IRS Publication 6076 – In the complex world of U.S. international taxation, the Section 250 deduction plays a pivotal role for domestic corporations engaging in global operations. This deduction, introduced under the Tax Cuts and Jobs Act (TCJA) of 2017, provides relief on Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI). IRS Publication 6076 offers valuable insights through statistical data on how corporations have utilized this deduction, specifically for Tax Year 2021. As we navigate 2026, recent legislative changes from the One Big Beautiful Bill Act (OBBBA) have reshaped these rules, making it essential for businesses to stay informed. This article breaks down the key aspects of Section 250, FDII, and GILTI, incorporating the latest updates to help optimize your tax strategy.
What Is Section 250 Deduction?
Section 250 of the Internal Revenue Code allows eligible domestic corporations to deduct a portion of their FDII and GILTI, effectively reducing the U.S. tax rate on certain foreign-related income. For tax years from 2018 through 2025, the deduction was 37.5% for FDII and 50% for GILTI, resulting in effective tax rates of approximately 13.125% and 10.5%, respectively. This incentive encourages U.S. companies to maintain intellectual property and operations domestically while serving foreign markets.
However, starting with tax years beginning after December 31, 2025, the OBBBA has introduced significant modifications. FDII has been renamed Foreign-Derived Deduction Eligible Income (FDDEI), with the deduction rate reduced to 33.34%, leading to an effective tax rate of about 14%. Similarly, GILTI is now Net CFC Tested Income (NCTI), with the deduction lowered to 40%, increasing the effective rate to 12.6%. These changes aim to balance incentives for exports with deterrents against shifting income to low-tax jurisdictions.
Eligibility is limited to domestic C corporations (excluding REITs, RICs, and S corporations) and certain U.S. individuals making a Section 962 election. Partnerships with domestic corporate partners may also qualify under specific regulations.
Breaking Down Foreign-Derived Intangible Income (FDII/FDDEI)
FDII represents income earned by a U.S. corporation from selling goods or providing services to foreign persons for use outside the U.S., exceeding a 10% return on tangible assets (Qualified Business Asset Investment or QBAI). It targets “intangible” income from exports, such as patents or software.
Under the pre-2026 rules, FDII is calculated as:
- Deduction Eligible Income (DEI) minus 10% of QBAI, multiplied by the foreign-derived ratio (FDDEI/DEI).
Post-OBBBA (2026 onward), the formula simplifies for FDDEI:
- No QBAI offset or foreign-derived ratio multiplier.
- Excludes income from intangible property dispositions after June 16, 2025, such as sales under Section 367(d).
- Interest and R&E expenses are no longer allocated against DEI.
This shift makes the deduction more straightforward but potentially less generous for asset-heavy companies. Businesses should review export activities to ensure they qualify, documenting foreign use or location as required.
Understanding Global Intangible Low-Taxed Income (GILTI/NCTI)
GILTI taxes U.S. shareholders on excess returns from intangible assets held in Controlled Foreign Corporations (CFCs), calculated as Net Tested Income minus 10% of QBAI. It’s designed to prevent base erosion by taxing low-taxed foreign income.
For 2018-2025, the Section 250 deduction offsets 50% of GILTI (plus the Section 78 gross-up), with an 80% foreign tax credit (FTC) limitation.
In 2026, under NCTI:
- The FTC haircut reduces to 10%, allowing up to 90% credit.
- Deduction drops to 40%.
- Applies on a country-by-country basis for certain computations, increasing complexity for multinationals.
If FDII/FDDEI and GILTI/NCTI exceed taxable income, the deduction is limited to taxable income.
How to Claim the Section 250 Deduction?
To claim the deduction, file Form 8993 with your corporate tax return. Key steps include:
- Compute DEI: Gross income minus exclusions (e.g., Subpart F, dividends).
- Determine DTIR: 10% of QBAI (pre-2026).
- Calculate DII: DEI minus DTIR.
- Figure FDDEI: Portion of DEI from foreign sources.
- Apply ratios and deductions accordingly.
For GILTI/NCTI, use Form 8992 to compute inclusions before applying Section 250. Documentation is crucial, especially for proving foreign use in FDII/FDDEI claims, though final regulations relaxed some requirements.
Insights from IRS Publication 6076: Tax Year 2021 Statistics
IRS Publication 6076 provides statistical data on Section 250 usage for Tax Year 2021, based on sampled returns from July 2021 to June 2022. Key highlights:
- Corporations claimed over $111 billion in FDII deductions and $311 billion in GILTI deductions.
- Total FDII reported: $301 billion.
- Top industries (Manufacturing, Information, Finance/Insurance, Retail, Wholesale) accounted for 90% of GILTI and 92% of FDII deductions.
- Manufacturing led with 48.6% of FDII and 55.9% of GILTI deductions.
These figures underscore the deduction’s impact on key sectors, though data is historical and pre-OBBBA changes.
| Industry | % of Total FDII Deduction | % of Total GILTI Deduction |
|---|---|---|
| Manufacturing | 48.6% | 55.9% |
| Information | 29.5% | 15.6% |
| Finance and Insurance | Varies | Varies |
| Retail Trade | Varies | Varies |
| Wholesale Trade | Varies | Varies |
| All Others | ~10% | ~10% |
(Source: IRS Publication 6076)
Recent Updates and Planning Considerations for 2026
The OBBBA, enacted in 2025, permanently alters the landscape. With FDDEI excluding IP transfers post-June 2025 and NCTI increasing effective rates, multinationals should:
- Reassess CFC structures for NCTI minimization.
- Optimize export strategies for FDDEI benefits.
- Consider timing of IP dispositions before thresholds.
Iowa and other states may conform to these federal changes, affecting state taxes. Consult a tax advisor for personalized guidance, as rules evolve.
In summary, Section 250 remains a powerful tool for reducing taxes on foreign-derived income, but 2026 brings tighter parameters. By leveraging IRS Publication 6076’s insights and staying ahead of OBBBA reforms, businesses can maximize deductions and compliance. For the full Publication 6076, download it from the IRS website.