(a) In general—(1) Scope. This section provides rules for applying section 250 and §§ 1.250-1 through 1.250(b)-6 (the section 250 regulations) to a member of a consolidated group (member). Paragraph (b) of this section provides rules for the determination of the amount of the deduction allowed to a member under section 250(a)(1). Paragraph (c) of this section provides rules governing the impact of intercompany transactions on the determination of a member's qualified business asset investment (QBAI) and the effect of intercompany transactions on the determination of a member's foreign-derived deduction eligible income (FDDEI). Paragraph (d) of this section provides rules governing basis adjustments to member stock resulting from the application of paragraph (b)(1) of this section. Paragraph (e) of this section provides definitions. Paragraph (f) of this section provides examples illustrating the rules of this section. Paragraph (g) of this section provides an applicability date.

(2) Overview. The rules of this section ensure that the aggregate amount of deductions allowed under section 250 to members appropriately reflects the income, expenses, gains, losses, and property of all members. Paragraph (b) of this section allocates the consolidated group's overall deduction amount under section 250 to each member on the basis of its contribution to the consolidated foreign-derived deduction eligible income (consolidated FDDEI) and consolidated global intangible low-taxed income (consolidated GILTI). The definitions in paragraph (e) of this section provide for the aggregation of the deduction eligible income (DEI), FDDEI, deemed tangible income return, and global intangible low-taxed income (GILTI) of all members in order to calculate the consolidated group's overall deduction amount under section 250.

(b) Allowance of deduction—(1) In general. A member is allowed a deduction for a consolidated return year under section 250. See § 1.250(a)-1(b). The amount of the deduction is equal to the sum of—

(i) The product of the consolidated FDII deduction amount and the member's FDII deduction allocation ratio; and

(ii) The product of the consolidated GILTI deduction amount and the member's GILTI deduction allocation ratio.

(2) Consolidated taxable income limitation. For purposes of applying the limitation described in § 1.250(a)-1(b)(2) to the determination of the consolidated FDII deduction amount and the consolidated GILTI deduction amount of a consolidated group for a consolidated return year—

(i) The consolidated foreign-derived intangible income (consolidated FDII) (if any) is reduced (but not below zero) by an amount which bears the same ratio to the consolidated section 250(a)(2) amount that such consolidated FDII bears to the sum of the consolidated FDII and the consolidated GILTI; and

(ii) The consolidated GILTI (if any) is reduced (but not below zero) by the excess of the consolidated section 250(a)(2) amount over the reduction described in paragraph (b)(2)(i) of this section.

(c) Impact of intercompany transactions—(1) Impact on qualified business asset investment determination—(i) In general. For purposes of determining a member's QBAI, the basis of specified tangible property does not include an amount equal to any gain or loss recognized with respect to such property by another member in an intercompany transaction (as defined in § 1.1502-13(b)(1)) until the time that such gain or loss is no longer deferred under § 1.1502-13. Thus, for example, if a selling member owns specified tangible property with an adjusted basis (within the meaning of section 1011) of $60x and an adjusted basis (for purposes of calculating QBAI) of $80x, and sells it for $50x to the purchasing member (and the intercompany loss remains deferred), the basis of such property for purposes of computing the purchasing member's QBAI is $80x.

(ii) Partner-specific QBAI basis. A member's partner-specific QBAI basis (as defined in § 1.250(b)-2(g)(7)) includes a basis adjustment under section 743(b) resulting from an intercompany transaction only at the time, and to the extent, gain or loss, if any, is recognized in the transaction and no longer deferred under § 1.1502-13.

(2) Impact on foreign-derived deduction eligible income characterization. For purposes of redetermining attributes of members from an intercompany transaction as FDDEI, see § 1.1502-13(c)(1)(i) and (c)(7)(ii)(R) (Example 18).

(d) Adjustments to the basis of a member. For adjustments to the basis of a member related to paragraph (b)(1) of this section, see § 1.1502-32(b)(3)(ii)(B).

(e) Definitions. The following definitions apply for purposes of this section.

(1) Consolidated deduction eligible income (consolidated DEI). With respect to a consolidated group for a consolidated return year, the term consolidated deduction eligible income or consolidated DEI means the greater of the sum of the DEI (whether positive or negative) of all members or zero.

(2) Consolidated deemed intangible income. With respect to a consolidated group for a consolidated return year, the term consolidated deemed intangible income means the excess (if any) of the consolidated DEI, over the consolidated deemed tangible income return.

(3) Consolidated deemed tangible income return. With respect to a consolidated group for a consolidated return year, the term consolidated deemed tangible income return means the sum of the deemed tangible income return of all members.

