Tax reform: Individual taxpayers and the Sec. 962 election

TAX CUTS AND JOBS ACT Sec. 962 allows an individual U.S. shareholder (including a trust or estate) to elect to be taxed at corporate income tax rates on certain Subpart F income under Sec. 951(a).While this provision has historically had limited applicability, the new "repatriation tax" under P.L. 115-97, known as the Tax Cuts and Jobs Act (TCJA), may cause individual partners and shareholders of flowthrough entities (as well as direct individual shareholders) with controlled foreign corporations (CFCs) that have foreign subsidiaries with earnings and profits (E&P) subject to the repatriation tax to obtain a deferred tax rate benefit by making this election.In making a Sec. 962 election, the individual is effectively taxed at the U.S. corporate tax rate, which may be higher than the individual's marginal tax rate, but the individual is entitled to a credit for the indirect foreign taxes paid by the foreign corporation (by virtue of the mechanics of the Sec. 78 gross-up calculation that applies to corporate shareholders in receipt of foreign dividends from a CFC).