Subpart F—Controlled Foreign Corporations
Editorial Notes
Amendments
2017—
2004—
1996—
1986—
1975—
1962—
§951. Amounts included in gross income of United States shareholders
(a) Amounts included
(1) In general
If a foreign corporation is a controlled foreign corporation at any time during any taxable year, every person who is a United States shareholder (as defined in subsection (b)) of such corporation and who owns (within the meaning of section 958(a)) stock in such corporation on the last day, in such year, on which such corporation is a controlled foreign corporation shall include in his gross income, for his taxable year in which or with which such taxable year of the corporation ends—
(A) his pro rata share (determined under paragraph (2)) of the corporation's subpart F income for such year, and
(B) the amount determined under section 956 with respect to such shareholder for such year (but only to the extent not excluded from gross income under section 959(a)(2)).
(2) Pro rata share of subpart F income
The pro rata share referred to in paragraph (1)(A)(i) in the case of any United States shareholder is the amount—
(A) which would have been distributed with respect to the stock which such shareholder owns (within the meaning of section 958(a)) in such corporation if on the last day, in its taxable year, on which the corporation is a controlled foreign corporation it had distributed pro rata to its shareholders an amount (i) which bears the same ratio to its subpart F income for the taxable year, as (ii) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year, reduced by
(B) the amount of distributions received by any other person during such year as a dividend with respect to such stock, but only to the extent of the dividend which would have been received if the distribution by the corporation had been the amount (i) which bears the same ratio to the subpart F income of such corporation for the taxable year, as (ii) the part of such year during which such shareholder did not own (within the meaning of section 958(a)) such stock bears to the entire year.
For purposes of subparagraph (B), any gain included in the gross income of any person as a dividend under section 1248 shall be treated as a distribution received by such person with respect to the stock involved.
(b) United States shareholder defined
For purposes of this title, the term "United States shareholder" means, with respect to any foreign corporation, a United States person (as defined in section 957(c)) who owns (within the meaning of section 958(a)), or is considered as owning by applying the rules of ownership of section 958(b), 10 percent or more of the total combined voting power of all classes of stock entitled to vote of such foreign corporation, or 10 percent or more of the total value of shares of all classes of stock of such foreign corporation.
(c) Coordination with passive foreign investment company provisions
If, but for this subsection, an amount would be included in the gross income of a United States shareholder for any taxable year both under subsection (a)(1)(A)(i) and under section 1293 (relating to current taxation of income from certain passive foreign investment companies), such amount shall be included in the gross income of such shareholder only under subsection (a)(1)(A).
(Added
Editorial Notes
Amendments
2017—Subsec. (a)(1).
Subsec. (a)(1)(A).
"(i) his pro rata share (determined under paragraph (2)) of the corporation's subpart F income for such year,
"(ii) his pro rata share (determined under section 955(a)(3) as in effect before the enactment of the Tax Reduction Act of 1975) of the corporation's previously excluded subpart F income withdrawn from investment in less developed countries for such year, and
"(iii) his pro rata share (determined under section 955(a)(3)) of the corporation's previously excluded subpart F income withdrawn from foreign base company shipping operations for such year; and".
Subsec. (a)(3).
"(A) which bears the same ratio to his pro rata share of such income withdrawn (as determined under section 955(a)(3)) for the taxable year, as
"(B) the part of such year during which the corporation is a controlled foreign corporation bears to the entire year."
Subsec. (b).
2007—Subsecs. (c), (d).
"(1)
"(2)
2004—Subsecs. (c) to (f).
1997—Subsec. (a)(2).
1996—Subsec. (a)(1)(A) to (C).
1993—Subsec. (a)(1)(B).
Subsec. (a)(1)(C).
Subsec. (a)(4).
1988—Subsec. (b).
1986—Subsec. (e)(1).
Subsec. (f).
1984—Subsec. (d).
Subsec. (e).
1976—Subsec. (a)(1).
1975—Subsec. (a)(1)(A)(i).
Subsec. (a)(1)(A)(ii).
Subsec. (a)(1)(A)(iii).
Subsec. (a)(3).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 14101(e)(1) of
Amendment by section 14212(b)(1)(A), (2) of
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1997 Amendment
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1235(c) of
Amendment by section 1876(c)(2) of
Effective Date of 1984 Amendment
Amendment by section 801(d)(4) of
Effective Date of 1975 Amendment
Amendment by
Effective Date
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
§951A. Global intangible low-taxed income included in gross income of United States shareholders
(a) In general
Each person who is a United States shareholder of any controlled foreign corporation for any taxable year of such United States shareholder shall include in gross income such shareholder's global intangible low-taxed income for such taxable year.
(b) Global intangible low-taxed income
For purposes of this section—
(1) In general
The term "global intangible low-taxed income" means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—
(A) such shareholder's net CFC tested income for such taxable year, over
(B) such shareholder's net deemed tangible income return for such taxable year.
(2) Net deemed tangible income return
The term "net deemed tangible income return" means, with respect to any United States shareholder for any taxable year, the excess of—
(A) 10 percent of the aggregate of such shareholder's pro rata share of the qualified business asset investment of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year (determined for each taxable year of each such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over
(B) the amount of interest expense taken into account under subsection (c)(2)(A)(ii) in determining the shareholder's net CFC tested income for the taxable year to the extent the interest income attributable to such expense is not taken into account in determining such shareholder's net CFC tested income.
(c) Net CFC tested income
For purposes of this section—
(1) In general
The term "net CFC tested income" means, with respect to any United States shareholder for any taxable year of such United States shareholder, the excess (if any) of—
(A) the aggregate of such shareholder's pro rata share of the tested income of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder), over
(B) the aggregate of such shareholder's pro rata share of the tested loss of each controlled foreign corporation with respect to which such shareholder is a United States shareholder for such taxable year of such United States shareholder (determined for each taxable year of such controlled foreign corporation which ends in or with such taxable year of such United States shareholder).
(2) Tested income; tested loss
For purposes of this section—
(A) Tested income
The term "tested income" means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of—
(i) the gross income of such corporation determined without regard to—
(I) any item of income described in section 952(b),
(II) any gross income taken into account in determining the subpart F income of such corporation,
(III) any gross income excluded from the foreign base company income (as defined in section 954) and the insurance income (as defined in section 953) of such corporation by reason of section 954(b)(4),
(IV) any dividend received from a related person (as defined in section 954(d)(3)), and
(V) any foreign oil and gas extraction income (as defined in section 907(c)(1)) of such corporation, over
(ii) the deductions (including taxes) properly allocable to such gross income under rules similar to the rules of section 954(b)(5) (or to which such deductions would be allocable if there were such gross income).
(B) Tested loss
(i) In general
The term "tested loss" means, with respect to any controlled foreign corporation for any taxable year of such controlled foreign corporation, the excess (if any) of the amount described in subparagraph (A)(ii) over the amount described in subparagraph (A)(i).
(ii) Coordination with subpart F to deny double benefit of losses
Section 952(c)(1)(A) shall be applied by increasing the earnings and profits of the controlled foreign corporation by the tested loss of such corporation.
(d) Qualified business asset investment
For purposes of this section—
(1) In general
The term "qualified business asset investment" means, with respect to any controlled foreign corporation for any taxable year, the average of such corporation's aggregate adjusted bases as of the close of each quarter of such taxable year in specified tangible property—
(A) used in a trade or business of the corporation, and
(B) of a type with respect to which a deduction is allowable under section 167.
(2) Specified tangible property
(A) In general
The term "specified tangible property" means, except as provided in subparagraph (B), any tangible property used in the production of tested income.
(B) Dual use property
In the case of property used both in the production of tested income and income which is not tested income, such property shall be treated as specified tangible property in the same proportion that the gross income described in subsection (c)(1)(A) produced with respect to such property bears to the total gross income produced with respect to such property.
(3) 1 Determination of adjusted basis
For purposes of this subsection, notwithstanding any provision of this title (or any other provision of law) which is enacted after the date of the enactment of this section, the adjusted basis in any property shall be determined—
(A) by using the alternative depreciation system under section 168(g), and
(B) by allocating the depreciation deduction with respect to such property ratably to each day during the period in the taxable year to which such depreciation relates.
(3) 1 Partnership property
For purposes of this subsection, if a controlled foreign corporation holds an interest in a partnership at the close of such taxable year of the controlled foreign corporation, such controlled foreign corporation shall take into account under paragraph (1) the controlled foreign corporation's distributive share of the aggregate of the partnership's adjusted bases (determined as of such date in the hands of the partnership) in tangible property held by such partnership to the extent such property—
(A) is used in the trade or business of the partnership,
(B) is of a type with respect to which a deduction is allowable under section 167, and
(C) is used in the production of tested income (determined with respect to such controlled foreign corporation's distributive share of income with respect to such property).
For purposes of this paragraph, the controlled foreign corporation's distributive share of the adjusted basis of any property shall be the controlled foreign corporation's distributive share of income with respect to such property.
(4) Regulations
The Secretary shall issue such regulations or other guidance as the Secretary determines appropriate to prevent the avoidance of the purposes of this subsection, including regulations or other guidance which provide for the treatment of property if—
(A) such property is transferred, or held, temporarily, or
(B) the avoidance of the purposes of this paragraph is a factor in the transfer or holding of such property.
(e) Determination of pro rata share, etc.
For purposes of this section—
(1) In general
The pro rata shares referred to in subsections (b), (c)(1)(A), and (c)(1)(B), respectively, shall be determined under the rules of section 951(a)(2) in the same manner as such section applies to subpart F income and shall be taken into account in the taxable year of the United States shareholder in which or with which the taxable year of the controlled foreign corporation ends.
(2) Treatment as United States shareholder
A person shall be treated as a United States shareholder of a controlled foreign corporation for any taxable year of such person only if such person owns (within the meaning of section 958(a)) stock in such foreign corporation on the last day in the taxable year of such foreign corporation on which such foreign corporation is a controlled foreign corporation.
(3) Treatment as controlled foreign corporation
A foreign corporation shall be treated as a controlled foreign corporation for any taxable year if such foreign corporation is a controlled foreign corporation at any time during such taxable year.
(f) Treatment as subpart F income for certain purposes
(1) In general
(A) Application
Except as provided in subparagraph (B), any global intangible low-taxed income included in gross income under subsection (a) shall be treated in the same manner as an amount included under section 951(a)(1)(A) for purposes of applying sections 168(h)(2)(B), 535(b)(10), 851(b), 904(h)(1), 959, 961, 962, 993(a)(1)(E), 996(f)(1), 1248(b)(1), 1248(d)(1), 6501(e)(1)(C), 6654(d)(2)(D), and 6655(e)(4).
(B) Exception
The Secretary shall provide rules for the application of subparagraph (A) to other provisions of this title in any case in which the determination of subpart F income is required to be made at the level of the controlled foreign corporation.
(2) Allocation of global intangible low-taxed income to controlled foreign corporations
For purposes of the sections referred to in paragraph (1), with respect to any controlled foreign corporation any pro rata amount from which is taken into account in determining the global intangible low-taxed income included in gross income of a United States shareholder under subsection (a), the portion of such global intangible low-taxed income which is treated as being with respect to such controlled foreign corporation is—
(A) in the case of a controlled foreign corporation with no tested income, zero, and
(B) in the case of a controlled foreign corporation with tested income, the portion of such global intangible low-taxed income which bears the same ratio to such global intangible low-taxed income as—
(i) such United States shareholder's pro rata amount of the tested income of such controlled foreign corporation, bears to
(ii) the aggregate amount described in subsection (c)(1)(A) with respect to such United States shareholder.
(Added
Editorial Notes
References in Text
The date of the enactment of this section, referred to in subsec. (d)(3), is the date of the enactment of
Statutory Notes and Related Subsidiaries
Effective Date
Section applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14201(d) of
1 So in original. There are two pars. designated (3).
§952. Subpart F income defined
(a) In general
For purposes of this subpart, the term "subpart F income" means, in the case of any controlled foreign corporation, the sum of—
(1) insurance income (as defined under section 953),
(2) the foreign base company income (as determined under section 954),
(3) an amount equal to the product of—
(A) the income of such corporation other than income which—
(i) is attributable to earnings and profits of the foreign corporation included in the gross income of a United States person under section 951 (other than by reason of this paragraph), or
(ii) is described in subsection (b),
multiplied by
(B) the international boycott factor (as determined under section 999),
(4) the sum of the amounts of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of the corporation directly or indirectly to an official, employee, or agent in fact of a government, and
(5) the income of such corporation derived from any foreign country during any period during which section 901(j) applies to such foreign country.
The payments referred to in paragraph (4) are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person. For purposes of paragraph (5), the income described therein shall be reduced, under regulations prescribed by the Secretary, so as to take into account deductions (including taxes) properly allocable to such income.
(b) Exclusion of United States income
In the case of a controlled foreign corporation, subpart F income does not include any item of income from sources within the United States which is effectively connected with the conduct by such corporation of a trade or business within the United States unless such item is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States. For purposes of this subsection, any exemption (or reduction) with respect to the tax imposed by section 884 shall not be taken into account.
(c) Limitation
(1) In general
(A) Subpart F income limited to current earnings and profits
For purposes of subsection (a), the subpart F income of any controlled foreign corporation for any taxable year shall not exceed the earnings and profits of such corporation for such taxable year.
(B) Certain prior year deficits may be taken into account
(i) In general
The amount included in the gross income of any United States shareholder under section 951(a)(1)(A) for any taxable year and attributable to a qualified activity shall be reduced by the amount of such shareholder's pro rata share of any qualified deficit.
(ii) Qualified deficit
The term "qualified deficit" means any deficit in earnings and profits of the controlled foreign corporation for any prior taxable year which began after December 31, 1986, and for which the controlled foreign corporation was a controlled foreign corporation; but only to the extent such deficit—
(I) is attributable to the same qualified activity as the activity giving rise to the income being offset, and
(II) has not previously been taken into account under this subparagraph.