(4) Consolidated FDII deduction amount. With respect to a consolidated group for a consolidated return year, the term consolidated FDII deduction amount means the product of the FDII deduction rate and the consolidated FDII, as adjusted by paragraph (b)(2) of this section.

(5) Consolidated foreign-derived deduction eligible income (consolidated FDDEI). With respect to a consolidated group for a consolidated return year, the term consolidated foreign-derived deduction eligible income or consolidated FDDEI means the greater of the sum of the FDDEI (whether positive or negative) of all members or zero.

(6) Consolidated foreign-derived intangible income (consolidated FDII). With respect to a consolidated group for a consolidated return year, the term consolidated foreign-derived intangible income or consolidated FDII means the product of the consolidated deemed intangible income and the consolidated foreign-derived ratio.

(7) Consolidated foreign-derived ratio. With respect to a consolidated group for a consolidated return year, the term consolidated foreign-derived ratio means the ratio (not to exceed one) of—

(i) The consolidated FDDEI; to

(ii) The consolidated DEI.

(8) Consolidated GILTI deduction amount. With respect to a consolidated group for a consolidated return year, the term consolidated GILTI deduction amount means the product of the GILTI deduction rate and the sum of the consolidated GILTI, as adjusted by paragraph (b)(2) of this section, and the amounts treated as dividends received by the members under section 78 which are attributable to their GILTI for the consolidated return year.

(9) Consolidated global intangible low-taxed income (consolidated GILTI). With respect to a consolidated group for a consolidated return year, the term consolidated global intangible low-taxed income or consolidated GILTI means the sum of the GILTI of all members.

(10) Consolidated section 250(a)(2) amount. With respect to a consolidated group for a consolidated return year, the term consolidated section 250(a)(2) amount means the excess (if any) of the sum of the consolidated FDII and the consolidated GILTI (determined without regard to section 250(a)(2) and paragraph (b)(2) of this section), over the consolidated taxable income of the consolidated group (within the meaning of § 1.1502-11).

(11) Deduction eligible income (DEI). With respect to a member for a consolidated return year, the term deduction eligible income or DEI means the member's gross DEI for the year (within the meaning of § 1.250(b)-1(c)(15)) reduced (including below zero) by the deductions properly allocable to gross DEI for the year (as determined under § 1.250(b)-1(d)(2)).

(12) Deemed tangible income return. With respect to a member for a consolidated return year, the term deemed tangible income return means an amount equal to 10 percent of the member's QBAI, as adjusted by paragraph (c)(1) of this section.

(13) FDII deduction allocation ratio. With respect to a member for a consolidated return year, the term FDII deduction allocation ratio means the ratio of—

(i) The member's positive FDDEI (if any); to

(ii) The sum of the positive FDDEI of all members.

(14) FDII deduction rate. The term FDII deduction rate means 37.5 percent for consolidated return years beginning before January 1, 2026, and 21.875 percent for consolidated return years beginning after December 31, 2025.

(15) Foreign-derived deduction eligible income (FDDEI). With respect to a member for a consolidated return year, the term foreign-derived deduction eligible income or FDDEI means the member's gross FDDEI for the year (within the meaning of § 1.250(b)-1(c)(16)) reduced (including below zero) by the deductions properly allocable to gross FDDEI for the year (as determined under § 1.250(b)-1(d)(2)).

(16) GILTI deduction allocation ratio. With respect to a member for a consolidated return year, the term GILTI deduction allocation ratio means the ratio of—

(i) The sum of the member's GILTI and the amount treated as a dividend received by the member under section 78 which is attributable to its GILTI for the consolidated return year; to

(ii) The sum of consolidated GILTI and the amounts treated as dividends received by the members under section 78 which are attributable to their GILTI for the consolidated return year.

(17) GILTI deduction rate. The term GILTI deduction rate means 50 percent for consolidated return years beginning before January 1, 2026, and 37.5 percent for consolidated return years beginning after December 31, 2025.

(18) Global intangible low-taxed income (GILTI). With respect to a member for a consolidated return year, the term global intangible low-taxed income or GILTI means the sum of the member's GILTI inclusion amount under § 1.1502-51(b) and the member's distributive share of any domestic partnership's GILTI inclusion amount under § 1.951A-5(b)(2).

(19) Qualified business asset investment (QBAI). The term qualified business asset investment or QBAI has the meaning provided in § 1.250(b)-2(b).

(20) Specified tangible property. The term specified tangible property has the meaning provided in § 1.250(b)-2(c)(1).

