Corporate tax in the United States

Statutory rate

For tax years beginning after December 31, 2017, the federal corporate income tax rate is a flat 21% on all corporate taxable income.^[12] The 21% rate replaced the prior graduated structure that ranged from 15% (on the first $50,000 of income) to 35% (on income over $18.3 million for most corporations); personal service corporations formerly faced a flat 35% rate. The 21% rate is permanent under current law.^[c]

The top corporate tax rate fell from a high of 53% in 1942 to 38% in 1993, although corporations in the top bracket were taxed at 35% between 1993 and 2017.^[13] The present 21% rate was adopted by TCJA effective for tax years beginning after December 31, 2017.

In addition to the regular 21% tax, the following federal corporate-level taxes may apply:

The 21% rate is among the lower statutory rates in the OECD, although several other countries have enacted reductions since 2017. Combined with the average state corporate tax burden, the integrated U.S. federal-state statutory rate as of 2026 is approximately 25.7%.^[1]

The current 21% rate has not been changed since TCJA. In his fiscal year 2022, 2023, and 2024 budgets, President Joe Biden proposed raising the corporate rate from 21% to 28%; the proposal did not advance, and the One Big Beautiful Bill Act of 2025 reaffirmed the 21% rate as permanent law.^[14] President Trump publicly proposed during the 2024 campaign reducing the corporate rate to 15% for domestic manufacturers, but no rate change was ultimately enacted.

Corporate Alternative Minimum Tax (CAMT)

The Inflation Reduction Act of 2022 enacted a new 15% corporate alternative minimum tax effective for tax years beginning after December 31, 2022.^[15] The CAMT, codified in 26 U.S.C. § 55, 26 U.S.C. § 56A, and 26 U.S.C. § 59, applies to an "applicable corporation"—generally any corporation (other than an S corporation, regulated investment company, or real estate investment trust) whose average annual adjusted financial statement income (AFSI) over the most recent three taxable years exceeds $1 billion. For corporations that are members of a foreign-parented multinational group (FPMG), an additional test applies whereby the corporation also must have $100 million or more of average annual U.S. AFSI.^[16]

AFSI begins with net income reported on an "applicable financial statement" (typically GAAP financial statements) and is adjusted for items such as taxes, certain depreciation, defined benefit pension plan items, earnings and profits of foreign subsidiaries (including controlled foreign corporations), and various cooperative and partnership adjustments. A foreign tax credit (the "CAMT FTC") is allowed against the CAMT, and CAMT paid generates an indefinite-carryover credit usable against regular tax in future years.

The U.S. Treasury issued voluminous proposed regulations on September 12, 2024 (REG-112129-23), Notice 2025-27 (June 2025) (interim simplified method, lowering thresholds to $800 million / $80 million for the safe harbor), Notice 2025-28 (July 2025), Notice 2025-49 (September 2025), and Notice 2026-7 (February 2026), which collectively narrowed the scope of CAMT, added several taxpayer-favorable AFSI adjustments (for amortization of pre-OBBBA §174 expenditures, repair expenses, and §197 amortization), and announced that the 2024 proposed regulations would be substantially withdrawn and re-proposed.^[17][18] Treasury has stated that no portion of the September 2024 proposed regulations will apply for any taxable year before revised proposed regulations are issued.

The CAMT was originally projected by the Joint Committee on Taxation to raise about $222 billion over a decade and to apply to roughly 100 of the largest U.S. corporations.^[19] Treasury and the Trump administration have publicly criticized the regime as imposing significant administrative costs and have signaled an intent to issue revised, more taxpayer-favorable proposed regulations. The Joint Committee on Taxation publishes annual estimates of corporate tax expenditures; recent reports are available at jct.gov.

Base erosion and anti-abuse tax (BEAT)

Enacted as 26 U.S.C. § 59A by TCJA, BEAT functions as a minimum tax targeting base erosion payments by large U.S. corporations to foreign related parties.^[20] The OBBBA permanently set the BEAT rate at 10.5% (up from 10%) for tax years beginning after December 31, 2025—a smaller increase than the 12.5% rate that had been scheduled to take effect under TCJA.^[21][22] BEAT applies to corporations (other than RICs, REITs, or S corporations) with:

• average annual gross receipts of at least $500 million for the prior three taxable years (computed at the aggregate-group level), and
• a "base erosion percentage" (base erosion tax benefits divided by aggregate deductions) of at least 3% (2% for banks and registered securities dealers).

Modified taxable income (regular taxable income added back by base erosion payments and a portion of net operating loss deductions) is taxed at the BEAT rate, and the corporation pays the excess of that BEAT amount over its regular tax (after most credits). The OBBBA permanently retained the favorable add-back for the §41 research credit and a portion of certain §38 general business credits within the BEAT calculation.^[22]

Stock repurchase excise tax

The Inflation Reduction Act of 2022 added 26 U.S.C. § 4501, imposing a 1% excise tax on the fair market value of stock repurchases by publicly traded domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations, effective for repurchases after December 31, 2022. The tax base is reduced by the fair market value of stock issued during the same taxable year (the "netting rule").^[23]

President Joe Biden's fiscal year 2024 budget proposal called for an increase to 4%, but no rate change was enacted; the rate remained 1% as of May 2026. On November 21, 2025, Treasury issued final regulations (T.D. 10037) that significantly narrowed the rule's scope: the previously broad "funding rule" was eliminated, and most acquisitive reorganizations, leveraged buyouts, "take-private" transactions, and complete liquidations under §§331 and 332 were excluded.^[24][25] The excise tax is reported on Form 720 with attached Form 7208 (Excise Tax on Repurchase of Corporate Stock) and is not deductible for federal income tax purposes by virtue of an amendment to 26 U.S.C. § 275.^[26]

Pre-2018 corporate AMT and other anti-avoidance taxes

The pre-2018 federal corporate alternative minimum tax (AMT), in force from 1986 through 2017, was repealed by the Tax Cuts and Jobs Act of 2017, effective for tax years beginning after December 31, 2017; AMT credit carryforwards generated under the prior regime were made refundable through the 2021 tax year. The pre-2018 AMT was reinstated in modified form by the Inflation Reduction Act of 2022's 15% corporate alternative minimum tax on adjusted financial statement income; see § Corporate Alternative Minimum Tax above.