In determining the deficit attributable to qualified activities described in subclause (II) or (III) of clause (iii),1 deficits in earnings and profits (to the extent not previously taken into account under this section) for taxable years beginning after 1962 and before 1987 also shall be taken into account. In the case of the qualified activity described in clause (iii)(I),1 the rule of the preceding sentence shall apply, except that "1982" shall be substituted for "1962".
(iii) Qualified activity
For purposes of this paragraph, the term "qualified activity" means any activity giving rise to—
(I) foreign base company sales income,
(II) foreign base company services income,
(III) in the case of a qualified insurance company, insurance income or foreign personal holding company income, or
(IV) in the case of a qualified financial institution, foreign personal holding company income.
(iv) Pro rata share
For purposes of this paragraph, the shareholder's pro rata share of any deficit for any prior taxable year shall be determined under rules similar to rules under section 951(a)(2) for whichever of the following yields the smaller share:
(I) the close of the taxable year, or
(II) the close of the taxable year in which the deficit arose.
(v) Qualified insurance company
For purposes of this subparagraph, the term "qualified insurance company" means any controlled foreign corporation predominantly engaged in the active conduct of an insurance business in the taxable year and in the prior taxable years in which the deficit arose.
(vi) Qualified financial institution
For purposes of this paragraph, the term "qualified financial institution" means any controlled foreign corporation predominantly engaged in the active conduct of a banking, financing, or similar business in the taxable year and in the prior taxable year in which the deficit arose.
(vii) Special rules for insurance income
(I) In general
An election may be made under this clause to have section 953(a) applied for purposes of this title without regard to the same country exception under paragraph (1)(A) thereof. Such election, once made, may be revoked only with the consent of the Secretary.
(II) Special rules for affiliated groups
In the case of an affiliated group of corporations (within the meaning of section 1504 but without regard to section 1504(b)(3) and by substituting "more than 50 percent" for "at least 80 percent" each place it appears), no election may be made under subclause (I) for any controlled foreign corporation unless such election is made for all other controlled foreign corporations who are members of such group and who were created or organized under the laws of the same country as such controlled foreign corporation. For purposes of clause (v), in determining whether any controlled corporation described in the preceding sentence is a qualified insurance company, all such corporations shall be treated as 1 corporation.
(C) Certain deficits of member of the same chain of corporations may be taken into account
(i) In general
A controlled foreign corporation may elect to reduce the amount of its subpart F income for any taxable year which is attributable to any qualified activity by the amount of any deficit in earnings and profits of a qualified chain member for a taxable year ending with (or within) the taxable year of such controlled foreign corporation to the extent such deficit is attributable to such activity. To the extent any deficit reduces subpart F income under the preceding sentence, such deficit shall not be taken into account under subparagraph (B).
(ii) Qualified chain member
For purposes of this subparagraph, the term "qualified chain member" means, with respect to any controlled foreign corporation, any other corporation which is created or organized under the laws of the same foreign country as the controlled foreign corporation but only if—
(I) all the stock of such other corporation (other than directors' qualifying shares) is owned at all times during the taxable year in which the deficit arose (directly or through 1 or more corporations other than the common parent) by such controlled foreign corporation, or
(II) all the stock of such controlled foreign corporation (other than directors' qualifying shares) is owned at all times during the taxable year in which the deficit arose (directly or through 1 or more corporations other than the common parent) by such other corporation.
(iii) Coordination
This subparagraph shall be applied after subparagraphs (A) and (B).
(2) Recharacterization in subsequent taxable years
If the subpart F income of any controlled foreign corporation for any taxable year was reduced by reason of paragraph (1)(A), any excess of the earnings and profits of such corporation for any subsequent taxable year over the subpart F income of such foreign corporation for such taxable year shall be recharacterized as subpart F income under rules similar to the rules applicable under section 904(f)(5).
(3) Special rule for determining earnings and profits
For purposes of this subsection, earnings and profits of any controlled foreign corporation shall be determined without regard to paragraphs (4), (5), and (6) of section 312(n). Under regulations, the preceding sentence shall not apply to the extent it would increase earnings and profits by an amount which was previously distributed by the controlled foreign corporation.
(d) Income derived from foreign country
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of subsection (a)(5), including regulations which treat income paid through 1 or more entities as derived from a foreign country to which section 901(j) applies if such income was, without regard to such entities, derived from such country.
(Added
Editorial Notes
References in Text
The Foreign Corrupt Practices Act of 1977, referred to in subsec. (a), is title I of
Clause (iii), referred to in subsec. (c)(1)(B)(ii), means cl. (iii) of subsec. (c)(1)(B), which was amended by
Amendments
2017—Subsec. (c)(1)(B)(i).
Subsec. (c)(1)(B)(iii).
2007—Subsec. (b).
2005—Subsec. (c)(1)(B)(ii).
2004—Subsec. (c)(1)(B)(iii).
1997—Subsec. (b).
1988—Subsec. (c)(1)(B)(ii).
Subsec. (c)(1)(B)(iii)(III) to (VI).
Subsec. (c)(1)(B)(vii).
Subsec. (c)(1)(C).
Subsec. (c)(3).
1986—Subsec. (a).
Subsec. (a)(1).
Subsec. (b).
Subsec. (c).
"(1) an amount equal to—
"(A) the sum of the deficits in earnings and profits for prior taxable years beginning after December 31, 1962, plus
"(B) the sum of the deficits in earnings and profits for taxable years beginning after December 31, 1959, and before January 1, 1963 (reduced by the sum of the earnings and profits for such taxable years); exceeds
"(2) an amount equal to the sum of the earnings and profits for prior taxable years beginning after December 31, 1962, allocated to other earnings and profits under section 959(c)(3).
For purposes of the preceding sentence, any deficit in earnings and profits for any prior taxable year shall be taken into account under paragraph (1) for any taxable year only to the extent it has not been taken into account under such paragraph for any preceding taxable year to reduce earnings and profits of such preceding year."
Subsec. (d).
"(1) a United States shareholder owns (within the meaning of section 958(a)) stock of a foreign corporation, and by reason of such ownership owns (within the meaning of such section) stock of any other foreign corporation, and
"(2) any of such foreign corporations has a deficit in earnings and profits for the taxable year,
then the earnings and profits for the taxable year of each such foreign corporation which is a controlled foreign corporation shall, with respect to such United States shareholder, be properly reduced to take into account any deficit described in paragraph (2) in such manner as the Secretary shall prescribe by regulations."
1982—Subsec. (a).
1976—Subsec. (a)(3).
Subsec. (a)(4).
Subsec. (d).
1966—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 14212(b)(1)(C) of
Effective Date of 2004 Amendment
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Amendment by section 1012(i)(16), (22)–(25)(A) of
Effective Date of 1986 Amendments
Amendment by section 1221(b)(3)(A), (f) of
Amendment by section 1876(c)(1) of
Amendment by
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1062 of
Effective Date of 1966 Amendment
Amendment by
Determination of Corporate Earnings and Profits for Purposes of Applying Subsection (c)(1)(A)
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
1 See References in Text note below.
§953. Insurance income
(a) Insurance income
(1) In general
For purposes of section 952(a)(1), the term "insurance income" means any income which—
(A) is attributable to the issuing (or reinsuring) of an insurance or annuity contract, and
(B) would (subject to the modifications provided by subsection (b)) be taxed under subchapter L of this chapter if such income were the income of a domestic insurance company.
(2) Exception
Such term shall not include any exempt insurance income (as defined in subsection (e)).
(b) Special rules
For purposes of subsection (a)—
(1) The following provisions of subchapter L shall not apply:
(A) So much of section 805(a)(8) as relates to the deduction allowed under section 172.
(B) Section 832(c)(5) (relating to certain capital losses).
(2) The items referred to in—
(A) section 803(a)(1) (relating to gross amount of premiums and other considerations),
(B) section 803(a)(2) (relating to net decrease in reserves),
(C) section 805(a)(2) (relating to net increase in reserves), and
(D) section 832(b)(4) (relating to premiums earned on insurance contracts),
shall be taken into account only to the extent they are in respect of any reinsurance or the issuing of any insurance or annuity contract described in subsection (a)(1).
(3) Reserves for any insurance or annuity contract shall be determined in the same manner as under section 954(i).
(4) All items of income, expenses, losses, and deductions shall be properly allocated or apportioned under regulations prescribed by the Secretary.
(c) Special rule for certain captive insurance companies
(1) In general
For purposes only of taking into account related person insurance income—
(A) the term "United States shareholder" means, with respect to any foreign corporation, a United States person (as defined in section 957(c)) who owns (within the meaning of section 958(a)) any stock of the foreign corporation,
(B) the term "controlled foreign corporation" has the meaning given to such term by section 957(a) determined by substituting "25 percent or more" for "more than 50 percent", and
(C) the pro rata share referred to in section 951(a)(1)(A) shall be determined under paragraph (5) of this subsection.
(2) Related person insurance income
For purposes of this subsection, the term "related person insurance income" means any insurance income (within the meaning of subsection (a)) attributable to a policy of insurance or reinsurance with respect to which the person (directly or indirectly) insured is a United States shareholder in the foreign corporation or a related person to such a shareholder.
(3) Exceptions
(A) Corporations not held by insureds
Paragraph (1) shall not apply to any foreign corporation if at all times during the taxable year of such foreign corporation—
(i) less than 20 percent of the total combined voting power of all classes of stock of such corporation entitled to vote, and
(ii) less than 20 percent of the total value of such corporation,
is owned (directly or indirectly under the principles of section 883(c)(4)) by persons who are (directly or indirectly) insured under any policy of insurance or reinsurance issued by such corporation or who are related persons to any such person.
(B) De minimis exception
Paragraph (1) shall not apply to any foreign corporation for a taxable year of such corporation if the related person insurance income (determined on a gross basis) of such corporation for such taxable year is less than 20 percent of its insurance income (as so determined) for such taxable year determined without regard to those provisions of subsection (a)(1) which limit insurance income to income from countries other than the country in which the corporation was created or organized.
(C) Election to treat income as effectively connected
Paragraph (1) shall not apply to any foreign corporation for any taxable year if—
(i) such corporation elects (at such time and in such manner as the Secretary may prescribe)—
(I) to treat its related person insurance income for such taxable year as income effectively connected with the conduct of a trade or business in the United States, and
(II) to waive all benefits (other than with respect to section 884) with respect to related person insurance income granted by the United States under any treaty between the United States and any foreign country, and
(ii) such corporation meets such requirements as the Secretary shall prescribe to ensure that the tax imposed by this chapter on such income is paid.
An election under this subparagraph made for any taxable year shall not be effective if the corporation (or any predecessor thereof) was a disqualified corporation for the taxable year for which the election was made or for any prior taxable year beginning after 1986.
(D) Special rules for subparagraph (C)
(i) Period during which election in effect
(I) In general
Except as provided in subclause (II), any election under subparagraph (C) shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
(II) Termination
If a foreign corporation which made an election under subparagraph (C) for any taxable year is a disqualified corporation for any subsequent taxable year, such election shall not apply to any taxable year beginning after such subsequent taxable year.
(ii) Exemption from tax imposed by section 4371
The tax imposed by section 4371 shall not apply with respect to any related person insurance income treated as effectively connected with the conduct of a trade or business within the United States under subparagraph (C).
(E) Disqualified corporation
For purposes of this paragraph the term "disqualified corporation" means, with respect to any taxable year, any foreign corporation which is a controlled foreign corporation for an uninterrupted period of 30 days or more during such taxable year (determined without regard to this subsection) but only if a United States shareholder (determined without regard to this subsection) owns (within the meaning of section 958(a)) stock in such corporation at some time during such taxable year.
(4) Treatment of mutual insurance companies
In the case of a mutual insurance company—
(A) this subsection shall apply,
(B) policyholders of such company shall be treated as shareholders, and
(C) appropriate adjustments in the application of this subpart shall be made under regulations prescribed by the Secretary.
(5) Determination of pro rata share
(A) In general
The pro rata share determined under this paragraph for any United States shareholder is the lesser of—
(i) the amount which would be determined under paragraph (2) of section 951(a) if—
(I) only related person insurance income were taken into account,
(II) stock owned (within the meaning of section 958(a)) by United States shareholders on the last day of the taxable year were the only stock in the foreign corporation, and
(III) only distributions received by United States shareholders were taken into account under subparagraph (B) of such paragraph (2), or
(ii) the amount which would be determined under paragraph (2) of section 951(a) if the entire earnings and profits of the foreign corporation for the taxable year were subpart F income.
(B) Coordination with other provisions
The Secretary shall prescribe regulations providing for such modifications to the provisions of this subpart as may be necessary or appropriate by reason of subparagraph (A).
(6) Related person
For purposes of this subsection—
(A) In general
Except as provided in subparagraph (B), the term "related person" has the meaning given such term by section 954(d)(3).
(B) Treatment of certain liability insurance policies
In the case of any policy of insurance covering liability arising from services performed as a director, officer, or employee of a corporation or as a partner or employee of a partnership, the person performing such services and the entity for which such services are performed shall be treated as related persons.
(7) Coordination with section 1248
For purposes of section 1248, if any person is (or would be but for paragraph (3)) treated under paragraph (1) as a United States shareholder with respect to any foreign corporation which would be taxed under subchapter L if it were a domestic corporation and which is (or would be but for paragraph (3)) treated under paragraph (1) as a controlled foreign corporation—
(A) such person shall be treated as meeting the stock ownership requirements of section 1248(a)(2) with respect to such foreign corporation, and
(B) such foreign corporation shall be treated as a controlled foreign corporation.
(8) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including—
(A) regulations preventing the avoidance of this subsection through cross insurance arrangements or otherwise, and
(B) regulations which may provide that a person will not be treated as a United States shareholder under paragraph (1) with respect to any foreign corporation if neither such person (nor any related person to such person) is (directly or indirectly) insured under any policy of insurance or reinsurance issued by such foreign corporation.
