Private Equity Faces Tax Risk With Foreign Income Deduction

Private equity investors need to think carefully before opting into a generous tax deduction on some foreign income, or risk paying more U.S. taxes in the long run.

The tax overhaul created a 50 percent deduction for a new income category, called global intangible low-taxed income (GILTI), but the statute only made it available to corporations. In Internal Revenue Service proposed rules (REG-104464-18) released March 4, the Treasury Department extended the deduction to individuals, by allowing them to elect to be taxed as corporations.

But the attractive deduction could leave private equity shareholders with substantial compliance hurdles and ...