Two pre-1986 anti-avoidance regimes remain in force as backstops against the use of a corporate vehicle to defer or eliminate shareholder-level tax:

• The personal holding company tax under 26 U.S.C. § 541–26 U.S.C. § 547 imposes an additional 20% tax on undistributed personal holding company income of closely held corporations whose income is predominantly passive (dividends, interest, royalties, rents, and certain personal-service compensation).
• The accumulated earnings tax under 26 U.S.C. § 531–26 U.S.C. § 537 imposes an additional 20% tax on accumulated taxable income of corporations formed or availed of for the purpose of avoiding the income tax on shareholders by accumulating earnings beyond the reasonable needs of the business.

Some states impose state-level alternative taxes on measures other than taxable income (gross receipts, capital, or specified asset bases); these are addressed in § State and local income taxes below.

Apportionment

Because the tax must be fairly apportioned, states and localities compute the income of out-of-state corporations (including those domiciled in foreign countries) by applying formulary apportionment to the corporation's total business taxable income. The traditional Uniform Division of Income for Tax Purposes Act (UDITPA) three-factor formula equally weights ratios of in-state property, payroll, and sales to the taxpayer's everywhere-totals. Since the 1990s a growing number of states have moved to a single-sales-factor formula on the rationale that it is less discriminatory toward in-state investment and payroll; by 2026 approximately 30 states use a single sales factor either for all industries or for most non-financial industries, while several others use a heavily sales-weighted formula (e.g., double-weighted sales).

Two complementary doctrines extend the reach of state corporate taxation in light of formulary apportionment:

• Throwback and throwout rules. A "throwback" rule treats sales of tangible personal property delivered into a state in which the seller is not taxable as if they had been made in the state of origin, throwing those sales back into the origin state's sales-factor numerator. A "throwout" rule, by contrast, excludes the untaxed sales from the everywhere-denominator. Both have been the subject of litigation under the Commerce Clause and the Due Process Clause.
• Market-based sourcing. For receipts from services and intangibles, the traditional rule sourced receipts to the state of performance ("cost-of-performance" sourcing). A clear majority of states have shifted to market-based sourcing—sourcing receipts to the location of the customer or the place where the benefit of the service is received—to align the sourcing rule with the single-sales-factor apportionment trend.

Public Law 86-272 and the digital nexus debate

Public Law 86-272 (15 U.S.C. §§381–384), enacted in 1959, prohibits states from imposing a net income tax on a business when its in-state activities consist solely of soliciting sales of tangible personal property, where orders are sent outside the state for approval and shipped from outside the state. In August 2021, the Multistate Tax Commission adopted a revised "Statement of Information" interpreting the law in light of internet commerce, taking the position that many common Internet-based activities (e.g., placing of cookies for non-ancillary purposes, post-sale customer support via online chat, and uploading job applications by non-sales personnel) constitute unprotected in-state activities that subject a remote seller to state corporate income tax.^[28] California (TAM 2022-01), New York (December 2023 regulations), New Jersey (June 2025 regulations), Massachusetts (2025 amendment to 830 CMR 63.39.1), Minnesota (Minnesota Revenue Notice 2022-13), and Illinois (informal Department of Revenue guidance) have adopted versions of the MTC's interpretation, while several state-court challenges remain pending as of May 2026.^[29]

State corporate income tax rates (2025–2026)

For 44 states and the District of Columbia, corporate income tax is imposed at a flat or graduated rate on the corporation's apportioned taxable income. The following table reflects 2025 rates as published by the Tax Foundation; rate changes effective January 1, 2026 are noted in parenthetical comments.^[30][1]

For tax year 2026, four states reduced rates: Georgia (to 5.19%), Nebraska (to 4.55%), North Carolina (to 2.0%), and Pennsylvania (to 7.49%). Among states that impose a corporate income tax, the average top rate is approximately 6.57% with a median rate of 6.5%.^[1]

State corporate income tax rates (2010, historical reference)

The 2010 state corporate income tax structure is preserved here as historical reference and to illustrate the trajectory of state-level rate reductions over the post-financial-crisis period.

In 2010, six states imposed no corporate income tax (Nevada, South Dakota, Texas, Washington, Wyoming, and at the time also implicitly Ohio under the CAT regime); by 2026 the same six states (with Ohio replacing Texas's franchise-tax characterization for purposes of the Tax Foundation's tabulation) impose no corporate income tax in the conventional sense. The most significant rate reductions between 2010 and 2026 occurred in North Carolina (6.9% → 2.0%, with phase-out to 0% by 2030), Pennsylvania (9.99% → 7.49%, scheduled to 4.99% by 2031), Indiana (8.5% → 4.9%), Iowa (top rate 12% → 7.1%), Louisiana (8% → 5.5%), and the District of Columbia (9.975% → 8.25%). Several states substantially restructured their regimes, including Michigan's replacement of the Michigan Business Tax with a flat corporate income tax in 2012.