(d) Election by foreign insurance company to be treated as domestic corporation
(1) In general
If—
(A) a foreign corporation is a controlled foreign corporation (as defined in section 957(a) by substituting "25 percent or more" for "more than 50 percent" and by using the definition of United States shareholder under 953(c)(1)(A)),
(B) such foreign corporation would qualify under part I or II of subchapter L for the taxable year if it were a domestic corporation,
(C) such foreign corporation meets such requirements as the Secretary shall prescribe to ensure that the taxes imposed by this chapter on such foreign corporation are paid, and
(D) such foreign corporation makes an election to have this paragraph apply and waives all benefits to such corporation granted by the United States under any treaty,
for purposes of this title, such corporation shall be treated as a domestic corporation.
(2) Period during which election is in effect
(A) In general
Except as provided in subparagraph (B), an election under paragraph (1) shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
(B) Termination
If a corporation which made an election under paragraph (1) for any taxable year fails to meet the requirements of subparagraphs (A), (B), and (C), of paragraph (1) for any subsequent taxable year, such election shall not apply to any taxable year beginning after such subsequent taxable year.
(3) Treatment of losses
If any corporation treated as a domestic corporation under this subsection is treated as a member of an affiliated group for purposes of
(4) Effect of election
(A) In general
For purposes of section 367, any foreign corporation making an election under paragraph (1) shall be treated as transferring (as of the 1st day of the 1st taxable year to which such election applies) all of its assets to a domestic corporation in connection with an exchange to which section 354 applies.
(B) Exception for pre-1988 earnings and profit
(i) In general
Earnings and profits of the foreign corporation accumulated in taxable years beginning before January 1, 1988, shall not be included in the gross income of the persons holding stock in such corporation by reason of subparagraph (A).
(ii) Treatment of distributions
For purposes of this title, any distribution made by a corporation to which an election under paragraph (1) applies out of earnings and profits accumulated in taxable years beginning before January 1, 1988, shall be treated as a distribution made by a foreign corporation.
(iii) Certain rules to continue to apply to pre-1988 earnings
The provisions specified in clause (iv) shall be applied without regard to paragraph (1), except that, in the case of a corporation to which an election under paragraph (1) applies, only earnings and profits accumulated in taxable years beginning before January 1, 1988, shall be taken into account.
(iv) Specified provisions
The provisions specified in this clause are:
(I) Section 1248 (relating to gain from certain sales or exchanges of stock in certain foreign corporations).
(II) Subpart F of part III of subchapter N to the extent such subpart relates to earnings invested in United States property.
(III) Section 884 to the extent the foreign corporation reinvested 1987 earnings and profits in United States assets.
(5) Effect of termination
For purposes of section 367, if—
(A) an election is made by a corporation under paragraph (1) for any taxable year, and
(B) such election ceases to apply for any subsequent taxable year,
such corporation shall be treated as a domestic corporation transferring (as of the 1st day of such subsequent taxable year) all of its property to a foreign corporation in connection with an exchange to which section 354 applies.
(6) Additional tax on corporation making election
(A) In general
If a corporation makes an election under paragraph (1), the amount of tax imposed by this chapter for the 1st taxable year to which such election applies shall be increased by the amount determined under subparagraph (B).
(B) Amount of tax
The amount of tax determined under this paragraph shall be equal to the lesser of—
(i) ¾ of 1 percent of the aggregate amount of capital and accumulated surplus of the corporation as of December 31, 1987, or
(ii) $1,500,000.
(e) Exempt insurance income
For purposes of this section—
(1) Exempt insurance income defined
(A) In general
The term "exempt insurance income" means income derived by a qualifying insurance company which—
(i) is attributable to the issuing (or reinsuring) of an exempt contract by such company or a qualifying insurance company branch of such company, and
(ii) is treated as earned by such company or branch in its home country for purposes of such country's tax laws.
(B) Exception for certain arrangements
Such term shall not include income attributable to the issuing (or reinsuring) of an exempt contract as the result of any arrangement whereby another corporation receives a substantially equal amount of premiums or other consideration in respect of issuing (or reinsuring) a contract which is not an exempt contract.
(C) Determinations made separately
For purposes of this subsection and section 954(i), the exempt insurance income and exempt contracts of a qualifying insurance company or any qualifying insurance company branch of such company shall be determined separately for such company and each such branch by taking into account—
(i) in the case of the qualifying insurance company, only items of income, deduction, gain, or loss, and activities of such company not properly allocable or attributable to any qualifying insurance company branch of such company, and
(ii) in the case of a qualifying insurance company branch, only items of income, deduction, gain, or loss and activities properly allocable or attributable to such branch.
(2) Exempt contract
(A) In general
The term "exempt contract" means an insurance or annuity contract issued or reinsured by a qualifying insurance company or qualifying insurance company branch in connection with property in, liability arising out of activity in, or the lives or health of residents of, a country other than the United States.
(B) Minimum home country income required
(i) In general
No contract of a qualifying insurance company or of a qualifying insurance company branch shall be treated as an exempt contract unless such company or branch derives more than 30 percent of its net written premiums from exempt contracts (determined without regard to this subparagraph)—
(I) which cover applicable home country risks, and
(II) with respect to which no policyholder, insured, annuitant, or beneficiary is a related person (as defined in section 954(d)(3)).
(ii) Applicable home country risks
The term "applicable home country risks" means risks in connection with property in, liability arising out of activity in, or the lives or health of residents of, the home country of the qualifying insurance company or qualifying insurance company branch, as the case may be, issuing or reinsuring the contract covering the risks.
(C) Substantial activity requirements for cross border risks
A contract issued by a qualifying insurance company or qualifying insurance company branch which covers risks other than applicable home country risks (as defined in subparagraph (B)(ii)) shall not be treated as an exempt contract unless such company or branch, as the case may be—
(i) conducts substantial activity with respect to an insurance business in its home country, and
(ii) performs in its home country substantially all of the activities necessary to give rise to the income generated by such contract.
(3) Qualifying insurance company
The term "qualifying insurance company" means any controlled foreign corporation which—
(A) is subject to regulation as an insurance (or reinsurance) company by its home country, and is licensed, authorized, or regulated by the applicable insurance regulatory body for its home country to sell insurance, reinsurance, or annuity contracts to persons other than related persons (within the meaning of section 954(d)(3)) in such home country,
(B) derives more than 50 percent of its aggregate net written premiums from the issuance or reinsurance by such controlled foreign corporation and each of its qualifying insurance company branches of contracts—
(i) covering applicable home country risks (as defined in paragraph (2)) of such corporation or branch, as the case may be, and
(ii) with respect to which no policyholder, insured, annuitant, or beneficiary is a related person (as defined in section 954(d)(3)),
except that in the case of a branch, such premiums shall only be taken into account to the extent such premiums are treated as earned by such branch in its home country for purposes of such country's tax laws, and
(C) is engaged in the insurance business and would be subject to tax under subchapter L if it were a domestic corporation.
(4) Qualifying insurance company branch
The term "qualifying insurance company branch" means a qualified business unit (within the meaning of section 989(a)) of a controlled foreign corporation if—
(A) such unit is licensed, authorized, or regulated by the applicable insurance regulatory body for its home country to sell insurance, reinsurance, or annuity contracts to persons other than related persons (within the meaning of section 954(d)(3)) in such home country, and
(B) such controlled foreign corporation is a qualifying insurance company, determined under paragraph (3) as if such unit were a qualifying insurance company branch.
(5) Life insurance or annuity contract
For purposes of this section and section 954, the determination of whether a contract issued by a controlled foreign corporation or a qualified business unit (within the meaning of section 989(a)) is a life insurance contract or an annuity contract shall be made without regard to sections 72(s), 101(f), 817(h), and 7702 if—
(A) such contract is regulated as a life insurance or annuity contract by the corporation's or unit's home country, and
(B) no policyholder, insured, annuitant, or beneficiary with respect to the contract is a United States person.
(6) Home country
For purposes of this subsection, except as provided in regulations—
(A) Controlled foreign corporation
The term "home country" means, with respect to a controlled foreign corporation, the country in which such corporation is created or organized.
(B) Qualified business unit
The term "home country" means, with respect to a qualified business unit (as defined in section 989(a)), the country in which the principal office of such unit is located and in which such unit is licensed, authorized, or regulated by the applicable insurance regulatory body to sell insurance, reinsurance, or annuity contracts to persons other than related persons (as defined in section 954(d)(3)) in such country.
(7) Anti-abuse rules
For purposes of applying this subsection and section 954(i)—
(A) the rules of section 954(h)(7) (other than subparagraph (B) thereof) shall apply,
(B) there shall be disregarded any item of income, gain, loss, or deduction of, or derived from, an entity which is not engaged in regular and continuous transactions with persons which are not related persons,
(C) there shall be disregarded any change in the method of computing reserves a principal purpose of which is the acceleration or deferral of any item in order to claim the benefits of this subsection or section 954(i),
(D) a contract of insurance or reinsurance shall not be treated as an exempt contract (and premiums from such contract shall not be taken into account for purposes of paragraph (2)(B) or (3)) if—
(i) any policyholder, insured, annuitant, or beneficiary is a resident of the United States and such contract was marketed to such resident and was written to cover a risk outside the United States, or
(ii) the contract covers risks located within and without the United States and the qualifying insurance company or qualifying insurance company branch does not maintain such contemporaneous records, and file such reports, with respect to such contract as the Secretary may require,
(E) the Secretary may prescribe rules for the allocation of contracts (and income from contracts) among 2 or more qualifying insurance company branches of a qualifying insurance company in order to clearly reflect the income of such branches, and
(F) premiums from a contract shall not be taken into account for purposes of paragraph (2)(B) or (3) if such contract reinsures a contract issued or reinsured by a related person (as defined in section 954(d)(3)).
For purposes of subparagraph (D), the determination of where risks are located shall be made under the principles of section 953.
(8) Coordination with subsection (c)
In determining insurance income for purposes of subsection (c), exempt insurance income shall not include income derived from exempt contracts which cover risks other than applicable home country risks.
(9) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection and section 954(i).
(10) Cross reference
For income exempt from foreign personal holding company income, see section 954(i).
(Added
Editorial Notes
Amendments
2017—Subsec. (b)(1)(A).
Subsec. (b)(1)(B).
Subsec. (b)(1)(C).
Subsec. (c)(1)(C).
Subsec. (d)(4)(B)(iv)(II).
2015—Subsec. (e)(10), (11).
2014—Subsec. (e)(10).
2013—Subsec. (e)(10).
2010—Subsec. (e)(10).
2008—Subsec. (e)(10).
2006—Subsec. (e)(10).
2002—Subsec. (e)(10).
1999—Subsec. (e)(10).
1998—Subsec. (a).
"(1) is attributable to the issuing (or reinsuring) of any insurance or annuity contract—
"(A) in connection with property in, liability arising out of activity in, or in connection with the lives or health of residents of, a country other than the country under the laws of which the controlled foreign corporation is created or organized, or
"(B) in connection with risks not described in subparagraph (A) as the result of any arrangement whereby another corporation receives a substantially equal amount of premiums or other consideration in respect of issuing (or reinsuring) a contract described in subparagraph (A), and
"(2) would (subject to the modifications provided by paragraphs (1) and (2) of subsection (b)) be taxed under subchapter L of this chapter if such income were the income of a domestic insurance company."
Subsec. (b)(3), (4).
Subsec. (e).
1989—Subsec. (d)(3).
1988—Subsec. (b)(1).
Subsec. (b)(1)(A).
Subsec. (b)(2) to (4).
Subsec. (c)(1)(C).
Subsec. (c)(2).
Subsec. (c)(3)(A).
Subsec. (c)(3)(B).
Subsec. (c)(3)(C).
Subsec. (c)(3)(D)(i).
Subsec. (c)(3)(E).
Subsec. (c)(5).
Subsec. (c)(6).
Subsec. (c)(7).
Subsec. (c)(8).
Subsec. (d).
1986—
Subsec. (a).
Subsec. (c).
1984—Subsec. (a)(2).
Subsec. (b)(1).
Subsec. (b)(2).
"(A) The special life insurance company deduction and the small life insurance company deduction.
"(B) Section 805(a)(5) (relating to operations loss deduction).
"(C) Section 832(c)(5) (relating to certain capital losses)."
for
"(A) Section 809(d)(4) (operations loss deduction).
"(B) Section 809(d)(5) (certain nonparticipating contracts).
"(C) Section 809(d)(6) (group life, accident, and health insurance)."
and struck out
"(D) Section 809(d)(10) (small business deduction).
"(E) Section 817(b) (gain on property held on December 31, 1958, and certain substituted property acquired after 1958).
"(F) Section 832(c)(5) (certain capital losses)."
Subsec. (b)(3).
Subsec. (b)(3)(A).
Subsec. (b)(3)(B).
Subsec. (b)(3)(C).
Subsec. (b)(4), (5).
1976—Subsec. (b)(5).
1966—Subsec. (b)(3)(F).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 13511(b)(7) of
Amendment by section 13512(b)(8) of
Amendment by section 14212(b)(1)(D), (3) of
Effective Date of 2015 Amendment
Effective Date of 2014 Amendment
Effective Date of 2013 Amendment
Effective Date of 2010 Amendment
Effective Date of 2002 Amendment
Effective Date of 1999 Amendment
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by section 1012(i)(1), (2), (4), (5), (7)–(9), (21) of
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by
Effective Date of 1966 Amendment
Amendment by
§954. Foreign base company income
(a) Foreign base company income
For purposes of section 952(a)(2), the term "foreign base company income" means for any taxable year the sum of—
(1) the foreign personal holding company income for the taxable year (determined under subsection (c) and reduced as provided in subsection (b)(5)),
(2) the foreign base company sales income for the taxable year (determined under subsection (d) and reduced as provided in subsection (b)(5)), and
(3) the foreign base company services income for the taxable year (determined under subsection (e) and reduced as provided in subsection (b)(5)).