(f) Examples. The following examples illustrate the rules of this section.

(1) Example 1: Calculation of deduction attributable to FDII—(i) Facts. P is the common parent of the P group and owns all of the only class of stock of subsidiaries USS1 and USS2. The consolidated return year of all persons is the calendar year. In 2018, P has DEI of $400x, FDDEI of $0, and QBAI of $0; USS1 has DEI of $200x, FDDEI of $200x, and QBAI of $600x; and USS2 has DEI of −$100x, FDDEI of $100x, and QBAI of $400x. The P group has consolidated taxable income that is sufficient to make inapplicable the limitation in paragraph (b)(2) of this section. No member of the P group has GILTI.

(ii) Analysis—(A) Consolidated DEI. Under paragraph (e)(1) of this section, the P group's consolidated DEI is $500x, the greater of the sum of the DEI (whether positive or negative) of all members ($400x + $200x−$100x) or zero.

(B) Consolidated FDDEI. Under paragraph (e)(5) of this section, the P group's consolidated FDDEI is $300x, the greater of the sum of the FDDEI (whether positive or negative) of all members ($0 + $200x + $100x) or zero.

(C) Consolidated deemed tangible income return. Under paragraph (e)(12) of this section, a member's deemed tangible income return is 10 percent of its QBAI. Therefore, P's deemed tangible income return is $0 (0.10 × $0), USS1's deemed tangible income return is $60x (0.10 × $600x), and USS2's deemed tangible income return is $40x (0.10 × $400x). Under paragraph (e)(3) of this section, the P group's consolidated deemed tangible income return is $100x, the sum of the deemed tangible income return of all members ($0 + $60x + $40x).

(D) Consolidated deemed intangible income. Under paragraph (e)(2) of this section, the P group's consolidated deemed intangible income is $400x, the excess of its consolidated DEI over its consolidated deemed tangible income return ($500x −$100x).

(E) Consolidated FDII. Under paragraph (e)(7) of this section, the P group's consolidated foreign-derived ratio is 0.60, the ratio of its consolidated FDDEI to its consolidated DEI ($300x/$500x). Under paragraph (e)(6) of this section, the P group's consolidated FDII is $240x, the product of its consolidated deemed intangible income and its consolidated foreign-derived ratio ($400x × 0.60).

(F) Consolidated FDII deduction amount. Under paragraph (e)(4) of this section, the P group's consolidated FDII deduction amount is $90x, the product of the FDII deduction rate and the consolidated FDII (0.375 × $240x).

(G) Member's deduction attributable to consolidated FDII deduction amount. Under paragraph (b)(1) of this section, a member is allowed a deduction equal, in part, to the product of the consolidated FDII deduction amount of the consolidated group to which the member belongs and the member's FDII deduction allocation ratio. Under paragraph (e)(13) of this section, a member's FDII deduction allocation ratio is the ratio of its positive FDDEI to the sum of each member's positive FDDEI for such consolidated return year. As a result, the FDII deduction allocation ratios of P, USS1, and USS2 are 0 ($0/$300x), 2/3 ($200x/$300x), and 1/3 ($100x/$300x), respectively. Therefore, P, USS1, and USS2 are permitted deductions under paragraph (b)(1) of this section in the amount of $0 (0 × $90x), $60x ( 2/3 × $90x), and $30x ( 1/3 × $90x), respectively.

(2) Example 2: Limitation on consolidated foreign-derived deduction eligible income—(i) Facts. The facts are the same as in paragraph (f)(1)(i) of this section (the facts in Example 1), except that P's FDDEI is $300x.

(ii) Analysis—(A) Consolidated DEI and consolidated deemed tangible income return. As in paragraphs (f)(1)(ii)(A) and (C) of this section (the analysis in Example 1), the P group's consolidated DEI is $500x and the P group's consolidated deemed tangible income return is $100x.

(B) Consolidated FDDEI. Under paragraph (e)(5) of this section, the P group's consolidated FDDEI is $600x, the greater of the sum of the FDDEI (whether positive or negative) of all members ($300x + $200x + $100x) or zero.

(C) Consolidated deemed intangible income and consolidated FDII. Under paragraph (e)(2) of this section, the P group's consolidated deemed intangible income is $400x ($500x − $100x). Under paragraph (e)(7) of this section, the P group's consolidated foreign-derived ratio is 1.00 ($600x/$500x, but not in excess of one). Under paragraph (e)(6) of this section, the P group's consolidated FDII is $400x ($400x × 1.00).

