controlled foreign corporation

Code Sec. 951(a)(1)(B) requires a US shareholder of a controlled foreign corporation (CFC) to include in its gross income “the amount determined under section 956 with respect to such shareholder for such year….” This amount generally is the shareholder’s pro rata share of the average of the amounts of US property held by the CFC

The Treasury and IRS recently issued proposed regulations under §951A.1 The regulations provide rules for determining the amount of the inclusion in a U.S. shareholder’s gross income of global intangible low-taxed income (GILTI).

The GILTI inclusion amount is the aggregate of a U.S. shareholder’s pro rata shares of tested income less tested losses from each

Following the 2017 Tax Act, the US tax costs to a corporate US shareholder that sells stock in a controlled foreign corporation (CFC) are significantly reduced. Beginning in 2018, the amount of gain will be generally less than in prior years and most or all such gain will frequently not be subject to any US federal income taxation.

The amount of gain recognized in a sale of course is the difference between the amount realized and the selling shareholder’s adjusted tax basis in the stock of the CFC. The initial basis in the stock of a CFC is increased by the amount of earnings of the CFC and its subsidiaries that was included in the gross income of the domestic corporation under Subpart F (i.e., previously taxed earnings). The increase in basis can be significant as a result of the transition tax Subpart F inclusion of post-1986 earnings of CFCs and the expansion of Subpart F inclusions for global intangible low-taxed income (GILTI).

The gain recognized by a domestic corporation upon the sale of stock in a CFC generally is capital gain subject to a 21 percent tax rate. Section 1248, however, recharacterizes as a deemed dividend all or a portion of the gain. The amount of gain recharacterized generally equals the amount of non-previously taxed earnings of the CFC and its foreign subsidiaries. Provided the domestic corporate shareholder held the CFC stock for at least one year, the amount of the gain recharacterized as a dividend generally is eligible for a 100 percent dividends received deduction under section 245A.


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Under Subpart F, certain types of income and investments of earnings of a foreign corporation controlled by US shareholders (controlled foreign corporation, or CFC) are deemed distributed to the US shareholders and subject to current taxation. The recent tax reform legislation (Public Law No. 115-97) increased the amount of CFC income currently taxable to US

The IRS has never won a single litigated case arguing for foreign base company sales income (and has never litigated a foreign base company services income case). Courts have consistently rejected the government’s arguments to expansively apply the definition of Subpart F sales income in order to carry out asserted congressional intent. While the courts

On January 4, 2017, the Internal Revenue Service (IRS) released a new “International Practice Unit” (IPU) on the value of intangibles in IRC Section 367(d) transactions in conjunction with cost sharing arrangements (CSA). See IPU here. The IPU notes that transferring highly valuable intangibles offshore has become a routine tax strategy for reducing a