(b) Exclusion and special rules
[(1) Repealed. Pub. L. 94–12, title VI, §602(c)(1), Mar. 29, 1975, 89 Stat. 58 ]
[(2) Repealed. Pub. L. 99–514, title XII, §1221(c)(1), Oct. 22, 1986, 100 Stat. 2553 ]
(3) De minimis, etc., rules
For purposes of subsection (a) and section 953—
(A) De minimis rule
If the sum of foreign base company income (determined without regard to paragraph (5)) and the gross insurance income for the taxable year is less than the lesser of—
(i) 5 percent of gross income, or
(ii) $1,000,000,
no part of the gross income for the taxable year shall be treated as foreign base company income or insurance income.
(B) Foreign base company income and insurance income in excess of 70 percent of gross income
If the sum of the foreign base company income (determined without regard to paragraph (5)) and the gross insurance income for the taxable year exceeds 70 percent of gross income, the entire gross income for the taxable year shall, subject to the provisions of paragraphs (4) and (5), be treated as foreign base company income or insurance income (whichever is appropriate).
(C) Gross insurance income
For purposes of subparagraphs (A) and (B), the term "gross insurance income" means any item of gross income taken into account in determining insurance income under section 953.
(4) Exception for certain income subject to high foreign taxes
For purposes of subsection (a) and section 953, foreign base company income and insurance income shall not include any item of income received by a controlled foreign corporation if the taxpayer establishes to the satisfaction of the Secretary that such income was subject to an effective rate of income tax imposed by a foreign country greater than 90 percent of the maximum rate of tax specified in section 11.
(5) Deductions to be taken into account
For purposes of subsection (a), the foreign personal holding company income, the foreign base company sales income, and the foreign base company services income shall be reduced, under regulations prescribed by the Secretary, so as to take into account deductions (including taxes) properly allocable to such income. Except to the extent provided in regulations prescribed by the Secretary, any interest which is paid or accrued by the controlled foreign corporation to any United States shareholder in such corporation (or any controlled foreign corporation related to such a shareholder) shall be allocated first to foreign personal holding company income which is passive income (within the meaning of section 904(d)(2)) of such corporation to the extent thereof. The Secretary may, by regulations, provide that the preceding sentence shall apply also to interest paid or accrued to other persons.
(c) Foreign personal holding company income
(1) In general
For purposes of subsection (a)(1), the term "foreign personal holding company income" means the portion of the gross income which consists of:
(A) Dividends, etc.
Dividends, interest, royalties, rents, and annuities.
(B) Certain property transactions
The excess of gains over losses from the sale or exchange of property—
(i) which gives rise to income described in subparagraph (A) (after application of paragraph (2)(A)) other than property which gives rise to income not treated as foreign personal holding company income by reason of subsection (h) or (i) for the taxable year,
(ii) which is an interest in a trust, partnership, or REMIC, or
(iii) which does not give rise to any income.
Gains and losses from the sale or exchange of any property which, in the hands of the controlled foreign corporation, is property described in section 1221(a)(1) shall not be taken into account under this subparagraph.
(C) Commodities transactions
The excess of gains over losses from transactions (including futures, forward, and similar transactions) in any commodities. This subparagraph shall not apply to gains or losses which—
(i) arise out of commodity hedging transactions (as defined in paragraph (5)(A)),
(ii) are active business gains or losses from the sale of commodities, but only if substantially all of the controlled foreign corporation's commodities are property described in paragraph (1), (2), or (8) of section 1221(a), or
(iii) are foreign currency gains or losses (as defined in section 988(b)) attributable to any section 988 transactions.
(D) Foreign currency gains
The excess of foreign currency gains over foreign currency losses (as defined in section 988(b)) attributable to any section 988 transactions. This subparagraph shall not apply in the case of any transaction directly related to the business needs of the controlled foreign corporation.
(E) Income equivalent to interest
Any income equivalent to interest, including income from commitment fees (or similar amounts) for loans actually made.
(F) Income from notional principal contracts
(i) In general
Net income from notional principal contracts.
(ii) Coordination with other categories of foreign personal holding company income
Any item of income, gain, deduction, or loss from a notional principal contract entered into for purposes of hedging any item described in any preceding subparagraph shall not be taken into account for purposes of this subparagraph but shall be taken into account under such other subparagraph.
(G) Payments in lieu of dividends
Payments in lieu of dividends which are made pursuant to an agreement to which section 1058 applies.
(H) Personal service contracts
(i) Amounts received under a contract under which the corporation is to furnish personal services if—
(I) some person other than the corporation has the right to designate (by name or by description) the individual who is to perform the services, or
(II) the individual who is to perform the services is designated (by name or by description) in the contract, and
(ii) amounts received from the sale or other disposition of such a contract.
This subparagraph shall apply with respect to amounts received for services under a particular contract only if at some time during the taxable year 25 percent or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated (by name or by description) as the one to perform, such services.
(2) Exception for certain amounts
(A) Rents and royalties derived in active business
Foreign personal holding company income shall not include rents and royalties which are derived in the active conduct of a trade or business and which are received from a person other than a related person (within the meaning of subsection (d)(3)). For purposes of the preceding sentence, rents derived from leasing an aircraft or vessel in foreign commerce shall not fail to be treated as derived in the active conduct of a trade or business if, as determined under regulations prescribed by the Secretary, the active leasing expenses are not less than 10 percent of the profit on the lease.
(B) Certain export financing
Foreign personal holding company income shall not include any interest which is derived in the conduct of a banking business and which is export financing interest (as defined in section 904(d)(2)(G)).
(C) Exception for dealers
Except as provided by regulations, in the case of a regular dealer in property which is property described in paragraph (1)(B), forward contracts, option contracts, or similar financial instruments (including notional principal contracts and all instruments referenced to commodities), there shall not be taken into account in computing foreign personal holding company income—
(i) any item of income, gain, deduction, or loss (other than any item described in subparagraph (A), (E), or (G) of paragraph (1)) from any transaction (including hedging transactions and transactions involving physical settlement) entered into in the ordinary course of such dealer's trade or business as such a dealer, and
(ii) if such dealer is a dealer in securities (within the meaning of section 475), any interest or dividend or equivalent amount described in subparagraph (E) or (G) of paragraph (1) from any transaction (including any hedging transaction or transaction described in section 956(c)(2)(I)) entered into in the ordinary course of such dealer's trade or business as such a dealer in securities, but only if the income from the transaction is attributable to activities of the dealer in the country under the laws of which the dealer is created or organized (or in the case of a qualified business unit described in section 989(a), is attributable to activities of the unit in the country in which the unit both maintains its principal office and conducts substantial business activity).
(3) Certain income received from related persons
(A) In general
Except as provided in subparagraph (B), the term "foreign personal holding company income" does not include—
(i) dividends and interest received from a related person which (I) is a corporation created or organized under the laws of the same foreign country under the laws of which the controlled foreign corporation is created or organized, and (II) has a substantial part of its assets used in its trade or business located in such same foreign country, and
(ii) rents and royalties received from a corporation which is a related person for the use of, or the privilege of using, property within the country under the laws of which the controlled foreign corporation is created or organized.
To the extent provided in regulations, payments made by a partnership with 1 or more corporate partners shall be treated as made by such corporate partners in proportion to their respective interests in the partnership.
(B) Exception not to apply to items which reduce subpart F income
Subparagraph (A) shall not apply in the case of any interest, rent, or royalty to the extent such interest, rent, or royalty reduces the payor's subpart F income or creates (or increases) a deficit which under section 952(c) may reduce the subpart F income of the payor or another controlled foreign corporation.
(C) Exception for certain dividends
Subparagraph (A)(i) shall not apply to any dividend with respect to any stock which is attributable to earnings and profits of the distributing corporation accumulated during any period during which the person receiving such dividend did not hold such stock either directly, or indirectly through a chain of one or more subsidiaries each of which meets the requirements of subparagraph (A)(i).
(4) Look-thru rule for certain partnership sales
(A) In general
In the case of any sale by a controlled foreign corporation of an interest in a partnership with respect to which such corporation is a 25-percent owner, such corporation shall be treated for purposes of this subsection as selling the proportionate share of the assets of the partnership attributable to such interest. The Secretary shall prescribe such regulations as may be appropriate to prevent abuse of the purposes of this paragraph, including regulations providing for coordination of this paragraph with the provisions of subchapter K.
(B) 25-percent owner
For purposes of this paragraph, the term "25-percent owner" means a controlled foreign corporation which owns directly 25 percent or more of the capital or profits interest in a partnership. For purposes of the preceding sentence, if a controlled foreign corporation is a shareholder or partner of a corporation or partnership, the controlled foreign corporation shall be treated as owning directly its proportionate share of any such capital or profits interest held directly or indirectly by such corporation or partnership. If a controlled foreign corporation is treated as owning a capital or profits interest in a partnership under constructive ownership rules similar to the rules of section 958(b), the controlled foreign corporation shall be treated as owning such interest directly for purposes of this subparagraph.
(5) Definition and special rules relating to commodity transactions
(A) Commodity hedging transactions
For purposes of paragraph (1)(C)(i), the term "commodity hedging transaction" means any transaction with respect to a commodity if such transaction—
(i) is a hedging transaction as defined in section 1221(b)(2), determined—
(I) without regard to subparagraph (A)(ii) thereof,
(II) by applying subparagraph (A)(i) thereof by substituting "ordinary property or property described in section 1231(b)" for "ordinary property", and
(III) by substituting "controlled foreign corporation" for "taxpayer" each place it appears, and
(ii) is clearly identified as such in accordance with section 1221(a)(7).
(B) Treatment of dealer activities under paragraph (1)(C)
Commodities with respect to which gains and losses are not taken into account under paragraph (2)(C) in computing a controlled foreign corporation's foreign personal holding company income shall not be taken into account in applying the substantially all test under paragraph (1)(C)(ii) to such corporation.
(C) Regulations
The Secretary shall prescribe such regulations as are appropriate to carry out the purposes of paragraph (1)(C) in the case of transactions involving related parties.
(6) Look-thru rule for related controlled foreign corporations
(A) In general
For purposes of this subsection, dividends, interest, rents, and royalties received or accrued from a controlled foreign corporation which is a related person shall not be treated as foreign personal holding company income to the extent attributable or properly allocable (determined under rules similar to the rules of subparagraphs (C) and (D) of section 904(d)(3)) to income of the related person which is neither subpart F income nor income treated as effectively connected with the conduct of a trade or business in the United States. For purposes of this subparagraph, interest shall include factoring income which is treated as income equivalent to interest for purposes of paragraph (1)(E). The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out this paragraph, including such regulations as may be necessary or appropriate to prevent the abuse of the purposes of this paragraph.
(B) Exception
Subparagraph (A) shall not apply in the case of any interest, rent, or royalty to the extent such interest, rent, or royalty creates (or increases) a deficit which under section 952(c) may reduce the subpart F income of the payor or another controlled foreign corporation.
(C) Application
Subparagraph (A) shall apply to taxable years of foreign corporations beginning after December 31, 2005, and before January 1, 2026, and to taxable years of United States shareholders with or within which such taxable years of foreign corporations end.
(d) Foreign base company sales income
(1) In general
For purposes of subsection (a)(2), the term "foreign base company sales income" means income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with the purchase of personal property from a related person and its sale to any person, the sale of personal property to any person on behalf of a related person, the purchase of personal property from any person and its sale to a related person, or the purchase of personal property from any person on behalf of a related person where—
(A) the property which is purchased (or in the case of property sold on behalf of a related person, the property which is sold) is manufactured, produced, grown, or extracted outside the country under the laws of which the controlled foreign corporation is created or organized, and
(B) the property is sold for use, consumption, or disposition outside such foreign country, or, in the case of property purchased on behalf of a related person, is purchased for use, consumption, or disposition outside such foreign country.
For purposes of this subsection, personal property does not include agricultural commodities which are not grown in the United States in commercially marketable quantities.
(2) Certain branch income
For purposes of determining foreign base company sales income in situations in which the carrying on of activities by a controlled foreign corporation through a branch or similar establishment outside the country of incorporation of the controlled foreign corporation has substantially the same effect as if such branch or similar establishment were a wholly owned subsidiary corporation deriving such income, under regulations prescribed by the Secretary the income attributable to the carrying on of such activities of such branch or similar establishment shall be treated as income derived by a wholly owned subsidiary of the controlled foreign corporation and shall constitute foreign base company sales income of the controlled foreign corporation.
(3) Related person defined
For purposes of this section, a person is a related person with respect to a controlled foreign corporation, if—
(A) such person is an individual, corporation, partnership, trust, or estate which controls, or is controlled by, the controlled foreign corporation, or
(B) such person is a corporation, partnership, trust, or estate which is controlled by the same person or persons which control the controlled foreign corporation.
For purposes of the preceding sentence, control means, with respect to a corporation, the ownership, directly or indirectly, of stock possessing more than 50 percent of the total voting power of all classes of stock entitled to vote or of the total value of stock of such corporation. In the case of a partnership, trust, or estate, control means the ownership, directly or indirectly, of more than 50 percent (by value) of the beneficial interests in such partnership, trust, or estate. For purposes of this paragraph, rules similar to the rules of section 958 shall apply.
(4) Special rule for certain timber products
For purposes of subsection (a)(2), the term "foreign base company sales income" includes any income (whether in the form of profits, commissions, fees, or otherwise) derived in connection with—
(A) the sale of any unprocessed timber referred to in section 865(b), or
(B) the milling of any such timber outside the United States.
Subpart G shall not apply to any amount treated as subpart F income by reason of this paragraph.
(e) Foreign base company services income
(1) In general
For purposes of subsection (a)(3), the term "foreign base company services income" means income (whether in the form of compensation, commissions, fees, or otherwise) derived in connection with the performance of technical, managerial, engineering, architectural, scientific, skilled, industrial, commercial, or like services which—
(A) are performed for or on behalf of any related person (within the meaning of subsection (d)(3)), and
(B) are performed outside the country under the laws of which the controlled foreign corporation is created or organized.