State conformity to OBBBA

The OBBBA's expansion of immediate expensing and other OBBBA-specific federal changes propagate to state corporate income tax bases unevenly. The principal conformity-architecture distinctions are:

• Rolling conformity states (e.g., New York, Illinois, Pennsylvania, Massachusetts, Connecticut, the District of Columbia) generally adopt the Internal Revenue Code as in effect on the date of computation, automatically incorporating most OBBBA changes absent specific decoupling.
• Fixed-date (static) conformity states (e.g., California, Florida, Georgia, North Carolina, Texas (for the margin tax), Virginia) conform to the IRC as of a specified date and must take legislative action to update their conformity dates; until they do so, the OBBBA provisions are not effective for state purposes.
• Selective conformity states (e.g., Arkansas, Mississippi) conform on a section-by-section basis.

Even rolling conformity states frequently decouple from specific federal provisions. Several states have announced or considered decoupling from OBBBA's principal expansion provisions:

• 26 U.S.C. § 174A (immediate domestic R&E expensing). California has historically decoupled from federal §174 amortization; California, Mississippi, and Tennessee continue to require capitalization-and-amortization for state purposes, irrespective of the OBBBA's restoration of expensing.
• 26 U.S.C. §§ 168–k (100% bonus depreciation). A long-standing majority of states (including California, Florida, New Jersey, New York, North Carolina, Pennsylvania, and Texas) decouple wholly or partially from federal bonus depreciation. The OBBBA's restoration of permanent 100% bonus depreciation does not change those decouplings absent further state legislation.
• 26 U.S.C. §§ 168–n (qualified production property). Because §168(n) is new, most states have not affirmatively conformed. State decoupling treatment remains under review in most jurisdictions as of May 2026.
• 26 U.S.C. §§ 163–j (EBITDA-based ATI). Several states (including Connecticut, Georgia, Indiana, Tennessee, Wisconsin) historically decoupled from the federal §163(j) limitation altogether or used an EBIT-basis computation. The OBBBA's permanent restoration of EBITDA-based ATI does not automatically apply for these states.
• NCTI and FDDEI (formerly GILTI and FDII). Approximately half of CIT states require partial inclusion of NCTI in the state tax base; a smaller number conform to the §250 deduction or its FDDEI counterpart. Texas, by amendment to 34 TAC §3.587 effective March 1, 2026, includes NCTI and FDDEI in the margin-tax revenue base and does not allow the §250 deduction.^[32]

Texas franchise (margin) tax

Although Texas has no corporate income tax, the state imposes the franchise tax (the "margin tax") on most business entities (including corporations, limited liability companies, partnerships other than general partnerships of natural persons, and business trusts) for the privilege of doing business in Texas under Tex. Tax Code Ch. 171.^[33]

Tax is imposed on the lowest of:

• total revenue × 70%;
• total revenue – cost of goods sold (COGS, as defined by §171.1012);
• total revenue – compensation (capped at $480,000 per person for 2026 reports); or
• total revenue – $1 million (the "$1 million deduction" alternative).

The standard rate is 0.75% of taxable margin; entities "primarily engaged in retail or wholesale trade" pay 0.375%.^[34] An entity qualifies for the reduced 0.375% rate only if (1) revenue from retail or wholesale trade exceeds revenue from other trades, (2) less than 50% of the retail/wholesale revenue comes from products produced by the entity or an affiliated group member (with an exception for Major Group 58 "Eating and Drinking Places"), and (3) the entity does not provide retail/wholesale utilities, including telecommunications, electricity, or gas.^[35] An entity with annualized total revenue of $20 million or less may elect the EZ Computation at a 0.331% rate, in lieu of statutory deductions and credits.

Texas Senate Bill 3 (2023) raised the no-tax-due threshold to $2.47 million for reports originally due on or after January 1, 2024, with a further increase to $2.65 million for 2026 and 2027 reports. Entities at or below the threshold owe no franchise tax and, effective January 1, 2024, are no longer required to file a No Tax Due report (Form 05-163), although they must still file a Public Information Report (Form 05-102) or Ownership Information Report (Form 05-167).^[36]

The COGS deduction under §171.1012 is restricted to the cost of acquiring or producing tangible personal property (and limited categories of computer programs); intangibles, services, and most rentals are excluded. Effective March 1, 2026, the Comptroller's amended rule (34 TAC §3.587) ties total revenue to the current Internal Revenue Code (rather than the 2007 IRC) for many provisions, while retaining 2007 IRC conformity for the foreign-dividend and royalty exclusions—meaning that NCTI and FDDEI are included in Texas total revenue and the federal §250 deduction is not allowed.^[32]

Puerto Rico and U.S. territories

Puerto Rico administers its own income tax system under the Puerto Rico Internal Revenue Code, separate from the U.S. federal system, and is not a "state" for purposes of the federal state-level corporate income tax discussion. Corporations organized under Puerto Rico law are foreign corporations for U.S. federal income tax purposes, although bona fide residents of Puerto Rico are generally exempt from U.S. tax on Puerto Rico-source income under 26 U.S.C. § 933. The Puerto Rico Incentives Code (Act 60-2019) consolidated a series of earlier incentives (including the former Act 20 export-services and Act 22 individual-investor regimes) and offers reduced corporate rates—4% for qualifying export-services and certain other businesses—and a 0% rate on qualifying interest, dividends, and capital gains for new individual resident beneficiaries.

In June 2025, the Puerto Rican Senate approved House Bill 505, which imposes a 4% tax on new individual beneficiaries under Act 60-2019. The measure formed part of a broader legislative review of Puerto Rico's tax-incentive regime in response to public debate over whether the program had delivered measurable benefits to the local economy.^[37] The U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa administer "mirror code" income tax systems modeled on the Internal Revenue Code with limited statutory modifications.

