FAQ

It lets an individual U.S. shareholder (and certain trusts and estates) of a CFC choose to be taxed at corporate rates on Subpart F and GILTI / NCTI inclusions. The income is treated as if it passed through a hypothetical domestic C corporation, which lets the individual claim the §250 deduction and a deemed-paid foreign tax credit under §960 — benefits otherwise reserved for corporate shareholders.

Any individual who is a U.S. shareholder of a CFC — generally a U.S. person owning 10% or more of the vote or value of the foreign corporation — with a Subpart F or GILTI / NCTI inclusion. Trusts and estates may elect as well. It cannot be made by a corporation.

Without it, GILTI / NCTI and Subpart F are taxed at individual rates up to 37%, with no §250 deduction and no indirect credit. With it, the income is taxed at 21%, reduced by the §250 deduction (50% through 2025; 40% from 2026), and offset by deemed-paid foreign tax credits (80% through 2025; 90% from 2026). When the CFC is taxed abroad at a reasonable rate, the residual U.S. tax is frequently small or zero.

A written §962 election statement attached to your return, plus Form 8992 (GILTI / NCTI), Form 8993 (the §250 deduction), and Form 1118 (the foreign tax credit). The §962 Assistant generates the statement and all three forms. CFC ownership is reported separately on Form 5471.

It was enacted in the Revenue Act of 1962 (P.L. 87-834) with the original Subpart F rules. With individual rates then as high as 91% and no indirect foreign tax credit for individuals, Congress added §962 so an individual’s tax on undistributed CFC earnings would be no heavier than if they had invested through a U.S. corporation doing business abroad. The aim was parity.

For tax years beginning after December 31, 2025, GILTI is renamed net CFC tested income (NCTI). The §250 deduction drops from 50% to a permanent 40% (raising the pre-credit effective corporate rate from 10.5% to 12.6%), the §960 deemed-paid credit rises from 80% to 90%, and the QBAI / net deemed tangible income return carve-out is eliminated so all CFC tested income is captured.

Under §962(d), when the previously taxed earnings are later actually distributed, the portion exceeding the U.S. tax already paid on the original inclusion is included in income again as a dividend. That second layer is the main reason the election is a model-it-out decision rather than an automatic yes.

Annual. Under Treasury Regulation §1.962-2, you make it each year on a timely filed return by attaching the required statement. It can be made (or not) year by year as the facts change.