(2) Exception
Paragraph (1) shall not apply to income derived in connection with the performance of services which are directly related to—
(A) the sale or exchange by the controlled foreign corporation of property manufactured, produced, grown, or extracted by it and which are performed before the time of the sale or exchange, or
(B) an offer or effort to sell or exchange such property.
Paragraph (1) shall also not apply to income which is exempt insurance income (as defined in section 953(e)) or which is not treated as foreign personal holding income by reason of subsection (c)(2)(C)(ii), (h), or (i).
[(f) Repealed. Pub. L. 108–357, title IV, §415(a)(2), Oct. 22, 2004, 118 Stat. 1511 ]
[(g) Repealed. Pub. L. 115–97, title I, §14211(b)(3), Dec. 22, 2017, 131 Stat. 2217 ]
(h) Special rule for income derived in the active conduct of banking, financing, or similar businesses
(1) In general
For purposes of subsection (c)(1), foreign personal holding company income shall not include qualified banking or financing income of an eligible controlled foreign corporation.
(2) Eligible controlled foreign corporation
For purposes of this subsection—
(A) In general
The term "eligible controlled foreign corporation" means a controlled foreign corporation which—
(i) is predominantly engaged in the active conduct of a banking, financing, or similar business, and
(ii) conducts substantial activity with respect to such business.
(B) Predominantly engaged
A controlled foreign corporation shall be treated as predominantly engaged in the active conduct of a banking, financing, or similar business if—
(i) more than 70 percent of the gross income of the controlled foreign corporation is derived directly from the active and regular conduct of a lending or finance business from transactions with customers which are not related persons,
(ii) it is engaged in the active conduct of a banking business and is an institution licensed to do business as a bank in the United States (or is any other corporation not so licensed which is specified by the Secretary in regulations), or
(iii) it is engaged in the active conduct of a securities business and is registered as a securities broker or dealer under section 15(a) of the Securities Exchange Act of 1934 or is registered as a Government securities broker or dealer under section 15C(a) of such Act (or is any other corporation not so registered which is specified by the Secretary in regulations).
(3) Qualified banking or financing income
For purposes of this subsection—
(A) In general
The term "qualified banking or financing income" means income of an eligible controlled foreign corporation which—
(i) is derived in the active conduct of a banking, financing, or similar business by—
(I) such eligible controlled foreign corporation, or
(II) a qualified business unit of such eligible controlled foreign corporation,
(ii) is derived from one or more transactions—
(I) with customers located in a country other than the United States, and
(II) substantially all of the activities in connection with which are conducted directly by the corporation or unit in its home country, and
(iii) is treated as earned by such corporation or unit in its home country for purposes of such country's tax laws.
(B) Limitation on nonbanking and nonsecurities businesses
No income of an eligible controlled foreign corporation not described in clause (ii) or (iii) of paragraph (2)(B) (or of a qualified business unit of such corporation) shall be treated as qualified banking or financing income unless more than 30 percent of such corporation's or unit's gross income is derived directly from the active and regular conduct of a lending or finance business from transactions with customers which are not related persons and which are located within such corporation's or unit's home country.
(C) Substantial activity requirement for cross border income
The term "qualified banking or financing income" shall not include income derived from 1 or more transactions with customers located in a country other than the home country of the eligible controlled foreign corporation or a qualified business unit of such corporation unless such corporation or unit conducts substantial activity with respect to a banking, financing, or similar business in its home country.
(D) Determinations made separately
For purposes of this paragraph, the qualified banking or financing income of an eligible controlled foreign corporation and each qualified business unit of such corporation shall be determined separately for such corporation and each such unit by taking into account—
(i) in the case of the eligible controlled foreign corporation, only items of income, deduction, gain, or loss and activities of such corporation not properly allocable or attributable to any qualified business unit of such corporation, and
(ii) in the case of a qualified business unit, only items of income, deduction, gain, or loss and activities properly allocable or attributable to such unit.
(E) Direct conduct of activities
For purposes of subparagraph (A)(ii)(II), an activity shall be treated as conducted directly by an eligible controlled foreign corporation or qualified business unit in its home country if the activity is performed by employees of a related person and—
(i) the related person is an eligible controlled foreign corporation the home country of which is the same as the home country of the corporation or unit to which subparagraph (A)(ii)(II) is being applied,
(ii) the activity is performed in the home country of the related person, and
(iii) the related person is compensated on an arm's-length basis for the performance of the activity by its employees and such compensation is treated as earned by such person in its home country for purposes of the home country's tax laws.
(4) Lending or finance business
For purposes of this subsection, the term "lending or finance business" means the business of—
(A) making loans,
(B) purchasing or discounting accounts receivable, notes, or installment obligations,
(C) engaging in leasing (including entering into leases and purchasing, servicing, and disposing of leases and leased assets),
(D) issuing letters of credit or providing guarantees,
(E) providing charge and credit card services, or
(F) rendering services or making facilities available in connection with activities described in subparagraphs (A) through (E) carried on by—
(i) the corporation (or qualified business unit) rendering services or making facilities available, or
(ii) another corporation (or qualified business unit of a corporation) which is a member of the same affiliated group (as defined in section 1504, but determined without regard to section 1504(b)(3)).
(5) Other definitions
For purposes of this subsection—
(A) Customer
The term "customer" means, with respect to any controlled foreign corporation or qualified business unit, any person which has a customer relationship with such corporation or unit and which is acting in its capacity as such.
(B) Home country
Except as provided in regulations—
(i) Controlled foreign corporation
The term "home country" means, with respect to any controlled foreign corporation, the country under the laws of which the corporation was created or organized.
(ii) Qualified business unit
The term "home country" means, with respect to any qualified business unit, the country in which such unit maintains its principal office.
(C) Located
The determination of where a customer is located shall be made under rules prescribed by the Secretary.
(D) Qualified business unit
The term "qualified business unit" has the meaning given such term by section 989(a).
(E) Related person
The term "related person" has the meaning given such term by subsection (d)(3).
(6) Coordination with exception for dealers
Paragraph (1) shall not apply to income described in subsection (c)(2)(C)(ii) of a dealer in securities (within the meaning of section 475) which is an eligible controlled foreign corporation described in paragraph (2)(B)(iii).
(7) Anti-abuse rules
For purposes of applying this subsection and subsection (c)(2)(C)(ii)—
(A) there shall be disregarded any item of income, gain, loss, or deduction with respect to any transaction or series of transactions one of the principal purposes of which is qualifying income or gain for the exclusion under this section, including any transaction or series of transactions a principal purpose of which is the acceleration or deferral of any item in order to claim the benefits of such exclusion through the application of this subsection,
(B) there shall be disregarded any item of income, gain, loss, or deduction of an entity which is not engaged in regular and continuous transactions with customers which are not related persons,
(C) there shall be disregarded any item of income, gain, loss, or deduction with respect to any transaction or series of transactions utilizing, or doing business with—
(i) one or more entities in order to satisfy any home country requirement under this subsection, or
(ii) a special purpose entity or arrangement, including a securitization, financing, or similar entity or arrangement,
if one of the principal purposes of such transaction or series of transactions is qualifying income or gain for the exclusion under this subsection, and
(D) a related person, an officer, a director, or an employee with respect to any controlled foreign corporation (or qualified business unit) which would otherwise be treated as a customer of such corporation or unit with respect to any transaction shall not be so treated if a principal purpose of such transaction is to satisfy any requirement of this subsection.
(8) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection, subsection (c)(1)(B)(i), subsection (c)(2)(C)(ii), and the last sentence of subsection (e)(2).
(i) Special rule for income derived in the active conduct of insurance business
(1) In general
For purposes of subsection (c)(1), foreign personal holding company income shall not include qualified insurance income of a qualifying insurance company.
(2) Qualified insurance income
The term "qualified insurance income" means income of a qualifying insurance company which is—
(A) received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from the investments made by a qualifying insurance company or a qualifying insurance company branch of its reserves allocable to exempt contracts or of 80 percent of its unearned premiums from exempt contracts (as both are determined in the manner prescribed under paragraph (4)), or
(B) received from a person other than a related person (within the meaning of subsection (d)(3)) and derived from investments made by a qualifying insurance company or a qualifying insurance company branch of an amount of its assets allocable to exempt contracts equal to—
(i) in the case of property, casualty, or health insurance contracts, one-third of its premiums earned on such insurance contracts during the taxable year (as defined in section 832(b)(4)), and
(ii) in the case of life insurance or annuity contracts, 10 percent of the reserves described in subparagraph (A) for such contracts.
(3) Principles for determining insurance income
Except as provided by the Secretary, for purposes of subparagraphs (A) and (B) of paragraph (2)—
(A) in the case of any contract which is a separate account-type contract (including any variable contract not meeting the requirements of section 817), income credited under such contract shall be allocable only to such contract, and
(B) income not allocable under subparagraph (A) shall be allocated ratably among contracts not described in subparagraph (A).
(4) Methods for determining unearned premiums and reserves
For purposes of paragraph (2)(A)—
(A) Property and casualty contracts
The unearned premiums and reserves of a qualifying insurance company or a qualifying insurance company branch with respect to property, casualty, or health insurance contracts shall be determined using the same methods and interest rates which would be used if such company or branch were subject to tax under subchapter L, except that—
(i) the interest rate determined for the functional currency of the company or branch, and which, except as provided by the Secretary, is calculated in the same manner as the Federal mid-term rate under section 1274(d), shall be substituted for the applicable Federal interest rate, and
(ii) such company or branch shall use the appropriate foreign loss payment pattern.
(B) Life insurance and annuity contracts
(i) In general
Except as provided in clause (ii), the amount of the reserve of a qualifying insurance company or qualifying insurance company branch for any life insurance or annuity contract shall be equal to the greater of—
(I) the net surrender value of such contract (as defined in section 807(e)(1)(A)), or
(II) the reserve determined under paragraph (5).
(ii) Ruling request, etc.
The amount of the reserve under clause (i) shall be the foreign statement reserve for the contract (less any catastrophe, deficiency, equalization, or similar reserves), if, pursuant to a ruling request submitted by the taxpayer or as provided in published guidance, the Secretary determines that the factors taken into account in determining the foreign statement reserve provide an appropriate means of measuring income.
(C) Limitation on reserves
In no event shall the reserve determined under this paragraph for any contract as of any time exceed the amount which would be taken into account with respect to such contract as of such time in determining foreign statement reserves (less any catastrophe, deficiency, equalization, or similar reserves).
(5) Amount of reserve
The amount of the reserve determined under this paragraph with respect to any contract shall be determined in the same manner as it would be determined if the qualifying insurance company or qualifying insurance company branch were subject to tax under subchapter L, except that in applying such subchapter—
(A) the interest rate determined for the functional currency of the company or branch, and which, except as provided by the Secretary, is calculated in the same manner as the Federal mid-term rate under section 1274(d), shall be substituted for the applicable Federal interest rate,
(B) the highest assumed interest rate permitted to be used in determining foreign statement reserves shall apply, and
(C) tables for mortality and morbidity which reasonably reflect the current mortality and morbidity risks in the company's or branch's home country shall be substituted for the mortality and morbidity tables otherwise used for such subchapter.
The Secretary may provide that the interest rate and mortality and morbidity tables of a qualifying insurance company may be used for 1 or more of its qualifying insurance company branches when appropriate.
(6) Definitions
For purposes of this subsection, any term used in this subsection which is also used in section 953(e) shall have the meaning given such term by section 953.
(Added
Editorial Notes
References in Text
Sections 15(a) and 15C(a) of the Securities Exchange Act of 1934, referred to in subsec. (h)(2)(B)(iii), are classified to sections 78o(a) and 78o–5(a), respectively, of Title 15, Commerce and Trade.
Amendments
2020—Subsec. (c)(6)(C).
2019—Subsec. (c)(6)(C).
2017—Subsec. (a)(5).
Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (g).
Subsec. (i)(5)(B).
2015—Subsec. (c)(6)(C).
Subsec. (h)(9).
2014—Subsec. (c)(6)(C).
Subsec. (h)(9).
2013—Subsec. (c)(6)(C).
Subsec. (h)(9).
2010—Subsec. (c)(6)(C).
Subsec. (h)(9).
2008—Subsec. (c)(6)(C).
Subsec. (h)(9).
2007—Subsec. (c)(1)(F).
Subsec. (c)(1)(H), (I).
Subsec. (c)(2)(C)(ii).
Subsec. (c)(6)(B), (C).
2006—Subsec. (c)(6).
Subsec. (c)(6)(A).
Subsec. (h)(9).
2005—Subsec. (c)(1)(C)(i).
Subsec. (c)(1)(F).
Subsec. (c)(4)(B).
2004—Subsec. (a)(4).
Subsec. (b)(5).
Subsec. (b)(6) to (8).
Subsec. (c)(1)(C)(i), (ii).
"(i) arise out of bona fide hedging transactions reasonably necessary to the conduct of any business by a producer, processor, merchant, or handler of a commodity in the manner in which such business is customarily and usually conducted by others,
"(ii) are active business gains or losses from the sale of commodities, but only if substantially all of the controlled foreign corporation's business is as an active producer, processor, merchant, or handler of commodities, or".
Subsec. (c)(1)(I).
Subsec. (c)(2)(A).
Subsec. (c)(2)(C)(i).
Subsec. (c)(4).
Subsec. (c)(5).
Subsec. (f).
Subsec. (h)(3)(E).
2002—Subsec. (c)(1)(B).
Subsec. (h)(9).
Subsec. (i)(4)(B).
"(i) the net surrender value of such contract (as defined in section 807(e)(1)(A)), or
"(ii) the reserve determined under paragraph (5)."
1999—Subsec. (c)(1)(B).
Subsec. (h)(9).
1998—Subsec. (c)(1)(B)(i).
Subsec. (c)(2)(C).
Subsec. (e)(2).
Subsec. (e)(2)(C).
Subsec. (h).
Subsec. (i).
1997—Subsec. (c)(1)(B).