Historical tax expenditures

Pre-TCJA corporate tax expenditures were dominated by a small number of high-dollar provisions. The Joint Committee on Taxation tabulated the largest corporate tax expenditures over the five-year period 2005–2009 as follows.^[42]

Several of the listed provisions have since been repealed or restructured. The §199 domestic production activities deduction was repealed by TCJA; the reduced rates on the first $10 million of corporate taxable income were eliminated by TCJA's flat 21% rate; the deferral of CFC active income was substantially curtailed by the 26 U.S.C. § 951A NCTI regime; and §174 R&E expensing was first eliminated for tax years beginning after December 31, 2021 (under TCJA) and subsequently restored for domestic R&E by the OBBBA's new 26 U.S.C. § 174A, effective for tax years beginning after December 31, 2024. The exclusion of interest on public-purpose state and local bonds and the LIHTC remain materially unchanged.

International comparison

For cross-country comparison, corporate income tax revenue is typically measured against gross domestic product. The following table reproduces 2024 figures from the OECD's Revenue Statistics 2024 (which compiles 2022 reporting-year data, the most recent commonly available cross-country comparable). The U.S. figure of 1.84% reflects FY2024 actuals from the Treasury Combined Statement; the 2022 figure on the OECD-comparable basis was approximately 1.7%.

^[43]

The cross-country comparison is complicated by definitional differences: jurisdictions vary in their treatment of pass-through income, in the scope of "corporate" entities, and in whether non-income business taxes (e.g., the French CVAE, the German trade tax, or U.S. state-level franchise and gross-receipts taxes) are classified as corporate income taxes for OECD purposes.

Research and experimental expenditures (§174 / §174A)

The TCJA had required taxpayers to capitalize and amortize specified research or experimental ("R&E") expenditures over five years (15 years for foreign R&E) for tax years beginning after December 31, 2021. The OBBBA (§70302) restored immediate expensing for domestic R&E expenditures by enacting a new 26 U.S.C. § 174A, effective for tax years beginning after December 31, 2024.^[51][52]

Under §174A:

• Taxpayers may deduct domestic R&E expenditures (including software development costs, made permanent) immediately or, alternatively, capitalize them and amortize over a period of not less than 60 months, or over a 10-year period under 26 U.S.C. §§ 59–e.
• Foreign R&E expenditures continue to be capitalized and amortized over 15 years under §174.
• 26 U.S.C. § 280C was modified to require that domestic R&E expenditures deducted or capitalized under §174A be reduced by the §41 research credit (or, alternatively, the credit may be reduced under §280C(c)(2)).

The OBBBA's transition rules permit:

• All taxpayers to elect to fully deduct unamortized 2022–2024 capitalized R&E in the first tax year beginning after December 31, 2024, or split the deduction equally between 2025 and 2026 (filed as a change of accounting method on Form 3115); and
• "Eligible small business taxpayers" (those with average annual gross receipts ≤ $31 million for the three years preceding 2025) to retroactively amend returns for 2022–2024 to immediately expense domestic R&E. Amended returns must be filed by July 4, 2026.^[53]

Depreciation: 100% bonus depreciation and qualified production property

The OBBBA (§70301) permanently restored 100% bonus depreciation for qualified property under 26 U.S.C. §§ 168–k acquired and placed in service after January 19, 2025.^[54] The provision reverses the TCJA-era phase-down (which had reduced bonus depreciation to 40% for property placed in service in 2025 and would have eliminated it by 2027). Eligible property generally includes tangible MACRS property with a class life of 20 years or less, computer software, and qualified improvement property.

OBBBA §70307 also enacted new 26 U.S.C. §§ 168–n, providing a 100% special depreciation allowance for "qualified production property" (QPP)—non-residential real property used as an integral part of a "qualified production activity" (manufacturing, agricultural and chemical production, or refining of "qualified products," meaning tangible personal property other than food or beverages prepared and sold in the same retail establishment).^[55] To qualify, the property must:

• have construction begin after January 19, 2025, and before January 1, 2029;
• be placed in service in the United States after July 4, 2025, and before January 1, 2031;
• have its original use commence with the taxpayer (or meet a special "previously unused" rule); and
• be used as an integral part of a QPA, with portions used for offices, administration, lodging, parking, sales, R&D, software development, or engineering excluded from QPP.

A 10-year recapture rule under §1245 applies if the property ceases to be used in a qualified production activity. The IRS issued interim guidance in Notice 2026-16 (February 20, 2026) addressing definitions of "manufacturing," "production," and "refining," safe harbors based on NAICS codes (sectors 31–33 and 111–112), allocation methods between eligible and ineligible portions of property, and a 95% de minimis rule.^[56]

The 26 U.S.C. § 179 expensing limit was also increased: the maximum deduction was raised from $1 million to $2.5 million, with the phaseout threshold raised from $2.5 million to $4 million, for tax years beginning after 2024 (both indexed for inflation thereafter).

Debt versus equity characterization

The deductibility of payments labeled as "interest" depends on the characterization of the underlying instrument as debt rather than equity. The statutory framework for this characterization is set out in 26 U.S.C. § 385, but operative authority remains largely case-law-based. Courts have applied a multifactor test, frequently described as comprising approximately 26 factors, with no single factor controlling.^[57] Important factors include the form and name of the instrument; the presence of a fixed maturity date and interest rate; the right to enforce payment; subordination to other creditors; the corporation's debt-to-equity ratio; the identity of holders relative to equity holders; the intent of the parties; "thin capitalization"; and whether interest is in fact paid on schedule. Payments characterized as interest on debt are generally deductible (subject to 26 U.S.C. §§ 163–j and other limitations), while distributions on equity are not deductible at the corporate level.

Interest deduction limitation (§163(j))

26 U.S.C. §§ 163–j, as amended by TCJA, limits a taxpayer's deduction for net business interest to the sum of business interest income, floor-plan financing interest, and 30% of adjusted taxable income (ATI). For tax years beginning after December 31, 2017 and before January 1, 2022, ATI was determined essentially as a tax-basis EBITDA. For 2022–2024, ATI was determined on an EBIT basis (without adding back depreciation, amortization, or depletion), substantially tightening the limitation.

