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Connect on LinkedInA Section 962 election is a U.S. tax election that allows an individual U.S. shareholder of a controlled foreign corporation to be taxed on certain CFC income inclusions as if they were a domestic corporation. For U.S. expats, it is most often considered when a foreign company creates GILTI or Subpart F income.
Why it matters for U.S. expats
A Section 962 election can reduce U.S. tax for some individual owners of foreign companies by allowing corporate-rate treatment, access to certain deemed paid foreign tax credits, and, for GILTI, a possible section 250 deduction. It can also create a second layer of tax when previously taxed earnings are later distributed, so the election needs to be modeled before filing rather than treated as an automatic fix.
Common questions
1. What is a Section 962 election?
A Section 962 election allows an individual U.S. shareholder of a CFC to have certain CFC income inclusions taxed under corporate-style rules for a specific tax year.
2. Who can make a Section 962 election?
An individual U.S. shareholder of a controlled foreign corporation can make the election if they have income inclusions covered by Section 962.
3. What income does a Section 962 election apply to?
It can apply to certain CFC income inclusions, including Subpart F income and GILTI, when the taxpayer is an individual U.S. shareholder of a CFC.
4. Why would a U.S. expat make a Section 962 election?
A U.S. expat may make the election to reduce the tax cost of CFC inclusions, use corporate-style foreign tax credit rules, and potentially claim a section 250 deduction for GILTI.
5. Does a Section 962 election eliminate GILTI?
No. The election does not eliminate GILTI. It changes how the GILTI inclusion is taxed and how certain related deductions or credits may be calculated.
6. Does a Section 962 election allow a section 250 deduction?
It can. A U.S. individual shareholder of a CFC making a Section 962 election uses Form 8993 to determine the allowable section 250 deduction for GILTI when the rules are met.
7. Does a Section 962 election allow foreign tax credits?
It can allow the individual to be treated like a domestic corporation for certain deemed paid foreign tax credit purposes. The credit calculation is technical and depends on the CFC’s foreign taxes, income categories, and U.S. shareholder’s inclusion.
8. Does a Section 962 election apply automatically?
No. The taxpayer must make the election for the tax year. It should be included with the timely filed return, including extensions, or handled through the correct amended-return approach if available.
9. Is a Section 962 election permanent?
The election is made year by year, but an election made for a tax year cannot be revoked without IRS consent.
10. Can a Section 962 election create tax later?
Yes. When earnings covered by the Section 962 election are later distributed, the taxpayer may have additional U.S. tax to the extent the distribution exceeds the U.S. tax previously paid on those earnings.
11. Is a Section 962 election always beneficial?
No. It can help when foreign taxes, GILTI, section 250, and distribution timing line up well, but it can be worse when the second layer of tax, state tax, future distributions, or administrative cost outweigh the initial benefit.
12. Does a Section 962 election remove Form 5471 reporting?
No. Form 5471 reporting still applies when the taxpayer meets the filing requirements for a foreign corporation or CFC.
13. Does a Section 962 election remove Form 8992?
No. A U.S. shareholder with GILTI still uses Form 8992 to calculate the GILTI inclusion. The Section 962 election affects how the inclusion is taxed.
14. Does a Section 962 election affect previously taxed earnings and profits?
Yes. Earnings taxed under the election need careful tracking because later distributions can have different treatment from ordinary previously taxed earnings.
15. Can a Section 962 election help with a low-tax foreign company?
It can, but the result depends on the company’s tested income, foreign tax rate, expenses, distributions, and available credits. A low-tax CFC may still leave U.S. tax due.
16. What records should U.S. expats keep for a Section 962 election?
Keep CFC financial statements, foreign tax returns, ownership records, Form 5471 schedules, Form 8992 calculations, Form 8993 calculations, foreign tax credit support, earnings and profits records, distribution records, exchange-rate records, and copies of election statements.
Related forms
- Form 5471: Foreign corporation reporting
- Form 8992: GILTI calculation
- Form 8993: Section 250 deduction for FDII and GILTI
- Form 1118: Foreign Tax Credit for corporations
- Form 1040: U.S. Individual Income Tax Return
- Schedule B: Interest, dividends, and foreign account questions
When to get help
Professional guidance is important when:
- You own 10% or more of a foreign corporation.
- Your foreign company is a CFC.
- You have GILTI, Subpart F income, or previously taxed earnings and profits.
- You want to compare ordinary individual taxation with a Section 962 election.
- The foreign company pays foreign corporate tax.
- You expect to distribute CFC earnings in a later year.
- You need to coordinate Form 5471, Form 8992, Form 8993, foreign tax credits, and CFC income categories.
- You made a Section 962 election in a prior year and need to track later distributions.
Bright!Tax can model the Section 962 election, compare it with other CFC tax outcomes, prepare the required forms and election statement, and track the future distribution consequences. Get started with Bright!Tax.
Related Bright!Tax guides
Official sources
- Cornell Legal Information Institute: 26 U.S. Code § 962
- IRS: Instructions for Form 8992
- IRS: Instructions for Form 8993
- IRS: About Form 5471
- IRS: About Form 8992
Reviewed by
Katelynn Minott, CPA & CEO
Last reviewed
July 2026