Tax – Take-Aways
• Have we been tracking true foreign earnings & profits (i.e. not
retained earnings)?
• Do we have access to foreign balance sheet to calculate the
tax/make necessary E&P adjustments?
• Individuals may want to take advantage of special election to
be taxed as a Corporation for purposes of this tax.
• Foreign corporations with 12/31/17 year-end. First
installment due by 4/17/18!
• S-corporations and REITs allowed to defer payment of tax –
election is made on shareholders 1040s.
– Amount of def tax must be calculated and disclosed each year

89. Global Intangible Low-Tax Income Inclusion
(“GILTII”)
• Applies to tax years beginning after 12/31/17
• Applies to all U.S. shareholders owning stock of controlled
foreign corporation (“CFC”).
• CFC
– Any foreign corporation where 50% or more of vote or value is
owned by one or more US shareholders on any day during the
taxable year.
• GILTII income inclusion subject to tax at regular tax rates.
• Calculation of GILTII based on formula that requires additional
guidance from IRS in order to properly calculate
• Bottom line – tax reform didn’t really change international tax
just morphed it into something worse

90. GILTII – Other Items To Consider
• IRC 962(b) election by non-corporate shareholders
– Treats the shareholder as a C-Corporation for purposes of the
international tax law changes only.
– May allow GILTII deduction (50% of inclusion amount) that is
otherwise not available to non-corporate shareholders
(currently subject to debate among tax experts)
– Rule of Thumb: election generally advantageous when
foreign tax credit pool rate = 15% or higher.
– What will happen to cash flow from foreign operations?
• Important to remember 2 layers of tax with C election.

91. Example – No 962(b) election
Item Amount
Foreign Earnings 1,000,000
Less: Return on capital inv (10%x 1M) ( 100,000)
Foreign Taxes (100,000)
GILTI Inclusion Amount 800,000
U.S. Tax @ 37% 296,000
Global Effective Tax rate 39.6%
Foreign Subsidary Earnings = 1,000,000
Foreign taxes paid = $100,000
Tangible property = $1,000,000
Individual Shareholder subject to maximum tax rate of 37%

92. Example –With 962(b) election
Item Amount
Foreign Earnings 1,000,000
Less: Return on capital inv (10%x 1M) (100,000)
Foreign Taxes (100,000)
GILTI: 800,000
Deemed Paid taxes (80%x 100k) 80,000
GILTI Inclusion (GILTI + Frgn tax) 900,000
U.S. Tax @ 21% 189,000
Foreign Tax Credit (80,000)
Residual US Tax: 109,000
Global Effective Tax rate 20.9%
Foreign Subsidary Earnings = 1,000,000
Foreign taxes paid = $100,000
Tangible property = $1,000,000
Individual Shareholder now subject to corporate tax rate of 21%

93. 100% Dividend Received Deduction
• Applies only to US C-corp shareholders.
• Applicable to dividends received after 12/31/17
– Provided stock has been held at least 1 year at time payment
made.
• Restrictions on deductibility of “hybrid dividends”
– Where payment is deductible to payor in home country

94. Outbound Transfers of Tangible Business
Property to Foreign Corporations
• Eliminates prior exemption from immediate taxation of
built-in-gains of transferred assets.
• Transfer creates real cash-tax out-flow from transaction
not otherwise generating cash proceeds.
• No change to current taxation for transfer of intangible
assets
– New law clarifies what is an intangible asset
• Applies for transfers after 12/31/17.
• Required information reporting unchanged

95. Other International Provisions
• There are other provisions included in “International Tax
Reform” that are beyond the scope of this presentation
– Foreign Derived Intangible Income (“FDII”) deduction
• Only applies to corporations
• WTO likely to object
– Base Erosion Avoidance Tax (“BEAT”)
• Only applies to Corps with gross revenue $500M or larger

96. Questions?
Christopher Axene, CPA
Principal, Dublin office
chris.axene@reacpa.com
614-889-8725

97. Upcoming webinars
• Wed., Feb. 14 | Individual tax planning insight
• Thurs., Feb. 15 | Considerations for nonprofits
• Learn more or register at www.reacpa.com/taxreform