(D) Consolidated FDII deduction amount and member's deduction attributable to consolidated FDII deduction amount. Under paragraph (e)(4) of this section, the P group's consolidated FDII deduction amount is $150x (0.375 × $400x). Under paragraph (e)(13) of this section, the FDII deduction allocation ratios of P, USS1, and USS2 are 1/2 ($300/$600x), 1/3 ($200x/$600x), and 1/6 ($100x/$600x), respectively. Therefore, P, USS1, and USS2 are permitted deductions under paragraph (b)(1) of this section in the amounts of $75x ( 1/2 × $150x), $50x ( 1/3 × $150x), and $25x ( 1/6 × $150x), respectively.

(3) Example 3: Member with negative FDDEI—(i) Facts. The facts are the same as in paragraph (f)(1)(i) of this section (the facts in Example 1), except that P's FDDEI is -$100x.

(ii) Analysis—(A) Consolidated DEI and consolidated deemed tangible income return. As in paragraphs (f)(1)(ii)(A) and (C) of this section (the facts in Example 1), the P group's consolidated DEI is $500x and the P group's consolidated deemed tangible income return is $100x.

(B) Consolidated FDDEI. Under paragraph (e)(5) of this section, the P group's consolidated FDDEI is $200x, the greater of the sum of the FDDEI (whether positive or negative) of all members (−$100x + $200x + $100x) or zero.

(C) Consolidated deemed intangible income and consolidated FDII. Under paragraphs (e)(2) and (6) of this section, the P group's consolidated deemed intangible income is $400x ($500x −$100x), and the P group's consolidated FDII is $160x ($400x × ($200x/$500x)).

(D) Consolidated FDII deduction amount and member's deduction attributable to consolidated FDII deduction amount. Under paragraph (e)(4) of this section, the P group's consolidated FDII deduction amount is $60x (0.375 × $160x). Under paragraph (e)(13) of this section, the FDII deduction allocation ratios of P, USS1, and USS2 are 0 ($0/$300x), 2/3 ($200x/$300x), and 1/3 ($100x/$300x), respectively. Therefore, P, USS1, and USS2 are permitted deductions under paragraph (b)(1) of this section in the amounts of $0 (0 × $60x), $40x ( 2/3 × $60x), and $20x ( 1/3 × $60x), respectively.

(4) Example 4: Calculation of deduction attributable to GILTI—(i) Facts. The facts are the same as in paragraph (f)(1)(i) of this section (the facts in Example 1), except that USS1 owns CFC1 and USS2 owns CFC2. USS1 and USS2 have GILTI of $65x and $20x, respectively, and amounts treated as dividends received under section 78 attributable to their GILTI of $10x and $5x, respectively.

(ii) Analysis—(A) Consolidated GILTI. Under paragraph (e)(9) of this section, the P group's consolidated GILTI is $85x, the sum of the GILTI of all members ($0 + $65x + $20x).

(B) Consolidated GILTI deduction amount. Under paragraph (e)(8) of this section, the P group's consolidated GILTI deduction amount is $50x, the product of the GILTI deduction rate and the sum of its consolidated GILTI and the amounts treated as dividends received by the members under section 78 which are attributable to their GILTI for the consolidated return year (0.50 × ($85x + $10x + $5x)).

(C) Member's deduction attributable to consolidated GILTI deduction amount. Under paragraph (b)(1) of this section, a member is allowed a deduction equal, in part, to the product of the consolidated GILTI deduction amount of the consolidated group to which the member belongs and the member's GILTI deduction allocation ratio. Under paragraph (e)(16) of this section, a member's GILTI deduction allocation ratio is the ratio of the sum of its GILTI and the amount treated as a dividend received by the member under section 78 which is attributable to its GILTI for the consolidated return year to the sum of the consolidated GILTI and the amounts treated as dividends received by the members under section 78 which are attributable to their GILTI for the consolidated return year. As a result, the GILTI deduction allocation ratios of P, USS1, and USS2 are 0 ($0/($85x + $10x + $5x)), 3/4 (($65x + $10x)/($85x + $10x + $5x)), and 1/4 (($20x + $5x)/($85x + $10x + $5x)), respectively. Therefore, P, USS1, and USS2 are permitted deductions of $0 (0 × $50x), $37.50x ( 3/4 × $50x), and $12.50x ( 1/4 × $50x), respectively.

(D) Member's deduction under section 250. Under paragraph (b)(1) of this section, a member is allowed a deduction equal to the sum of the member's deduction attributable to the consolidated FDII deduction amount and the member's deduction attributable to the consolidated GILTI deduction amount. As a result P, USS1, and USS2 are entitled to deductions under paragraph (b)(1) of this section of $0 ($0 + $0), $97.50x ($60x + $37.50x), and $42.50x ($30x + $12.50x), respectively.

