History
How it came to be
From a 1962 fairness rule to a modern planning tool
Section 962 has been in the Code since the Kennedy administration. For most of its life it sat unused — then two tax reforms, six decades apart, brought it back into daily practice.
Born with Subpart F
Congress enacts §962 in the Revenue Act of 1962, alongside the original Subpart F regime that first taxed U.S. shareholders on undistributed CFC earnings. At the time the top individual rate reached 91% and corporations paid 52% — and individuals could not claim the indirect foreign tax credits available to corporations.
·76
The intent on the record
Treasury issues the §962 regulations. The legislative history is explicit: the purpose is to ensure an individual’s tax on foreign earnings they have not received is “no heavier than they would have been had they invested in an American corporation doing business abroad.” Parity — not a loophole — was the goal.
–2017
Decades of obscurity
With the corporate rate (35%) and the top individual rate (39.6%) close together, the election rarely paid off. Most practitioners never used it, and many had never heard of it.
Tax reform revives it
The Tax Cuts and Jobs Act cuts the corporate rate to 21% and creates GILTI under §951A, a new current tax on most CFC income. Suddenly an individual taxed at up to 37% on GILTI — with no §250 deduction and no indirect credit — has a powerful reason to elect corporate treatment.
Confirmed for GILTI
Proposed regulations confirm that individuals making a §962 election may apply it to GILTI inclusions and take the §250 deduction — settling the question and cementing the election’s revival.
GILTI becomes NCTI
The One Big Beautiful Bill Act renames GILTI to net CFC tested income (NCTI) for tax years beginning after December 31, 2025. It trims the §250 deduction to a permanent 40%, raises the deemed-paid credit to 90%, and removes the QBAI carve-out — reshaping, but not retiring, the §962 calculation.