Basis Adjustments for the Sale of Stock from a Lower Tier CFC to an Upper Tier CFC Regarding 961(c) and the Effects on GILTI Tested Income of Upper-Tier CFCs

Is there a basis adjustment for the sale of stock from a lower tier CFC to an upper tier CFC? Would such an increase in basis for subpart F earning already have flown up? Assuming you get both basis bumps — you were the direct benefiting shareholder at the time of the earnings — then the top CFC would get the bump from the lower tiers subpart F on the sale so you wouldn’t be duplicating subpart F. A dearth of attention has come to this issue. The New York State Bar Association (NYSBA) Tax Section wrote discussing this issue on October 11, 2018. The NYSBA discussed this issue in relation to stock basis adjustments for PTI by asking, “Does Section 961(c) basis increase to stock of lower-tier CFCs apply for purposes of determining GILTI tested income of upper-tier CFCs?” The NYSBA pointed out there is a conflicting interpretation of two provision: does the Section 961(c) basis adjustment apply for determining the amount included for GILTI? The agglutinative provisions conflate where the GILTI regime expressly requires that certain provisions — such as Section 961 — treat GILTI inclusions in the same way as Subpart F inclusions. Conceivably, this GILTI requirement clashes with Section 961(c) itself because “only for the purposes of determining the amount included under section 951 in the gross income.” The potential fray arises because no direction is given for applying Section 961(c) for purposes of determining GILTI tested income.