(5) Example 5: Taxable income limitation—(i) Facts. The facts are the same as in paragraph (f)(4)(i) of this section (the facts in Example 4), except that the P group's consolidated taxable income (within the meaning of paragraph (e)(10) of this section) is $300x.

(ii) Analysis—(A) Determination of whether the limitation described in paragraph (b)(2) of this section applies. Under paragraph (b)(2) of this section, in the case of a consolidated group with a consolidated section 250(a)(2) amount for a consolidated year, the amount of the consolidated FDII and the consolidated GILTI otherwise taken into account in the determination of the consolidated FDII deduction amount and the consolidated GILTI deduction amount are subject to reduction. As in paragraph (f)(1)(ii)(E) of this section (the facts in Example 1), the P group's consolidated FDII is $240x. As in paragraph (f)(4)(ii)(A) of this section (the analysis in Example 4), the P group's consolidated GILTI is $85x. The P group's consolidated taxable income is $300x. Under paragraph (e)(10) of this section, the P group's consolidated section 250(a)(2) amount is $25x (($240x + $85x) − $300x), the excess of the sum of the consolidated FDII and the consolidated GILTI, over the P group's consolidated taxable income. Therefore, the limitation described in paragraph (b)(2) of this section applies.

(B) Allocation of reduction. Under paragraph (b)(2)(i) of this section, the P group's consolidated FDII is reduced by an amount which bears the same ratio to the consolidated section 250(a)(2) amount as the consolidated FDII bears to the sum of the consolidated FDII and consolidated GILTI, and the P group's consolidated GILTI is reduced by the excess of the consolidated section 250(a)(2) amount over the reduction described in paragraph (b)(2)(i) of this section. Therefore, for purposes of determining the P group's consolidated FDII deduction amount and consolidated GILTI deduction amount, its consolidated FDII is reduced to $221.54x ($240x −($25x × ($240x/$325x))) and its consolidated GILTI is reduced to $78.46x ($85x −($25x −($25x × ($240x/$325x)))).

(C) Calculation of consolidated FDII deduction amount and consolidated GILTI deduction amount. Under paragraph (e)(4) of this section, the P group's consolidated FDII deduction amount is $83.08x ($221.54x × 0.375). Under paragraph (e)(8) of this section, the P group's consolidated GILTI deduction amount is $46.73x (($78.46x + 10x + 5x) × 0.50).

(D) Member's deduction attributable to the consolidated FDII deduction amount. As in paragraph (f)(1)(ii)(G) of this section (the analysis in Example 1), the FDII deduction allocation ratios of P, USS1, and USS2 are 0, 2/3, and 1/3, respectively. Therefore, P, USS1, and USS2 are permitted deductions attributable to the consolidated FDII deduction amount of $0 (0 × $83.08x), $55.39x ( 2/3 × $83.08x), and $27.69x ( 1/3 × $83.08x), respectively.

(E) Member's deduction attributable to the consolidated GILTI deduction amount. As in paragraph (f)(4)(ii)(C) of this section (the analysis in Example 4), the GILTI deduction allocation ratios of P, USS1, and USS2 are 0, 3/4, and 1/4, respectively. Therefore, P, USS1, and USS2 are permitted deductions attributable to the consolidated GILTI deduction amount of $0 (0 × $46.73x), $35.05x ( 3/4 × $46.73x), and $11.68x ( 1/4 × $46.73x), respectively.

(F) Member's deduction pursuant section 250. Under paragraph (b)(1) of this section, a member is allowed a deduction equal to the sum of the member's deduction attributable to the consolidated FDII deduction amount and the member's deduction attributable to the consolidated GILTI deduction amount. As a result, P, USS1, and USS2 are entitled to deductions under paragraph (b)(1) of this section of $0 ($0 + $0), $90.44x ($55.39x + $35.05x), and $39.37 × ($27.69x + $11.68x), respectively.

(g) Applicability date. This section applies to consolidated return years beginning on or after January 1, 2021. A taxpayer that chooses to apply the rules in §§ 1.250(a)-1 and 1.250(b)-1 through 1.250(b)-6 to taxable years beginning before January 1, 2021, pursuant to § 1.250-1(b), must also apply the rules of this section in their entirety to consolidated return years beginning after December 31, 2017, and before January 1, 2021.

[T.D. 9901, 85 span 43113, July 15, 2020]