Form 8991 Instructions: Base Erosion Percentage, MTI, and BEAT Rate

The instructions for Form 8991 walk a large U.S. corporation through the Base Erosion and Anti-Abuse Tax (BEAT) in three stages: two threshold tests that decide whether the tax applies at all, a rebuild of taxable income that adds back deductions tied to foreign related party payments, and a comparison of that reconstructed tax against the corporation’s regular tax liability. If the reconstructed number is higher, the difference is owed as BEAT.¹

The form is filed with the corporation’s income tax return. Even corporations that ultimately owe no BEAT may need to file a partial form, so the first task is figuring out which parts apply.

Who Has to File

Any U.S. corporation other than a RIC, REIT, or S corporation must file Form 8991 if it had average annual gross receipts of at least $500 million during the three-tax-year period ending with the preceding tax year.² Gross receipts are counted without reduction for cost of goods sold.³

Both the gross receipts test and the base erosion percentage test are applied on an aggregate group basis. That means you pull in the gross receipts and deductions of every member of your aggregate group as determined under Treasury Regulations Section 1.59A-2. One member’s aggregate group can look different from another’s.⁴

If gross receipts come in below $500 million, no BEAT applies and the form is not filed at all. If you clear that hurdle but your base erosion percentage is below the applicable threshold, you still complete Part I and Schedule A, then stop.

The Base Erosion Percentage Test

The base erosion percentage measures how much of your total deductions go to foreign related parties. The numerator is the aggregate base erosion tax benefits for the year. The denominator is all allowable deductions plus any base erosion tax benefits that take a form other than deductions, such as certain reinsurance-related reductions in gross income.¹

Several deductions are pulled out of the denominator entirely: net operating loss deductions, the Section 245A dividends-received deduction, the Section 250 deduction for FDII and GILTI, deductions for services qualifying under the services cost method exception, and deductions for qualified derivative payments.¹

The general threshold is 3%. A lower 2% threshold applies if the affiliated group includes a bank or a registered securities dealer.² Corporations below the threshold complete Part I and Schedule A and stop. Corporations at or above it move on to Parts II and III.

Reporting Base Erosion Payments on Schedule A

Schedule A is a line-by-line accounting of deductible or amortizable amounts paid or accrued to foreign related parties during the year. A related party under Section 59A(g) is any person owning at least 25% of the corporation’s vote or value, any person related to the corporation or a 25-percent owner under IRC Section 267(b) or 707(b)(1), or any person related under the Section 482 transfer pricing rules.¹

Schedule A breaks these payments into fixed categories:²

Cost-sharing payments made under cost-sharing arrangements with foreign related parties.
Amounts paid to acquire or create depreciable or amortizable intangible property, including patents, copyrights, and trademarks.
Rents, royalties, and license fees for the use of tangible or intangible property.
Service payments, split across two lines depending on whether the services cost method exception applies.
Interest paid or accrued to a foreign related party.
Purchases of depreciable tangible personal property from foreign related parties.
Insurance and reinsurance premiums paid to foreign related party insurers.
Derivative payments, reported separately for payments that do and do not qualify as qualified derivative payments.

Payments That Are Not Base Erosion Payments

Four exceptions keep certain payments out of the base erosion calculation. Getting these right can be the difference between owing BEAT and not.

Cost of goods sold. Amounts properly included in COGS are excluded because they reduce gross income rather than creating a deduction. The BEAT reaches deductions, and COGS is not one.

Services cost method. Service payments that qualify under the SCM rules are excluded, but only up to the total cost of providing the services. Any markup on top is a base erosion payment.²

Qualified derivative payments. A payment under a derivative contract qualifies for exclusion only if the taxpayer marks the derivative to market at year-end, recognizes any resulting gain or loss, and treats all income and loss from it as ordinary. The reporting is strict: the payment must be reported on Form 8991, and failure to report disqualifies it from the exception even if the substance would otherwise qualify. The exception also does not apply to interest, royalty, or service payments embedded in a derivative.⁵

Full-rate withholding. Payments subject to U.S. withholding at the full 30% statutory rate are excluded. A reduced treaty rate does not satisfy this exception.²

Building Modified Taxable Income in Part II

Modified taxable income (MTI) is a rebuild of what taxable income would have been if certain foreign related party deductions had never been claimed. Start with regular taxable income before the NOL deduction. Add back every base erosion tax benefit claimed for the year. That reversal is the heart of the BEAT.³

The NOL deduction is added back in part. The portion added back equals the base erosion percentage of the NOL for the tax year in which the loss originally arose. This is the vintage rule: if a loss arose in a year when the base erosion percentage was 15%, then 15% of the NOL deduction attributable to that year gets added to MTI. Losses from tax years beginning before January 1, 2018 are treated as having a zero base erosion percentage, so pre-BEAT NOLs are not affected.³

Depreciation and amortization on property acquired from a foreign related party are also added back, closing the workaround of buying depreciable assets from an affiliate at an inflated price and shifting income overseas through annual deductions.

