IRS Form 8993

By AIM Financial | Serving Grand Rapids, Kentwood, Wyoming, Middleville, and West Michigan

What Is IRS Form 8993?

IRS Form 8993 is used to calculate certain deductions under Section 250 of the Internal Revenue Code. These deductions can reduce the federal taxable income of eligible domestic corporations and certain individuals who make a special tax election involving controlled foreign corporations.

For tax years beginning before 2026, Form 8993 generally addresses Foreign-Derived Intangible Income (FDII) and Global Intangible Low-Taxed Income (GILTI). For tax years beginning after December 31, 2025, federal legislation changes the terminology and calculations. The updated form is titled Section 250 Deduction for Foreign-Derived Deduction Eligible Income (FDDEI) and Net CFC Tested Income (NCTI).

These rules primarily affect corporations with international sales, foreign subsidiaries, or qualifying income from overseas business activities. Most individual taxpayers and small businesses that operate only within the United States will not need Form 8993.

For companies with international operations, understanding this form can help with tax planning, documentation, and accurate federal corporate income tax reporting.

Who May Need to File Form 8993?

Generally, eligible domestic C corporations use Form 8993 to determine their allowable Section 250 deduction. Certain U.S. individual shareholders who make a Section 962 election may also need to use the form.

The deduction is generally unavailable to S corporations, real estate investment trusts (REITs), and regulated investment companies (RICs), although special rules may affect how income is treated in other business structures.

Businesses that may need to examine Form 8993 include:

• U.S. corporations selling products to customers in foreign countries.
• Companies providing qualifying services to customers located outside the United States.
• Corporations earning qualifying income through foreign business activities.
• U.S. corporations with income inclusions related to controlled foreign corporations.
• Certain eligible U.S. shareholders making a Section 962 election.

Eligibility depends on the tax year, the nature of the income, the taxpayer’s business structure, and the detailed requirements of Section 250. Having international customers does not automatically qualify a company for a deduction.

What Is Foreign-Derived Deduction Eligible Income?

For tax years beginning in 2026, the updated terminology is Foreign-Derived Deduction Eligible Income (FDDEI). Under the earlier rules, the comparable category was generally referred to as FDII.

In simple terms, FDDEI focuses on certain eligible business income connected with property sold to foreign persons for foreign use or services provided to foreign persons or in connection with property located outside the United States.

Examples may include:

• A U.S. corporation selling qualifying products to an overseas customer for use outside the United States.
• A qualifying company providing certain services to a customer located abroad.
• A business earning qualifying income from eligible transactions involving foreign markets.

The company must satisfy specific documentation and transaction requirements. Selling to a foreign customer is not enough by itself. Special rules can apply to related-party transactions, intermediary arrangements, and the actual use of the property.

Accurate records of customer locations, contracts, invoices, products, services, and the location of use may be important when establishing eligibility.

What Is Net CFC Tested Income (NCTI)?

For tax years beginning after 2025, NCTI replaces the former GILTI terminology under the revised rules.

NCTI generally relates to certain tested income of controlled foreign corporations that may be included in the taxable income of qualifying U.S. shareholders. A controlled foreign corporation is generally a foreign corporation meeting specific U.S. ownership tests.

The Section 250 deduction may reduce the taxable amount for eligible domestic corporations. However, calculating NCTI and the associated deduction requires information about foreign corporate income, losses, ownership, and other tax adjustments.

Corporations should coordinate Form 8993 with the relevant international tax reporting forms, including Form 8992 and Form 5471 when applicable.

How Does Form 8993 Work?

The calculation depends on the tax year and the form version being used. In general, the process includes these steps:

1. Identify eligible income. Determine which income items qualify and which must be excluded under the applicable rules.
2. Calculate foreign-derived income. Identify qualifying sales and services connected with foreign customers or foreign use.
3. Calculate the relevant income categories. Apply the rules for FDDEI and NCTI for tax years beginning in 2026, or the corresponding FDII and GILTI rules for earlier tax years.
4. Apply the Section 250 deduction percentages. Use the percentages and limitations applicable to the filing year.
5. Check the taxable-income limitation. The deduction can be limited when the relevant income amounts exceed taxable income as calculated under the statute.
6. Attach the form to the return. Complete the applicable Form 8993 and attach it to the corporation’s federal income tax return by the required deadline, including extensions.

The calculation is not simply a flat deduction on all foreign revenue. Different income categories have different requirements, and other limitations may affect the final result.

How Did the Rules Change for 2026?

Federal legislation enacted in 2025 changed parts of Section 250. For tax years beginning after December 31, 2025, the deduction percentages generally change to 33.34% for FDDEI and 40% for NCTI for eligible taxpayers, subject to the statutory rules and limitations.

The legislation also changed the treatment of certain income and gains from the sale or other disposition of intangible property and certain depreciable, amortizable, or depletable property. Some of these amendments apply to dispositions after June 16, 2025.

Because IRS materials may have different revision dates, taxpayers should use the final form and instructions applicable to their filing year. A draft form is not a substitute for the final version.

Common Form 8993 Mistakes to Avoid

Corporations should watch for several common problems:

Using the wrong year’s rules. The calculations for tax years beginning before 2026 differ from the updated rules for tax years beginning in 2026.

Assuming every foreign sale qualifies. The customer, destination, use of the property, and transaction structure may affect eligibility.

Failing to retain supporting records. Businesses should keep contracts, invoices, proof of customer location, and other documentation supporting their calculations.

Overlooking related forms. Form 8993 may need to be coordinated with Forms 8992, 5471, 1118, and the corporation’s federal income tax return.

Ignoring deduction limits. The amount of the deduction may be restricted by taxable income and other statutory provisions.

How AIM Financial Can Help With Business Tax Preparation

AIM Financial helps individuals and businesses understand their tax preparation responsibilities and organize the information needed for accurate filing. Businesses in Grand Rapids, Kentwood, Wyoming, Middleville, and throughout West Michigan can benefit from reviewing their tax obligations early, particularly when international transactions or corporate tax deductions are involved.

If your corporation sells products or services internationally, owns foreign business interests, or needs help identifying the appropriate federal tax forms, contact AIM Financial to discuss your tax preparation needs.

International tax rules can be complex, and early planning may help businesses identify documentation requirements and determine whether specialized international tax assistance is needed.

Contact AIM Financial for business tax preparation assistance and help understanding your federal tax filing requirements.

This article is for general educational purposes only and is not individualized tax or legal advice. Form 8993 eligibility and calculations depend on the tax year, business structure, income sources, and current federal law. Always consult the final IRS form and instructions for the applicable year or a qualified tax professional for guidance on your circumstances.