OBBBA §70303 permanently restored the EBITDA-based ATI computation, effective for tax years beginning after December 31, 2024.^[58][59] The OBBBA also:

• expanded the floor-plan financing interest definition to include certain trailers and campers;
• effective for tax years beginning after December 31, 2025, excluded Subpart F inclusions, NCTI inclusions under §951A, §956 inclusions, §78 gross-up, and certain §245A deductions from ATI;
• effective for tax years beginning after December 31, 2025, eliminated the strategy of electively capitalizing interest under §263(g) or §263A(f) to escape §163(j), by clarifying that such capitalized amounts retain their character as interest subject to §163(j); and
• preserved the small-business exception (§448(c)) for taxpayers (other than tax shelters) with average annual gross receipts of $31 million or less for 2025.

The IRS issued Fact Sheet 2025-9 (December 23, 2025) and Rev. Proc. 2026-17 (early 2026) implementing the changes; Rev. Proc. 2026-17 also permits real-property and farming taxpayers that previously made the §163(j)(7) election out of the limitation to withdraw that election.

Net operating losses

A net operating loss (NOL) generally arises when a corporation's allowable deductions exceed its gross income. Under 26 U.S.C. § 172, NOLs may offset taxable income in other years.

For NOLs arising in tax years beginning before January 1, 2018, NOLs were generally permitted to be carried back two years and forward 20 years and could fully offset taxable income in the year of use. The TCJA significantly limited NOL utilization for losses arising in tax years beginning after December 31, 2017:

• The two-year carryback was generally eliminated (with exceptions for certain farming losses and non-life insurance company losses).
• The 20-year carryforward was replaced with an indefinite carryforward.
• NOLs may only offset 80% of taxable income (computed without regard to the NOL deduction) in any given year.

The CARES Act of 2020 temporarily restored a five-year carryback for NOLs arising in 2018, 2019, and 2020 and removed the 80% limitation for those years. These relaxations expired for tax years beginning after December 31, 2020. NOL utilization is also limited following an "ownership change" under 26 U.S.C. § 382, which caps the loss corporation's pre-change NOL usage at an annual amount equal to the value of the loss corporation immediately before the change multiplied by the long-term tax-exempt rate.

Pre-TCJA deferral regime

Before the 2017 reforms, U.S. multinational corporations were generally not required to pay U.S. tax on the active business earnings of their foreign subsidiaries until those earnings were repatriated to the United States as a dividend ("deferral"). Combined with a 35% statutory rate, deferral was widely criticized for incentivizing the accumulation of low-taxed earnings offshore and the use of subsidiaries in tax havens and financial-privacy jurisdictions. The United States Government Accountability Office reported in December 2008 that 83 of the 100 largest U.S. publicly traded corporations maintained subsidiaries in jurisdictions listed as tax havens or financial-privacy jurisdictions.^[60] U.S. corporations were observed to report disproportionate shares of worldwide profits in low-tax jurisdictions such as the Netherlands, Luxembourg, Ireland, and Bermuda, in excess of those jurisdictions' shares of the corporations' actual economic activity.^[61]

A 2012 review by the United States Senate Permanent Subcommittee on Investigations tabulated the largest deferred foreign cash balances then held by U.S. multinationals.^[62]

TCJA's one-time mandatory repatriation tax under 26 U.S.C. § 965 (discussed in § Mandatory Repatriation Tax below) was designed to draw these accumulated post-1986 untaxed earnings into the U.S. tax base on a backward-looking basis (15.5% on cash and equivalents and 8% on non-cash assets), while 26 U.S.C. § 245A and 26 U.S.C. § 951A together replaced the deferral incentive on a prospective basis.

Net CFC Tested Income (NCTI; formerly GILTI)

26 U.S.C. § 951A requires a U.S. shareholder of any controlled foreign corporation (CFC) to include in gross income its pro rata share of the CFC's net tested income (originally called Global Intangible Low-Taxed Income (GILTI)). The OBBBA renamed the regime "Net CFC Tested Income" (NCTI) and made several material changes effective for tax years beginning after December 31, 2025.^[63][64][65]

The principal NCTI changes include:

• the 26 U.S.C. § 250 deduction was permanently set at 40% (down from 50% pre-OBBBA, but higher than the 37.5% rate scheduled to take effect in 2026), producing an effective minimum tax of 12.6% on NCTI before foreign tax credits (≈14% after the foreign tax credit "haircut");
• the 10% qualified business asset investment (QBAI) routine return exclusion was eliminated, so all CFC tested income (including the return on tangible assets) is captured;
• the §960(d) foreign tax credit "haircut" was reduced from 20% to 10% (i.e., 90% of CFC-level foreign taxes are creditable);
• interest expense and R&E expenditures are no longer apportioned to NCTI for purposes of the foreign tax credit limitation; and
• a U.S. shareholder must include its pro rata share of NCTI for any portion of a CFC's tax year during which the shareholder owned the stock, not solely on the last day of the year.

Foreign-Derived Deduction Eligible Income (FDDEI; formerly FDII)

26 U.S.C. § 250's deduction for foreign-derived intangible income (FDII), which provides a reduced effective rate on certain foreign-derived income earned by U.S. corporations, was renamed "Foreign-Derived Deduction Eligible Income" (FDDEI) by OBBBA. The deduction was permanently set at 33.34% (down from 37.5% but higher than the 21.875% scheduled in 2026), producing an effective tax rate of 14% on FDDEI.^[66] The 10% QBAI return on net tangible assets was eliminated; income from sales or deemed dispositions (including §367(d) outbound transfers) of depreciable or intangible property occurring after June 16, 2025 is excluded from "deduction eligible income"; and interest expense and R&E expenditures are excluded from allocable deductions. The OBBBA also permits up to 50% of taxable income from the sale of U.S.-produced inventory through a foreign office or fixed place of business to be sourced as foreign income, expanding §904 foreign tax credit limitation capacity.