The Tax Calculation in Part III

Part III applies the BEAT rate to MTI and compares the result against your regular tax bill.

Applicable Rate

For tax years beginning in 2026, the BEAT rate is 10.5%. It is set as a permanent rate by the One Big Beautiful Bill Act.¹ If the affiliated group includes a bank or registered securities dealer, add one percentage point, bringing the rate to 11.5%.²

Tentative Base Erosion Minimum Tax Amount

Multiply MTI by the applicable rate. The product is the tentative base erosion minimum tax amount (TBEMTA). This is the minimum tax figure the BEAT wants to see paid.

Adjusted Regular Tax Liability

Next, compute adjusted regular tax liability (ARTL) by taking regular tax liability and stripping away most tax credits. Because BEAT is a minimum tax, the IRS wants to know the regular tax bill without credits that could push it below the BEAT floor.

Two categories of credits survive:

The Section 41(a) research credit, preserved in full.
Applicable Section 38 credits — the low-income housing credit, the renewable electricity production credit, and the energy investment credit — preserved up to 80% of the lesser of the credit amount or the base erosion minimum tax amount.¹

All other credits reduce ARTL. In practice, a corporation that relies heavily on credits outside the research and preserved energy categories faces a higher chance of owing BEAT, because its ARTL falls further and the TBEMTA is more likely to sit above it.

Final Comparison

The base erosion minimum tax amount is the excess, if any, of TBEMTA over ARTL. If ARTL equals or exceeds TBEMTA, the BEAT amount is zero. If TBEMTA is higher, the difference is owed as BEAT on top of the regular tax.²

Electing to Waive Deductions on Schedule B

A corporation sitting just above the base erosion percentage threshold can elect to waive certain deductions under Treasury Regulations Section 1.59A-3(c)(6)(i). Waived amounts drop out of both the numerator and the denominator. Waive enough, and the percentage falls below the threshold, and BEAT does not apply.²

To make the election, check “Yes” on line 2i of Form 8991 and complete Schedule B. For each waived deduction, report the item or property, the date paid or accrued, the Code section allowing the deduction, the foreign related party receiving the payment, and the amount waived. If another aggregate group member also makes the election, its waived deductions are included on line 2i as well.²

The election is a modeling exercise. Compare the added regular tax from forgoing the deductions against the BEAT you would owe if you remained an applicable taxpayer. For a corporation at 3.1% or 3.2%, the waiver often wins. For one well above the threshold, the cost of waiving enough deductions to get below 3% usually outweighs the benefit.

Filing, Corrections, and Related Penalties

Form 8991 is attached to the corporation’s income tax return and follows the same deadline and extension rules. If you find an error after filing, submit a corrected Form 8991 with an amended return.²

Form 5472 sits alongside 8991 for 25%-or-more foreign-owned U.S. corporations and captures transactions with foreign related parties. The same legislation that created the BEAT expanded Section 6038A reporting and raised the penalty for failure to furnish required information or maintain records from $10,000 to $25,000 per tax year.² If the failure continues more than 90 days after the IRS mails notice, an additional $25,000 accrues for each related party for every 30-day period the failure persists.⁶ Getting the underlying data right the first time is worth the upfront effort.

1
Office of the Law Revision Counsel. 26 USC 59A – Tax on Base Erosion Payments of Taxpayers With Substantial Gross Receipts
2
Internal Revenue Service. Instructions for Form 8991
3
Internal Revenue Service. IRC 59A Base Erosion Anti-Abuse Tax Overview
4
eCFR. 26 CFR 1.59A-2 – Applicable Taxpayer
5
eCFR. 26 CFR 1.59A-6 – Qualified Derivative Payment
6
eCFR. 26 CFR 1.6038A-4 – Monetary Penalty