Cheney is a controlled foreign corporation with total foreign earnings of $4 million, of which $1.3 million is considered subpart F income. Cheney owns tangible business property with an adjusted tax basis of $6 million. Compute Cheney's global intangible low-taxed income.

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Quizplus · Accepted Answer

Global intangible low-taxed income (GILTI) is calculated as the excess of a controlled foreign corporation's "net tested income" over a deemed return on tangible assets. Net tested income is the controlled foreign corporation's income that is not effectively connected with a U.S. trade or business and not excluded from foreign base company income or insurance income. In this case, Cheney's net tested income is $2.7 million ($4 million total foreign earnings - $1.3 million subpart F income). 
The deemed return on tangible assets is calculated as 10% of the adjusted tax basis of the corporation's tangible assets. In this case, the deemed return is $600,000 (10% of $6 million). 
Therefore, Cheney's GILTI is $2.1 million ($2.7 million net tested income - $600,000 deemed return on tangible assets).

Cheney Is a Controlled Foreign Corporation with Total Foreign Earnings