The combined OBBBA international changes are projected by the Penn Wharton Budget Model to reduce corporate tax revenue by approximately $276 billion over ten years on a conventional basis.^[64]

Subpart F

26 U.S.C. § 951–26 U.S.C. § 965 continue to require U.S. shareholders to include certain categories of CFC income (including foreign personal holding company income, foreign base company sales income, and foreign base company services income) currently in income, regardless of distribution. The OBBBA permanently extended the §954(c)(6) "look-through" rule excluding certain related-CFC dividends, interest, rents, and royalties from foreign personal holding company income. The OBBBA also restored the §958(b)(4) downward attribution exception (limiting CFC classification expansion that had occurred under TCJA) but added a new 26 U.S.C. § 951B targeting "foreign-controlled CFC groups."

In Whirlpool Financial Corp. v. Commissioner, 19 F.4th 944 (6th Cir. 2021), cert. denied, 143 S. Ct. 102 (2022), the Sixth Circuit affirmed the U.S. Tax Court's holding that income earned by a Luxembourg CFC through a Mexican manufacturing branch was foreign base company sales income under the §954(d)(2) "branch rule," even where the regulatory manufacturing exception arguably would have applied. The decision generated substantial controversy among tax practitioners.^[67]

Mandatory Repatriation Tax (§965) and Moore v. United States

The TCJA's transition to the new international regime imposed a one-time mandatory repatriation tax (MRT) under 26 U.S.C. § 965 on accumulated post-1986 deferred earnings of certain "specified foreign corporations" of U.S. shareholders, taxed at 15.5% (cash) or 8% (other) and payable over up to eight years. The §965 transition tax brought approximately $2.6 trillion of accumulated foreign earnings into the U.S. tax base.

In Moore v. United States, 602 U.S. ___ (2024), the U.S. Supreme Court, in a 7–2 decision authored by Justice Kavanaugh, upheld the MRT against the taxpayer's challenge that it violated the Direct Tax Clause and the Sixteenth Amendment's purported realization requirement. The Court held that Congress may attribute an entity's realized and undistributed income to the entity's shareholders or partners and tax those persons on that income, consistent with longstanding precedent. The opinion expressly declined to resolve whether realization is constitutionally required for an income tax, leaving open broader constitutional questions about wealth taxes and similar proposals.^[68]

Foreign tax credit

26 U.S.C. § 901 and 26 U.S.C. § 904 allow U.S. taxpayers a non-refundable foreign tax credit against U.S. tax liability for income taxes paid to foreign countries, subject to per-category ("basket") limitations. Following TCJA and OBBBA, the principal baskets are: passive category, general category, branch category, NCTI (formerly GILTI) category, foreign-source taxable income with respect to certain prior-year separate categories, and treaty resourcing. The OBBBA permits up to 50% of the taxable income from sales of U.S.-produced inventory through a foreign office to be treated as foreign source for foreign tax credit limitation purposes (effective for tax years beginning after December 31, 2025).

§245A and economic substance

26 U.S.C. § 245A's 100% participation exemption for the foreign-source portion of dividends received by 10%-or-greater U.S. corporate shareholders of "specified 10-percent owned foreign corporations" remains a central feature of the post-TCJA international regime. In Liberty Global, Inc. v. United States, 110 F.4th 1257 (10th Cir. 2024), a divided Tenth Circuit affirmed the District of Colorado's application of the codified economic substance doctrine under 26 U.S.C. §§ 7701–o to disallow a §245A deduction obtained through a multi-step internal restructuring (codenamed "Project Soy") that exploited a transitional gap between TCJA's §965 and §951A inclusions and the §245A DRD. The court held that taxpayers' "mechanical[] utiliz[ation] [of] the provisions of the Tax Code to obtain a benefit not intended by Congress" can be disregarded even where each step is a "basic" tax-recognition election such as a check-the-box election.^[69]

The codified economic substance doctrine under §7701(o), enacted by the Health Care and Education Reconciliation Act of 2010, requires that a transaction (1) change the taxpayer's economic position in a meaningful way (apart from federal income tax effects) and (2) have a substantial purpose (apart from federal income tax effects). A 20% accuracy-related penalty under 26 U.S.C. §§ 6662–b applies to any underpayment attributable to a transaction lacking economic substance, increasing to 40% for an undisclosed transaction; the reasonable cause defense generally available for other accuracy penalties does not apply.

Corporate inversions (§7874)

26 U.S.C. § 7874, originally enacted by the American Jobs Creation Act of 2004 and substantially expanded by Treasury regulations issued in 2014–2016, addresses corporate inversions by treating a foreign acquiring corporation as a U.S. corporation when former shareholders of the inverted U.S. corporation own 80% or more of the foreign acquirer (and limiting certain tax benefits at the 60% threshold). The Trump administration has not materially modified the §7874 regulatory regime, although the OBBBA's reduction of the FDDEI rate is widely viewed as reducing taxpayer incentives to invert.

Pillar Two and the side-by-side agreement

The United States has not enacted legislation implementing the OECD/G20 Pillar Two Global Anti-Base Erosion (GloBE) rules, although it remains a participant in the Inclusive Framework. On January 20, 2025, President Donald Trump issued an executive order declaring that prior U.S. commitments regarding the global tax deal had "no force or effect" within the United States.^[70] An early version of the OBBBA had included a proposed 26 U.S.C. § 899 retaliatory tax that would have imposed up to 15 additional percentage points of U.S. tax on persons connected to jurisdictions with digital services taxes, diverted profits taxes, or the Pillar Two undertaxed profits rule (UTPR).