Subsec. (c)(1)(F), (G).
Subsec. (c)(2)(C).
Subsec. (e)(2)(C).
Subsec. (h).
1996—Subsec. (c)(3)(A)(i).
1993—Subsec. (b)(8).
Subsec. (c)(3)(C).
Subsec. (d)(4).
Subsec. (f).
Subsec. (g)(1).
1989—Subsec. (c)(3)(A).
Subsec. (c)(3)(A)(i).
Subsec. (c)(3)(A)(ii).
1988—Subsec. (b)(6), (7).
Subsec. (c)(1)(B).
Subsec. (c)(3)(B).
Subsec. (d)(3).
Subsec. (e)(3).
1986—Subsec. (a)(5).
Subsec. (b)(2).
Subsec. (b)(3).
"(A) If the foreign base company income (determined without regard to paragraphs (2) and (5)) is less than 10 percent of gross income, no part of the gross income of the taxable year shall be treated as foreign base company income.
"(B) If the foreign base company income (determined without regard to paragraphs (2) and (5)) exceeds 70 percent of gross income, the entire gross income of the taxable year shall, subject to the provisions of paragraphs (2), (4), and (5), be treated as foreign base company income."
Subsec. (b)(4).
"(A) the creation or organization of such controlled foreign corporation under the laws of the foreign country in which it is incorporated (or, in the case of a controlled foreign corporation which is an acquired corporation, the acquisition of such corporation created or organized under the laws of the foreign country in which it is incorporated), nor
"(B) the effecting of the transaction giving rise to such income through the controlled foreign corporation,
has as one of its significant purposes a substantial reduction of income, war profits, or excess profits or similar taxes. The preceding sentence shall not apply to foreign base company oil related income described in subsection (a)(5)."
Subsec. (b)(5).
Subsec. (c).
Subsec. (d)(3).
"(A) such person is an individual, partnership, trust, or estate which controls the controlled foreign corporation;
"(B) such person is a corporation which controls, or is controlled by, the controlled foreign corporation; or
"(C) such person is a corporation which is controlled by the same person or persons which control the controlled foreign corporation.
For purposes of the preceding sentence, control means the ownership, directly or indirectly, of stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote. For purposes of this paragraph, the rules for determining ownership of stock prescribed by section 958 shall apply."
Subsec. (e).
Subsec. (e)(3).
"(A) such primary insured shall be treated as a related person for purposes of paragraph (1)(A) (whether or not the requirements of subsection (d)(3) are met),
"(B) such services shall be treated as performed in the country within which the insured hazards, risks, losses, or liabilities occur, and
"(C) except as otherwise provided in regulations by the Secretary, rules similar to the rules of section 953(b) shall be applied in determining the income from such services."
Subsec. (f).
Subsecs. (g), (h).
"(1) the qualified investments in foreign base company shipping operations (as defined in section 955(b)) of the controlled foreign corporation at the close of the taxable year, exceed
"(2) the qualified investments in foreign base company shipping operations (as so defined) of the controlled foreign corporation at the close of the preceding taxable year."
1984—Subsec. (e).
Subsec. (h)(1).
1982—Subsec. (a)(5).
Subsec. (b)(4).
Subsec. (b)(5).
Subsec. (b)(8).
Subsec. (h).
1976—Subsecs. (b)(4), (5).
Subsec. (b)(7).
Subsec. (c)(3)(C).
1975—Subsec. (a)(4).
Subsec. (b)(1).
Subsec. (b)(2).
Subsec. (b)(3).
Subsec. (b)(5).
Subsec. (b)(6).
Subsec. (d)(1).
Subsecs. (f), (g).
1969—Subsec. (b)(4).
Statutory Notes and Related Subsidiaries
Effective Date of 2020 Amendment
Effective Date of 2019 Amendment
Effective Date of 2017 Amendment
Amendment by section 13517(b)(5) of
Amendment by section 14211(a), (b)(2), (3) of
Effective Date of 2015 Amendment
Amendment by section 128(b) of
Effective Date of 2014 Amendment
Amendment by section 134(b) of
Effective Date of 2013 Amendment
Amendment by section 322(b) of
Effective Date of 2010 Amendment
Amendment by section 750(a) of
Effective Date of 2008 Amendment
Effective Date of 2007 Amendment
Amendment by section 4(a) of
Effective Date of 2006 Amendment
Effective Date of 2005 Amendment
Amendment by section 403(m) of
Effective Date of 2004 Amendment
Amendment by section 413(b)(2) of
Amendment by section 415(a), (b), (c)(2) of
Effective Date of 2002 Amendment
Amendment by section 614(a)(2), (b)(1) of
Effective Date of 1999 Amendment
Amendment by section 503(a) of
Amendment by section 532(c)(2)(Q) of
Effective Date of 1998 Amendment
Amendment by section 4003(j) of
Effective Date of 1997 Amendment
Effective Date of 1993 Amendment
Amendment by section 13235(a)(3) and (b) of
Amendment by section 13239(d) of
Effective Date of 1989 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1201(c) of
"(1)
"(2)
"(A)
"(i) the amendments made by subsection (c) [amending this section and
"(ii) [former] sections 955(a)(1)(A) and 955(a)(2)(A) of the Internal Revenue Code of 1986 (as amended by subsection (c)(3)) shall be applied by substituting 'ending before 1992' for 'beginning before 1987'.
"(B)
"(i) if the United States agent of such corporation is a domestic corporation incorporated on March 13, 1951, and
"(ii) if—
"(I) the certificate of incorporation of such corporation is dated November 23, 1963, and
"(II) such corporation has a wholly owned subsidiary and its certificate of incorporation is dated November 2, 1965.
"(3)
"(A)
"(B)
| "In the case of taxable | The phase-in |
| years beginning in: | percentage is: |
| 1987 | 75 |
| 1988 | 50 |
| 1989 | 25. |
"(C)
"(i) any controlled foreign corporation which on August 16, 1986, was a member of an affiliated group (as defined in section 1504(a) of the Internal Revenue Code of 1986 without regard to subsection (b)(3) thereof) which had as its common parent a corporation incorporated in Delaware on June 9, 1967, with executive offices in New York, New York, or
"(ii) any controlled foreign corporation which on August 16, 1986, was a member of an affiliated group (as so defined) which had as its common parent a corporation incorporated in Delaware on November 3, 1981, with executive offices in Philadelphia, Pennsylvania.
"(D)
Amendment by section 1223(a) of
Amendment by section 1810(k) of
Effective Date of 1984 Amendment
Amendment by section 712(f) of
Effective Date of 1982 Amendment
Effective Date of 1976 Amendment
Effective Date of 1975 Amendment
Effective Date of 1969 Amendment
Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by section 1201(c) of
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
Special Rule for Application of Section 954 to Certain Dividends
"(a)
"(b)
"(c)
Executive Documents
Line Item Veto
[§955. Repealed. Pub. L. 115–97, title I, §14212(a), Dec. 22, 2017, 131 Stat. 2217 ]
Section, added
A prior section 955, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal applicable to taxable years of foreign corporations beginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14212(c) of
§956. Investment of earnings in United States property
(a) General rule
In the case of any controlled foreign corporation, the amount determined under this section with respect to any United States shareholder for any taxable year is the lesser of—
(1) the excess (if any) of—
(A) such shareholder's pro rata share of the average of the amounts of United States property held (directly or indirectly) by the controlled foreign corporation as of the close of each quarter of such taxable year, over
(B) the amount of earnings and profits described in section 959(c)(1)(A) with respect to such shareholder, or
(2) such shareholder's pro rata share of the applicable earnings of such controlled foreign corporation.
The amount taken into account under paragraph (1) with respect to any property shall be its adjusted basis as determined for purposes of computing earnings and profits, reduced by any liability to which the property is subject.
(b) Special rules
(1) Applicable earnings
For purposes of this section, the term "applicable earnings" means, with respect to any controlled foreign corporation, the sum of—
(A) the amount (not including a deficit) referred to in section 316(a)(1) to the extent such amount was accumulated in prior taxable years, and
(B) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year and by earnings and profits described in section 959(c)(1).
(2) Special rule for U.S. property acquired before corporation is a controlled foreign corporation
In applying subsection (a) to any taxable year, there shall be disregarded any item of United States property which was acquired by the controlled foreign corporation before the first day on which such corporation was treated as a controlled foreign corporation. The aggregate amount of property disregarded under the preceding sentence shall not exceed the portion of the applicable earnings of such controlled foreign corporation which were accumulated during periods before such first day.
(3) Special rule where corporation ceases to be controlled foreign corporation
If any foreign corporation ceases to be a controlled foreign corporation during any taxable year—
(A) the determination of any United States shareholder's pro rata share shall be made on the basis of stock owned (within the meaning of section 958(a)) by such shareholder on the last day during the taxable year on which the foreign corporation is a controlled foreign corporation,
(B) the average referred to in subsection (a)(1)(A) for such taxable year shall be determined by only taking into account quarters ending on or before such last day, and
(C) in determining applicable earnings, the amount taken into account by reason of being described in paragraph (2) of section 316(a) shall be the portion of the amount so described which is allocable (on a pro rata basis) to the part of such year during which the corporation is a controlled foreign corporation.
(c) United States property defined
(1) In general
For purposes of subsection (a), the term "United States property" means any property acquired after December 31, 1962, which is—
(A) tangible property located in the United States;
(B) stock of a domestic corporation;
(C) an obligation of a United States person; or
(D) any right to the use in the United States of—
(i) a patent or copyright,
(ii) an invention, model, or design (whether or not patented),
(iii) a secret formula or process, or
(iv) any other similar right,
which is acquired or developed by the controlled foreign corporation for use in the United States.
(2) Exceptions
For purposes of subsection (a), the term "United States property" does not include—
(A) obligations of the United States, money, or deposits with—
(i) any bank (as defined by section 2(c) of the Bank Holding Company Act of 1956 (
(ii) any corporation not described in clause (i) with respect to which a bank holding company (as defined by section 2(a) of such Act) or financial holding company (as defined by section 2(p) of such Act) owns directly or indirectly more than 80 percent by vote or value of the stock of such corporation;
(B) property located in the United States which is purchased in the United States for export to, or use in, foreign countries;
(C) any obligation of a United States person arising in connection with the sale or processing of property if the amount of such obligation outstanding at no time during the taxable year exceeds the amount which would be ordinary and necessary to carry on the trade or business of both the other party to the sale or processing transaction and the United States person had the sale or processing transaction been made between unrelated persons;
(D) any aircraft, railroad rolling stock, vessel, motor vehicle, or container used in the transportation of persons or property in foreign commerce and used predominantly outside the United States;
(E) an amount of assets of an insurance company equivalent to the unearned premiums or reserves ordinary and necessary for the proper conduct of its insurance business attributable to contracts which are contracts described in section 953(e)(2);
(F) the stock or obligations of a domestic corporation which is neither a United States shareholder (as defined in section 951(b)) of the controlled foreign corporation, nor a domestic corporation, 25 percent or more of the total combined voting power of which, immediately after the acquisition of any stock in such domestic corporation by the controlled foreign corporation, is owned, or is considered as being owned, by such United States shareholders in the aggregate;
(G) any movable property (other than a vessel or aircraft) which is used for the purpose of exploring for, developing, removing, or transporting resources from ocean waters or under such waters when used on the Continental Shelf of the United States;
(H) an amount of assets of the controlled foreign corporation equal to the earnings and profits accumulated after December 31, 1962, and excluded from subpart F income under section 952(b);
(I) deposits of cash or securities made or received on commercial terms in the ordinary course of a United States or foreign person's business as a dealer in securities or in commodities, but only to the extent such deposits are made or received as collateral or margin for (i) a securities loan, notional principal contract, options contract, forward contract, or futures contract, or (ii) any other financial transaction in which the Secretary determines that it is customary to post collateral or margin;
(J) an obligation of a United States person to the extent the principal amount of the obligation does not exceed the fair market value of readily marketable securities sold or purchased pursuant to a sale and repurchase agreement or otherwise posted or received as collateral for the obligation in the ordinary course of its business by a United States or foreign person which is a dealer in securities or commodities;
(K) securities acquired and held by a controlled foreign corporation in the ordinary course of its business as a dealer in securities if—
(i) the dealer accounts for the securities as securities held primarily for sale to customers in the ordinary course of business, and
(ii) the dealer disposes of the securities (or such securities mature while held by the dealer) within a period consistent with the holding of securities for sale to customers in the ordinary course of business; and
(L) an obligation of a United States person which—
(i) is not a domestic corporation, and
(ii) is not—
(I) a United States shareholder (as defined in section 951(b)) of the controlled foreign corporation, or
(II) a partnership, estate, or trust in which the controlled foreign corporation, or any related person (as defined in section 954(d)(3)), is a partner, beneficiary, or trustee immediately after the acquisition of any obligation of such partnership, estate, or trust by the controlled foreign corporation.
For purposes of subparagraphs (I), (J), and (K), the term "dealer in securities" has the meaning given such term by section 475(c)(1), and the term "dealer in commodities" has the meaning given such term by section 475(e), except that such term shall include a futures commission merchant.
(3) Certain trade or service receivables acquired from related United States persons
(A) In general
Notwithstanding paragraph (2) (other than subparagraph (H) thereof), the term "United States property" includes any trade or service receivable if—
(i) such trade or service receivable is acquired (directly or indirectly) from a related person who is a United States person, and
(ii) the obligor under such receivable is a United States person.
(B) Definitions
For purposes of this paragraph, the term "trade or service receivable" and "related person" have the respective meanings given to such terms by section 864(d).
(d) Pledges and guarantees
For purposes of subsection (a), a controlled foreign corporation shall, under regulations prescribed by the Secretary, be considered as holding an obligation of a United States person if such controlled foreign corporation is a pledgor or guarantor of such obligations.
(e) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this section, including regulations to prevent the avoidance of the provisions of this section through reorganizations or otherwise.
(Added
Editorial Notes
Amendments
2018—Subsec. (c)(2)(E).
