Subpart F, GILTI, and Line 28

1. The Premise

Compustat reports pretax income in two accounts: domestic (PIDOM) and foreign (PIFOR). Among SEC filers with PIFOR > PIDOM, a cohort reports PIDOM < 0 in a given fiscal year. A reader may infer that such filers report no U.S. taxable income. The inference is defective. Form 1120, Line 28 (taxable income before net operating loss deduction and special deductions) contains items that the financial statements assign to the foreign account.

Subpart F and GILTI inclusions bring a portion of PIFOR into Line 28. A filer can report a domestic book loss and a positive Line 28 for this reason alone. This note identifies the lines of Form 1120 where those inclusions appear, records the 2025 statutory change that renames GILTI, and lists the documents an examiner or analyst should request to trace each amount.

2. The Path Into Line 28

The inclusions do not appear on the face of page 1. They enter through Schedule C (Dividends, Inclusions, and Special Deductions). Column (a) of Schedule C is summed on Line 23 and carried to page 1, Line 4. Line 4 is a component of total income (Line 11), and Line 28 equals Line 11 minus total deductions (Line 27). Column (c) of Schedule C contains the special deductions; its total (Line 24) is carried to page 1, Line 29b, which lies below Line 28.

Three observations follow from Table 1.

3. A Decomposition

Let D denote the net book-tax differences on domestic operations, S the subpart F inclusions (Lines 16a to 16c), G the GILTI inclusion (Line 17), T the Section 78 gross-up (Line 18), and F the foreign dividends and foreign branch income taxed on the return. Then, as an accounting statement,

\quad
(1)\qquad
\text{Line 28}=\text{PIDOM}+D+S+G+T+F

A filer with PIDOM < 0 reports Line 28 > 0 whenever

\quad
(2)\qquad
S+G+T+F+D>\lvert\text{PIDOM}\rvert

The sum S + G + T is the portion of PIFOR that the Code attributes to the U.S. shareholder in the current year. Because subpart F income and tested income are measured after foreign income taxes, the Section 78 gross-up restores the pretax amount, which is the basis on which PIFOR is measured. The equation is an identity in form only: PIDOM follows the filer’s own allocation under Regulation S-X, Rule 4-08(h), and the consolidated return under Section 1504 excludes foreign corporations that the financial statements consolidate. The audit items in Section 5 are the means of measuring each term.

4. The 2025 Act: GILTI Becomes Net CFC Tested Income

Public Law 119-21 (the One Big Beautiful Bill Act), signed on July 4, 2025, renames GILTI as net CFC tested income (NCTI) and modifies its computation. The amendments apply to taxable years beginning after December 31, 2025. The tax year 2025 Form 1120 retains the GILTI label on Schedule C, Line 17; the NCTI label is expected on the tax year 2026 forms. For the fiscal years 2018 to 2025 the relevant term is GILTI, and before 2018 the term G is zero.

The repeal of the QBAI return matters for the present inquiry. Before 2026, a CFC with a large stock of tangible assets could generate tested income without a GILTI inclusion. From 2026, the same tested income enters Line 28. The proportion of PIFOR captured in Line 28 will increase for capital-intensive groups, and comparisons of the PIDOM < 0 cohort across the 2025 and 2026 boundary must account for the change.

5. Audit Items to Request

Table 3 lists the documents that trace each term of the decomposition. The order follows the return from the summary lines to the entity-level computations.

6. Use of the Items

The first test is arithmetic. Schedule C, Line 23 must agree with page 1, Line 4, and the sum of Lines 16a to 18 gives S + G + T. The second test is the reconciliation: Schedule M-3, Part II, Line 3, column (d) must agree with the subpart F and Section 951A inclusions on Schedule C, and Line 4 must agree with Form 1118. The third test is the comparison with the financial statements: the ratio (S + G + T)/\text{PIFOR} measures the proportion of foreign book income taxed in the current year.

A filer in the PIDOM < 0 cohort with a small ratio and a large PIFOR merits attention to items 5, 9, and 13, because the foreign income is escaping current inclusion through high-tax elections, tested losses, or (before 2026) the QBAI return, while the domestic account absorbs the group’s costs. This pattern is where the allocation of income under Section 482 becomes the principal audit question.

References

Internal Revenue Service (2025). Form 1120, U.S. Corporation Income Tax Return, tax year 2025. Schedule C, Lines 13 to 24, and page 1, Lines 4, 28, and 29b are the source of Table 1.

Internal Revenue Service (2025). Instructions for Schedule M-3 (Form 1120) (Rev. June 2025). Part II, Lines 1 to 5 state that Section 951A amounts are reported on Line 3 and deemed-paid taxes on Line 4.

Internal Revenue Service (2025). Instructions for Form 8993 (Rev. December 2025). Computation of the Section 250 deduction and its taxable income limitation.

Internal Revenue Service (2024). Instructions for Form 8992 (Rev. December 2024). U.S. shareholder computation of GILTI; Schedule A reports each CFC.

Public Law 119-21 (2025). An Act to provide for reconciliation pursuant to title II of H. Con. Res. 14, 139 Stat. 72 (July 4, 2025). Renames GILTI as net CFC tested income and amends Sections 250, 951A, and 960 for taxable years beginning after December 31, 2025.

Internal Revenue Code, Sections 78, 245A, 250, 951, 951A, 954(b)(4), 956, 959, 960, 964(e)(4), and 1504.