TAX 9869 Lecture Notes - Lecture 63: Foreign Corporation, Passive Income

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11 Aug 2020
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Class 10: July 13th
Recap:
CFCs= Controlled Foreign Corporations
More than 50% owned by USSHs vote or value and the USSH is a 10% owner vote or
value
Add up ownership, more than 50%= cfc
Rules of attribution- indirect, direct, constructive ownership= KNOW FOR FINAL EXAM
Control: BOD, pships, general partner can create a CFC b/c has rights to vote on a
controlling interest in a CFC
Subpart F= any income that is earned by a foreign corporation, even CFC, is not subject
to US tax at point of time distributed out to SH
CFC- rule of subpart F was introduced as a backstop to deferral (not paying tax until
distributed)
Intro’d Subpart F- certain types of income if earned by CFC, subject to tax
immediately to USSHs
General: subpart F goes into foreign base company income as a category and within
category, different categories of income
Subpart F requires not that the CFC pay tax (CFC pays tax only if the CFC has a US
trade/biz in the US). Subpart F rules require that the USSH has to pay tax
Foreign person holding company income= passive income that the CFC earns, subject
to immediate US taxation to the USSH
The USSH that pays tax is only the USSH who is a direct/indirect SH
If you are a constructive owner of a CFC- own it through attribution- through a corp,
pship, husband and wife
Can have downward attribution: if foreign parent on top and two subs below (US and
foreign)- CFC created for sub b/c of downward attributed
But if just constructive owner, don’t have to pick up Subpart F income
Only direct/indirect USSHs have to pick up Subpart F income
Indirect owner/direct Owner Example:
I have a CFC and US Corp is 100% owner (USSH is a direct owner).
Another CFC below, USSH indirect owner bc owns it through a foreign corp/pship=
indirect ownership
US is still indirect owner of CFC 2, US picks up Subpart F income of CFC 2
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