Subsec. (e).
2007—Subsec. (c)(2).
Subsec. (c)(2)(I) to (M).
2004—Subsec. (c)(2).
Subsec. (c)(2)(A).
Subsec. (c)(2)(L), (M).
1997—Subsec. (b)(1)(A).
Subsec. (c)(2).
1996—Subsec. (b)(1).
Subsec. (b)(3).
1993—Subsec. (a).
Subsecs. (b) to (d).
Subsec. (e).
1986—Subsec. (b)(3)(A).
1984—Subsec. (b)(2)(I).
Subsec. (b)(3).
1976—Subsec. (b)(2)(F) to (H).
Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2004 Amendment
Effective Date of 1997 Amendment
Amendment by section 1601(e) of
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by
Effective Date of 1984 Amendment
Amendment by section 123(b) of
Amendment by section 801(d)(8) of
Effective Date of 1976 Amendment
Plan Amendments Not Required Until January 1, 1989
For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§1101–1147 and 1171–1177] or title XVIII [§§1800–1899A] of
[§956A. Repealed. Pub. L. 104–188, title I, §1501(a)(2), Aug. 20, 1996, 110 Stat. 1825 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal by
§957. Controlled foreign corporations; United States persons
(a) General rule
For purposes of this title, the term "controlled foreign corporation" means any foreign corporation if more than 50 percent of—
(1) the total combined voting power of all classes of stock of such corporation entitled to vote, or
(2) the total value of the stock of such corporation,
is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such foreign corporation.
(b) Special rule for insurance
For purposes only of taking into account income described in section 953(a) (relating to insurance income), the term "controlled foreign corporation" includes not only a foreign corporation as defined by subsection (a) but also one of which more than 25 percent of the total combined voting power of all classes of stock (or more than 25 percent of the total value of stock) is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such corporation, if the gross amount of premiums or other consideration in respect of the reinsurance or the issuing of insurance or annuity contracts not described in section 953(e)(2) exceeds 75 percent of the gross amount of all premiums or other consideration in respect of all risks.
(c) United States person
For purposes of this subpart, the term "United States person" has the meaning assigned to it by section 7701(a)(30) except that—
(1) with respect to a corporation organized under the laws of the Commonwealth of Puerto Rico, such term does not include an individual who is a bona fide resident of Puerto Rico, if a dividend received by such individual during the taxable year from such corporation would, for purposes of section 933(1), be treated as income derived from sources within Puerto Rico, and
(2) with respect to a corporation organized under the laws of Guam, American Samoa, or the Northern Mariana Islands—
(A) 80 percent or more of the gross income of which for the 3-year period ending at the close of the taxable year (or for such part of such period as such corporation or any predecessor has been in existence) was derived from sources within such a possession or was effectively connected with the conduct of a trade or business in such a possession, and
(B) 50 percent or more of the gross income of which for such period (or part) was derived from the active conduct of a trade or business within such a possession,
such term does not include an individual who is a bona fide resident of Guam, American Samoa, or the Northern Mariana Islands.
For purposes of subparagraphs (A) and (B) of paragraph (2), the determination as to whether income was derived from the active conduct of a trade or business within a possession shall be made under regulations prescribed by the Secretary.
(Added
Editorial Notes
Amendments
2018—Subsec. (b).
2017—Subsec. (a).
2004—Subsec. (c).
Subsec. (c)(2)(B).
1986—Subsec. (a).
Subsec. (b).
Subsec. (c).
"(2) with respect to a corporation organized under the laws of the Virgin Islands, such term does not include an individual who is a bona fide resident of the Virgin Islands and whose income tax obligation under this subtitle for the taxable year is satisfied pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (
"(3) with respect to a corporation organized under the laws of any other possession of the United States, such term does not include an individual who is a bona fide resident of any such other possession and whose income derived from sources within possessions of the United States is not, by reason of section 931(a), includible in gross income under this subtitle for the taxable year."
Subsec. (d).
1976—Subsec. (c)
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 2004 Amendment
Amendment by
Effective Date of 1986 Amendment
Amendment by section 1221(b)(3)(C) of
"(1)
"(2)
"(3)
"(A) who is a beneficiary of a trust which was established on December 7, 1979, under the laws of a foreign jurisdiction, and
"(B) who was not a citizen or resident of the United States on the date the trust was established,
amounts which are included in the gross income of such beneficiary under section 951(a) of the Internal Revenue Code of 1986 with respect to stock held by the trust (and treated as distributed to the trust) shall be treated as the first amounts which are distributed by the trust to such beneficiary and as amounts to which section 959(a) of such Code applies."
"(1)
"(2)
Amendment by section 1273(a) of
§958. Rules for determining stock ownership
(a) Direct and indirect ownership
(1) General rule
For purposes of this subpart (other than section 960), stock owned means—
(A) stock owned directly, and
(B) stock owned with the application of paragraph (2).
(2) Stock ownership through foreign entities
For purposes of subparagraph (B) of paragraph (1), stock owned, directly or indirectly, by or for a foreign corporation, foreign partnership, or foreign trust or foreign estate (within the meaning of section 7701(a)(31)) shall be considered as being owned proportionately by its shareholders, partners, or beneficiaries. Stock considered to be owned by a person by reason of the application of the preceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person.
(3) Special rule for mutual insurance companies
For purposes of applying paragraph (1) in the case of a foreign mutual insurance company, the term "stock" shall include any certificate entitling the holder to voting power in the corporation.
(b) Constructive ownership
For purposes of sections 951(b), 954(d)(3), 956(c)(2), and 957, section 318(a) (relating to constructive ownership of stock) shall apply to the extent that the effect is to treat any United States person as a United States shareholder within the meaning of section 951(b), to treat a person as a related person within the meaning of section 954(d)(3), to treat the stock of a domestic corporation as owned by a United States shareholder of the controlled foreign corporation for purposes of section 956(c)(2), or to treat a foreign corporation as a controlled foreign corporation under section 957, except that—
(1) In applying paragraph (1)(A) of section 318(a), stock owned by a nonresident alien individual (other than a foreign trust or foreign estate) shall not be considered as owned by a citizen or by a resident alien individual.
(2) In applying subparagraphs (A), (B), and (C) of section 318(a)(2), if a partnership, estate, trust, or corporation owns, directly or indirectly, more than 50 percent of the total combined voting power of all classes of stock entitled to vote of a corporation, it shall be considered as owning all the stock entitled to vote.
(3) In applying subparagraph (C) of section 318(a)(2), the phrase "10 percent" shall be substituted for the phrase "50 percent" used in subparagraph (C).
Paragraph (1) shall not apply for purposes of section 956(c)(2) to treat stock of a domestic corporation as not owned by a United States shareholder.
(Added
Editorial Notes
Amendments
2017—Subsec. (a)(1).
Subsec. (b).
Subsec. (b)(4).
1996—Subsec. (a)(1).
Subsec. (b).
1976—Subsec. (b).
1964—Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
"(1) the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent taxable year of such foreign corporations, and
"(2) taxable years of United States shareholders in which or with which such taxable years of foreign corporations end."
Amendment by section 14301(c)(31) of
Effective Date of 1996 Amendment
Amendment by section 1703(i)(4) of
Effective Date of 1976 Amendment
Amendment by
Effective Date of 1964 Amendment
Amendment by
§959. Exclusion from gross income of previously taxed earnings and profits
(a) Exclusion from gross income of United States persons
For purposes of this chapter, the earnings and profits of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a) shall not, when—
(1) such amounts are distributed to, or
(2) such amounts would, but for this subsection, be included under section 951(a)(1)(B) in the gross income of,
such shareholder (or any other United States person who acquires from any person any portion of the interest of such United States shareholder in such foreign corporation, but only to the extent of such portion, and subject to such proof of the identity of such interest as the Secretary may by regulations prescribe) directly or indirectly through a chain of ownership described under section 958(a), be again included in the gross income of such United States shareholder (or of such other United States person). The rules of subsection (c) shall apply for purposes of paragraph (1) of this subsection and the rules of subsection (f) shall apply for purposes of paragraph (2) of this subsection.
(b) Exclusion from gross income of certain foreign subsidiaries
For purposes of section 951(a), the earnings and profits of a controlled foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a), shall not, when distributed through a chain of ownership described under section 958(a), be also included in the gross income of another controlled foreign corporation in such chain for purposes of the application of section 951(a) to such other controlled foreign corporation with respect to such United States shareholder (or to any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder in the controlled foreign corporation, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations).
(c) Allocation of distributions
For purposes of subsections (a) and (b), section 316(a) shall be applied by applying paragraph (2) thereof, and then paragraph (1) thereof—
(1) first to the aggregate of—
(A) earnings and profits attributable to amounts included in gross income under section 951(a)(1)(B) (or which would have been included except for subsection (a)(2) of this section), and
(B) earnings and profits attributable to amounts included in gross income under section 951(a)(1)(C) (or which would have been included except for subsection (a)(3) of this section),
with any distribution being allocated between earnings and profits described in subparagraph (A) and earnings and profits described in subparagraph (B) proportionately on the basis of the respective amounts of such earnings and profits,
(2) then to earnings and profits attributable to amounts included in gross income under section 951(a)(1)(A) (but reduced by amounts not included under subparagraph (B) or (C) of section 951(a)(1) because of the exclusions in paragraphs (2) and (3) of subsection (a) of this section), and
(3) then to other earnings and profits.
References in this subsection to section 951(a)(1)(C) and subsection (a)(3) shall be treated as references to such provisions as in effect on the day before the date of the enactment of the Small Business Job Protection Act of 1996.
(d) Distributions excluded from gross income not to be treated as dividends
Any distribution excluded from gross income under subsection (a) shall be treated, for purposes of this chapter, as a distribution which is not a dividend; except that such distributions shall immediately reduce earnings and profits.
(e) Coordination with amounts previously taxed under section 1248
For purposes of this section and section 960(c), any amount included in the gross income of any person as a dividend by reason of subsection (a) or (f) of section 1248 shall be treated as an amount included in the gross income of such person (or, in any case to which section 1248(e) applies, of the domestic corporation referred to in section 1248(e)(2)) under section 951(a)(1)(A).
(f) Allocation rules for certain inclusions
(1) In general
For purposes of this section, amounts that would be included under subparagraph (B) of section 951(a)(1) (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2), and then to earnings described in subsection (c)(3).
(2) Treatment of distributions
In applying this section, actual distributions shall be taken into account before amounts that would be included under section 951(a)(1)(B) (determined without regard to this section).
(Added
Editorial Notes
References in Text
The date of the enactment of the Small Business Job Protection Act of 1996, referred to in subsec. (c), is the date of enactment of
Amendments
2017—Subsec. (d).
Subsec. (e).
1996—Subsec. (a).
Subsec. (c).
Subsec. (f)(1).
"(A) amounts that would be included under subparagraph (B) of section 951(a)(1) (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2), and then to earnings described in subsection (c)(3), and
"(B) amounts that would be included under subparagraph (C) of section 951(a)(1) (determined without regard to this section) shall be treated as attributable first to earnings described in subsection (c)(2) to the extent the earnings so described were accumulated in taxable years beginning after September 30, 1993, and then to earnings described in subsection (c)(3)."
Subsec. (f)(2).
1993—Subsec. (a).
Subsec. (a)(3).
Subsec. (b).
Subsec. (c)(1).
Subsec. (c)(2).
Subsec. (f).
1988—Subsec. (e).
1986—Subsec. (d).
1984—Subsec. (e).
1976—Subsecs. (a), (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 1996 Amendment
Amendment by
Effective Date of 1993 Amendment
Amendment by
Effective Date of 1988 Amendment
Effective Date of 1986 Amendment
Effective Date of 1984 Amendment
"(2)
"(3)
"(A)
"(B)
"(i) Subparagraph (A) shall apply with respect to transactions to which subsection (a) of section 1248 of such Code applies if the foreign corporation described in such subsection (or its successor in interest) so elects.
"(ii) Subparagraph (A) shall apply with respect to transactions to which subsection (f) of section 1248 of such Code applies if the domestic corporation described in section 1248(f)(1) of such Code (or its successor) so elects.
"(iii) Any election under clause (i) or (ii) shall be made not later than the date which is 1 year after the date of the enactment of the Tax Reform Act of 1986 [Oct. 22, 1986] and shall be made in such manner as the Secretary of the Treasury or his delegate shall prescribe."
§960. Deemed paid credit for subpart F inclusions
(a) In general
For purposes of subpart A of this part, if there is included in the gross income of a domestic corporation any item of income under section 951(a)(1) with respect to any controlled foreign corporation with respect to which such domestic corporation is a United States shareholder, such domestic corporation shall be deemed to have paid so much of such foreign corporation's foreign income taxes as are properly attributable to such item of income.
(b) Special rules for distributions from previously taxed earnings and profits
For purposes of subpart A of this part—
(1) In general
If any portion of a distribution from a controlled foreign corporation to a domestic corporation which is a United States shareholder with respect to such controlled foreign corporation is excluded from gross income under section 959(a), such domestic corporation shall be deemed to have paid so much of such foreign corporation's foreign income taxes as—
(A) are properly attributable to such portion, and
(B) have not been deemed to have to 1 been paid by such domestic corporation under this section for the taxable year or any prior taxable year.
(2) Tiered controlled foreign corporations
If section 959(b) applies to any portion of a distribution from a controlled foreign corporation to another controlled foreign corporation, such controlled foreign corporation shall be deemed to have paid so much of such other controlled foreign corporation's foreign income taxes as—
(A) are properly attributable to such portion, and
(B) have not been deemed to have been paid by a domestic corporation under this section for the taxable year or any prior taxable year.