On June 26–28, 2025, U.S. Treasury Secretary Scott Bessent announced an agreement among the G7 finance ministers under which:

• U.S.-parented multinational groups would be fully excluded from the Pillar Two Income Inclusion Rule (IIR) and Undertaxed Profits Rule (UTPR) with respect to both their domestic and foreign profits, on the basis that the U.S. NCTI/CAMT/BEAT regime constitutes a comparable minimum tax;
• the United States would withdraw the proposed §899 retaliatory tax (which was duly removed from the enacted version of the OBBBA); and
• the OECD would deliver simplifications to the Pillar Two compliance framework and consider changes to the Pillar Two treatment of substance-based non-refundable tax credits.^[71]

On January 5, 2026, the OECD/G20 Inclusive Framework released the "side-by-side package," operationalizing the G7 understanding. The package introduces (i) a "side-by-side safe harbor" deeming the U.S. tax system compliant with Pillar Two for U.S.-parented groups, with both IIR and UTPR treated as zero (a qualified domestic minimum top-up tax (QDMTT) may still apply at the local level); (ii) a UPE safe harbor; (iii) a permanent simplified ETR safe harbor; (iv) a substance-based tax incentive safe harbor; and (v) a one-year extension of the transitional country-by-country reporting safe harbor.^[72][73] Several Inclusive Framework jurisdictions and members of the U.S. Congress have stated that legislative §899-style retaliatory measures could be revived if signatories fail to implement the agreement faithfully.

Foreign corporations operating in the United States

The United States taxes foreign (non-U.S.) corporations differently than domestic corporations. Foreign corporations generally are taxed only on income that is "effectively connected" with the conduct of a U.S. trade or business (ECI), under 26 U.S.C. § 882, taxed at the regular 21% corporate rate. Foreign corporations with a U.S. branch are also subject to the branch profits tax under 26 U.S.C. § 884, intended to mimic the dividend withholding tax that would apply if the U.S. business were conducted through a U.S. subsidiary. The tax applies at a statutory 30% rate to the corporation's "dividend equivalent amount" (DEA) for the year, defined as the foreign corporation's effectively connected earnings and profits, reduced by net increases in its U.S. net equity (broadly, money plus the adjusted basis of property connected with the U.S. trade or business) and increased by net decreases.^[74] Tax is imposed whether or not any actual distribution is made. The 30% rate is generally reduced to 5% (or eliminated entirely) under most modern U.S. income tax treaties, subject to satisfaction of the applicable limitation on benefits article.

In addition, foreign corporations are subject to a 30% gross-basis withholding tax under §§1441/1442 on certain U.S.-source FDAP (fixed, determinable, annual, or periodical) income—including dividends, interest, royalties, and rents—not effectively connected with a U.S. trade or business. Tax treaties frequently reduce or eliminate this withholding. The 30% rate is collected by withholding agents and reported on Form 1042 and Forms 1042-S. A separate 30% withholding regime under Chapter 4 of the Code (FATCA, §§1471–1474) applies to certain payments to foreign financial institutions and non-financial foreign entities that fail to comply with FATCA's information reporting requirements.

Formation

The formation of a corporation by controlling corporate or non-corporate shareholders is generally a nontaxable event under 26 U.S.C. § 351. The tax attributes of contributed assets and assumed liabilities generally carry over to the new corporation under 26 U.S.C. § 362.

Example. John and Mary, U.S. resident individuals operating an unincorporated business, decide to incorporate. They transfer the business's assets, subject to its accrued liabilities, to Newco — a newly formed Delaware corporation of which they are the sole shareholders — solely in exchange for Newco common shares. The transfer generally does not cause gain or loss recognition to John, Mary, or Newco under §351, and Newco takes John and Mary's tax basis in the contributed assets under §362. If, however, Newco also assumes a bank loan in excess of the basis of the contributed assets less the accrued liabilities, John and Mary recognize taxable gain to the extent of the excess under 26 U.S.C. §§ 357–c.

Acquisitive reorganizations

Corporations may merge or acquire other corporations on a nontaxable basis to either the corporations or their shareholders under 26 U.S.C. § 368 and the associated nonrecognition provisions of 26 U.S.C. § 354–26 U.S.C. § 362. Each statutory reorganization type imposes restrictions on consideration, continuity of interest, continuity of business enterprise, and business purpose.

Example. Bigco acquires all of the outstanding stock of Smallco from Smallco's shareholders solely in exchange for Bigco voting stock. If the §368(a)(1)(B) requirements are satisfied (including the "solely for voting stock" requirement), the acquisition is nontaxable to Smallco and to Smallco's shareholders, even if Smallco is subsequently liquidated into Bigco or merged upstream into Bigco in a transaction qualifying under §368(a)(1)(D).

Other reorganizations

Corporations may also alter their legal identity, capitalization, or jurisdiction of organization on a nontaxable basis. Common examples include statutory mergers (26 U.S.C. §§ 368–a), liquidations of 80%-or-more-owned subsidiaries (26 U.S.C. § 332), share-for-share exchanges (§368(a)(1)(B)), exchanges of shares for assets (§368(a)(1)(C)), changes in form or place of organization (§368(a)(1)(F)), and recapitalizations (§368(a)(1)(E)). Advance planning is generally required to qualify a transaction under one or more of these provisions and to manage attendant collateral consequences, including §382 ownership-change limitations on net operating losses.

Estimated tax payments

Corporations expecting to owe federal income tax of $500 or more for the tax year must pay estimated tax in quarterly installments under 26 U.S.C. § 6655. For fiscal-year corporations, the installments are due on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year (April 15, June 15, September 15, and December 15 for calendar-year filers). Each installment must equal at least 25% of the "required annual payment," which is generally the lesser of:

• 100% of the tax shown on the corporation's return for the current year; or
• 100% of the tax shown on the corporation's return for the immediately preceding tax year (the "prior-year safe harbor"), provided the preceding tax year consisted of 12 months and the corporation filed a return for that year showing a tax liability.

The penalty for underpayment of estimated tax is computed under 26 U.S.C. §§ 6655–a at the §6621 underpayment rate (the federal short-term rate plus three percentage points), running from each installment due date to the earlier of the date paid or the original return due date. An underpayment is not waived merely because the year-end tax liability is paid in full by the original due date of the return.

Large corporations. A "large corporation"—defined under 26 U.S.C. §§ 6655–g as a corporation with taxable income of $1 million or more in any of the three immediately preceding taxable years—generally may not use the prior-year safe harbor and must base its installments on 100% of the current-year tax. A limited exception permits a large corporation to use the prior year as the basis for its first installment, with any resulting shortfall added to ("caught up" in) the second installment.

Form 1120-W. Historically, corporations used Form 1120-W (Estimated Tax for Corporations) to compute estimated tax installments. Beginning with tax year 2022, the IRS announced that Form 1120-W would no longer be revised for publication and is retained on its website for informational use only; corporations now apply the §6655 statutory framework directly, with quarterly payments remitted through the Electronic Federal Tax Payment System (EFTPS).

CAMT-related estimated tax relief. CAMT-liable applicable corporations are required to include CAMT in their estimated tax computations. Because of the substantial implementation uncertainty surrounding AFSI determination under the corporate alternative minimum tax (see § CAMT above), the IRS has issued a series of waivers of the addition to tax under §6655 attributable to CAMT liability: Notice 2023-42 (June 7, 2023) waived the addition to tax under §6655 for any tax year beginning after December 31, 2022, and before January 1, 2024, with respect to a corporation's CAMT liability; the notice directed corporations to exclude the CAMT from "tax" for §6655 purposes during the waiver period;^[84] Notice 2024-33 extended that relief to the first installment of a tax year beginning in 2024; and Notice 2024-66 further extended CAMT estimated-tax relief through the third installment of tax years beginning in 2024. Subsequent guidance (Notice 2025-49 and related instruments) has continued partial relief on a year-by-year basis pending the issuance of revised final regulations. Corporations claiming the CAMT relief must continue to compute and remit estimated payments with respect to their regular-tax liability.

Stock repurchase excise tax. The 1% stock repurchase excise tax under §4501 is reported on Form 720 on a quarterly basis (with attached Form 7208) and is not part of the §6655 estimated income tax framework.

International information reporting

Corporations engaged in cross-border activities are subject to extensive information reporting obligations, with substantial penalties for non-compliance:

• Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) — required under 26 U.S.C. § 6038 for U.S. persons that are officers, directors, or 10%-or-greater shareholders of certain foreign corporations. Base penalty: $10,000 per form.
• Form 5472 (Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business) — required under 26 U.S.C. § 6038A and 26 U.S.C. § 6038C. The penalty was increased by TCJA from $10,000 to $25,000 per form for tax years beginning after December 31, 2017, with continuation penalties uncapped after IRS notification.^[85] Effective January 1, 2017, foreign-owned U.S. disregarded entities are also treated as reporting corporations subject to Form 5472 filing.
• Form 8865 (Return of U.S. Persons With Respect to Certain Foreign Partnerships).
• Form 8858 (Information Return of U.S. Persons With Respect to Foreign Disregarded Entities and Foreign Branches).
• Form 8975 (Country-by-Country Report) and Schedule A — required for U.S. parents of multinational groups with consolidated revenue ≥ $850 million; implements OECD BEPS Action 13.
• Form 8833 (Treaty-Based Return Position Disclosure) — required under 26 U.S.C. § 6114 for treaty-based positions exceeding specified thresholds.
• Schedules K-2 and K-3 — partnership and S corporation international reporting introduced in tax year 2021, replacing prior limited Schedule K-1 international items.

On corporate tax avoidance, corruption, and tax accruals (empirical literature)

• Desai, Mihir A., and Dharmapala, Dhammika (2009). "Corporate Tax Avoidance and Firm Value." The Review of Economics and Statistics 91(3): 537–546. doi:10.1162/rest.91.3.537.
• DeBacker, Jason; Heim, Bradley T.; and Tran, Anh (2015). "Importing corruption culture from overseas: Evidence from corporate tax evasion in the United States." Journal of Financial Economics 117(1): 122–138. doi:10.1016/j.jfineco.2012.11.009.
• Al-Hadi, Ahmed; Taylor, Grantley; and Richardson, Grant (2022). "Are corruption and corporate tax avoidance in the United States related?" Review of Accounting Studies 27(1): 344–389. doi:10.1007/s11142-021-09587-8.

On corporate tax incidence and the rise of pass-throughs

• Auerbach, Alan J. (2018). "Measuring the Effects of Corporate Tax Cuts." Journal of Economic Perspectives 32(4): 97–120 (NBER incidence review of who bears the corporate tax: shareholders, workers, or consumers).
• Baker, Scott R.; Sun, Stephen Teng; and Yannelis, Constantine (2020). "Corporate Taxes and Retail Prices." NBER Working Paper No. 27058 (empirical evidence on consumer-side incidence).
• Dyrda, Sebastian, and Pugsley, Benjamin (2024). "The Rise of Pass-Throughs: An Empirical Investigation." The Economic Journal 135(665): 387–403 (academic source for the pass-through share of U.S. private for-profit employment, rising from approximately 15% in 1982 to 49% by 2020).