(c) Special rules for foreign tax credit in year of receipt of previously taxed earnings and profits
(1) Increase in section 904 limitation
In the case of any taxpayer who—
(A) either (i) chose to have the benefits of subpart A of this part for a taxable year beginning after September 30, 1993, in which he was required under section 951(a) to include any amount in his gross income, or (ii) did not pay or accrue for such taxable year any income, war profits, or excess profits taxes to any foreign country or to any possession of the United States,
(B) chooses to have the benefits of subpart A of this part for any taxable year in which he receives 1 or more distributions or amounts which are excludable from gross income under section 959(a) and which are attributable to amounts included in his gross income for taxable years referred to in subparagraph (A), and
(C) for the taxable year in which such distributions or amounts are received, pays, or is deemed to have paid, or accrues income, war profits, or excess profits taxes to a foreign country or to any possession of the United States with respect to such distributions or amounts,
the limitation under section 904 for the taxable year in which such distributions or amounts are received shall be increased by the lesser of the amount of such taxes paid, or deemed paid, or accrued with respect to such distributions or amounts or the amount in the excess limitation account as of the beginning of such taxable year.
(2) Excess limitation account
(A) Establishment of account
Each taxpayer meeting the requirements of paragraph (1)(A) shall establish an excess limitation account. The opening balance of such account shall be zero.
(B) Increases in account
For each taxable year beginning after September 30, 1993, the taxpayer shall increase the amount in the excess limitation account by the excess (if any) of—
(i) the amount by which the limitation under section 904(a) for such taxable year was increased by reason of the total amount of the inclusions in gross income under section 951(a) for such taxable year, over
(ii) the amount of any income, war profits, and excess profits taxes paid, or deemed paid, or accrued to any foreign country or possession of the United States which were allowable as a credit under section 901 for such taxable year and which would not have been allowable but for the inclusions in gross income described in clause (i).
Proper reductions in the amount added to the account under the preceding sentence for any taxable year shall be made for any increase in the credit allowable under section 901 for such taxable year by reason of a carryback if such increase would not have been allowable but for the inclusions in gross income described in clause (i).
(C) Decreases in account
For each taxable year beginning after September 30, 1993, for which the limitation under section 904 was increased under paragraph (1), the taxpayer shall reduce the amount in the excess limitation account by the amount of such increase.
(3) Distributions of income previously taxed in years beginning before October 1, 1993
If the taxpayer receives a distribution or amount in a taxable year beginning after September 30, 1993, which is excluded from gross income under section 959(a) and is attributable to any amount included in gross income under section 951(a) for a taxable year beginning before October 1, 1993, the limitation under section 904 for the taxable year in which such amount or distribution is received shall be increased by the amount determined under this subsection as in effect on the day before the date of the enactment of the Revenue Reconcilation 2 Act of 1993.
(4) Cases in which taxes not to be allowed as deduction
In the case of any taxpayer who—
(A) chose to have the benefits of subpart A of this part for a taxable year in which he was required under section 951(a) to include in his gross income an amount in respect of a controlled foreign corporation, and
(B) does not choose to have the benefits of subpart A of this part for the taxable year in which he receives a distribution or amount which is excluded from gross income under section 959(a) and which is attributable to earnings and profits of the controlled foreign corporation which was included in his gross income for the taxable year referred to in subparagraph (A),
no deduction shall be allowed under section 164 for the taxable year in which such distribution or amount is received for any income, war profits, or excess profits taxes paid or accrued to any foreign country or to any possession of the United States on or with respect to such distribution or amount.
(5) Insufficient taxable income
If an increase in the limitation under this subsection exceeds the tax imposed by this chapter for such year, the amount of such excess shall be deemed an overpayment of tax for such year.
(d) Deemed paid credit for taxes properly attributable to tested income
(1) In general
For purposes of subpart A of this part, if any amount is includible in the gross income of a domestic corporation under section 951A, such domestic corporation shall be deemed to have paid foreign income taxes equal to 80 percent of the product of—
(A) such domestic corporation's inclusion percentage, multiplied by
(B) the aggregate tested foreign income taxes paid or accrued by controlled foreign corporations.
(2) Inclusion percentage
For purposes of paragraph (1), the term "inclusion percentage" means, with respect to any domestic corporation, the ratio (expressed as a percentage) of—
(A) such corporation's global intangible low-taxed income (as defined in section 951A(b)), divided by
(B) the aggregate amount described in section 951A(c)(1)(A) with respect to such corporation.
(3) Tested foreign income taxes
For purposes of paragraph (1), the term "tested foreign income taxes" means, with respect to any domestic corporation which is a United States shareholder of a controlled foreign corporation, the foreign income taxes paid or accrued by such foreign corporation which are properly attributable to the tested income of such foreign corporation taken into account by such domestic corporation under section 951A.
(e) Foreign income taxes
The term "foreign income taxes" means any income, war profits, or excess profits taxes paid or accrued to any foreign country or possession of the United States.
(f) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section.
(Added
Editorial Notes
References in Text
The date of the enactment of the Revenue Reconciliation Act of 1993, referred to in subsec. (c)(3), is the date of enactment of
Amendments
2017—
Subsecs. (a) to (c).
Subsec. (d).
Subsecs. (e), (f).
2010—Subsec. (c).
1997—Subsec. (a)(1).
"(A) of a foreign corporation (hereafter in this subsection referred to as the 'first foreign corporation') at least 10 percent of the voting stock of which is owned by such domestic corporation, or
"(B) of a second foreign corporation (hereinafter in this subsection referred to as the 'second foreign corporation') at least 10 percent of the voting stock of which is owned by the first foreign corporation, or
"(C) of a third foreign corporation (hereinafter in this subsection referred to as the 'third foreign corporation') at least 10 percent of the voting stock of which is owned by the second foreign corporation,
then, except to the extent provided in regulations, such domestic corporation shall be deemed to have paid a portion of such foreign corporation's post-1986 foreign income taxes determined under section 902 in the same manner as if the amount so included were a dividend paid by such foreign corporation (determined by applying section 902(c) in accordance with section 904(d)(3)(B)). This paragraph shall not apply with respect to any amount included in the gross income of such domestic corporation attributable to earnings and profits of the second foreign corporation or of the third foreign corporation unless, in the case of the second foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(A) is satisfied, and in the case of the third foreign corporation, the percentage-of-voting-stock requirement of section 902(b)(3)(B) is satisfied."
1993—Subsec. (b).
1986—Subsec. (a)(1).
1976—Subsec. (a)(1).
Subsec. (b).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 14201(b)(1) of
Amendment by section 14301(b) of
Effective Date of 2010 Amendment
Effective Date of 1997 Amendment
"(1)
"(2)
Effective Date of 1993 Amendment
Effective Date of 1986 Amendment
Effective Date of 1976 Amendment
Amendment by section 1031(b)(1) of
"(1) in respect of any distribution received by a domestic corporation after December 31, 1977, and
"(2) in respect of any distribution received by a domestic corporation before January 1, 1978, in a taxable year of such corporation beginning after December 31, 1975, but only to the extent that such distribution is made out of the accumulated profits of a foreign corporation for a taxable year (of such foreign corporation) beginning after December 31, 1975.
For purposes of paragraph (2), a distribution made by a foreign corporation out of its profits which are attributable to a distribution received from a foreign corporation to which [former] section 902(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954] applies shall be treated as made out of the accumulated profits of a foreign corporation for a taxable year beginning before January 1, 1976, to the extent that such distribution was paid out of the accumulated profits of such foreign corporation for a taxable year beginning before January 1, 1976."
Increase in Earnings and Profits of Foreign Corporations Under Section 1023(e)(3)(C) of Pub. L. 99–514
2 So in original. Probably should be "Reconciliation".
§961. Adjustments to basis of stock in controlled foreign corporations and of other property
(a) Increase in basis
Under regulations prescribed by the Secretary, the basis of a United States shareholder's stock in a controlled foreign corporation, and the basis of property of a United States shareholder by reason of which he is considered under section 958(a)(2) as owning stock of a controlled foreign corporation, shall be increased by the amount required to be included in his gross income under section 951(a) with respect to such stock or with respect to such property, as the case may be, but only to the extent to which such amount was included in the gross income of such United States shareholder. In the case of a United States shareholder who has made an election under section 962 for the taxable year, the increase in basis provided by this subsection shall not exceed an amount equal to the amount of tax paid under this chapter with respect to the amounts required to be included in his gross income under section 951(a).
(b) Reduction in basis
(1) In general
Under regulations prescribed by the Secretary, the adjusted basis of stock or other property with respect to which a United States shareholder or a United States person receives an amount which is excluded from gross income under section 959(a) shall be reduced by the amount so excluded. In the case of a United States shareholder who has made an election under section 962 for any prior taxable year, the reduction in basis provided by this paragraph shall not exceed an amount equal to the amount received which is excluded from gross income under section 959(a) after the application of section 962(d).
(2) Amount in excess of basis
To the extent that an amount excluded from gross income under section 959(a) exceeds the adjusted basis of the stock or other property with respect to which it is received, the amount shall be treated as gain from the sale or exchange of property.
(c) Basis adjustments in stock held by foreign corporations
Under regulations prescribed by the Secretary, if a United States shareholder is treated under section 958(a)(2) as owning stock in a controlled foreign corporation which is owned by another controlled foreign corporation, then adjustments similar to the adjustments provided by subsections (a) and (b) shall be made to—
(1) the basis of such stock, and
(2) the basis of stock in any other controlled foreign corporation by reason of which the United States shareholder is considered under section 958(a)(2) as owning the stock described in paragraph (1),
but only for the purposes of determining the amount included under section 951 in the gross income of such United States shareholder (or any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder by reason of which such shareholder was treated as owning such stock, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). The preceding sentence shall not apply with respect to any stock to which a basis adjustment applies under subsection (a) or (b).
(d) Basis in specified 10-percent owned foreign corporation reduced by nontaxed portion of dividend for purposes of determining loss
If a domestic corporation received a dividend from a specified 10-percent owned foreign corporation (as defined in section 245A) in any taxable year, solely for purposes of determining loss on any disposition of stock of such foreign corporation in such taxable year or any subsequent taxable year, the basis of such domestic corporation in such stock shall be reduced (but not below zero) by the amount of any deduction allowable to such domestic corporation under section 245A with respect to such stock except to the extent such basis was reduced under section 1059 by reason of a dividend for which such a deduction was allowable.
(Added
Editorial Notes
Amendments
2017—Subsec. (d).
2005—Subsec. (c).
1997—Subsec. (c).
1976—Subsecs. (a), (b)(1).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Effective Date of 2005 Amendment
Effective Date of 1997 Amendment
Dual Resident Companies
Basis adjustments of this section not applicable in certain circumstances involving dual resident companies, see section 6126 of
§962. Election by individuals to be subject to tax at corporate rates
(a) General rule
Under regulations prescribed by the Secretary, in the case of a United States shareholder who is an individual and who elects to have the provisions of this section apply for the taxable year—
(1) the tax imposed under this chapter on amounts which are included in his gross income under section 951(a) shall (in lieu of the tax determined under sections 1 and 55) be an amount equal to the tax which would be imposed under section 11 if such amounts were received by a domestic corporation, and
(2) for purposes of applying the provisions of section 960 1 (relating to foreign tax credit) such amounts shall be treated as if they were received by a domestic corporation.
(b) Election
An election to have the provisions of this section apply for any taxable year shall be made by a United States shareholder at such time and in such manner as the Secretary shall prescribe by regulations. An election made for any taxable year may not be revoked except with the consent of the Secretary.
(c) Pro ration of each section 11 bracket amount
For purposes of applying subsection (a)(1), the amount in each taxable income bracket in the tax table in section 11(b) shall not exceed an amount which bears the same ratio to such bracket amount as the amount included in the gross income of the United States shareholder under section 951(a) for the taxable year bears to such shareholder's pro rata share of the earnings and profits for the taxable year of all controlled foreign corporations with respect to which such shareholder includes any amount in gross income under section 951(a).
(d) Special rule for actual distributions
The earnings and profits of a foreign corporation attributable to amounts which were included in the gross income of a United States shareholder under section 951(a) and with respect to which an election under this section applied shall, when such earnings and profits are distributed, notwithstanding the provisions of section 959(a)(1), be included in gross income to the extent that such earnings and profits so distributed exceed the amount of tax paid under this chapter on the amounts to which such election applied.
(Added
Editorial Notes
References in Text
Section 960, referred to in subsec. (a)(2), was amended extensively by
Amendments
2017—Subsec. (a)(1).
1988—Subsec. (a)(1).
1978—Subsec. (c).
1976—Subsecs. (a), (b).
1975—Subsec. (c).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by
Effective Date of 1988 Amendment
Amendment by
Effective Date of 1978 Amendment
Amendment by
Effective and Termination Dates of 1975 Amendments
Amendment by
Amendment by
1 See References in Text note below.
[§963. Repealed. Pub. L. 94–12, title VI, §602(a)(1), Mar. 29, 1975, 89 Stat. 58 ]
Section, added
Statutory Notes and Related Subsidiaries
Effective Date of Repeal
Repeal effective with respect to taxable years for foreign corporations beginning after Dec. 31, 1975, and to taxable years of United States shareholders (within the meaning of
§964. Miscellaneous provisions
(a) Earnings and profits
Except as provided in section 312(k)(4), for purposes of this subpart, the earnings and profits of any foreign corporation, and the deficit in earnings and profits of any foreign corporation, for any taxable year shall be determined according to rules substantially similar to those applicable to domestic corporations, under regulations prescribed by the Secretary. In determining such earnings and profits, or the deficit in such earnings and profits, the amount of any illegal bribe, kickback, or other payment (within the meaning of section 162(c)) shall not be taken into account to decrease such earnings and profits or to increase such deficit. The payments referred to in the preceding sentence are payments which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United States person.
(b) Blocked foreign income
Under regulations prescribed by the Secretary, no part of the earnings and profits of a controlled foreign corporation for any taxable year shall be included in earnings and profits for purposes of sections 952 and 956, if it is established to the satisfaction of the Secretary that such part could not have been distributed by the controlled foreign corporation to United States shareholders who own (within the meaning of section 958(a)) stock of such controlled foreign corporation because of currency or other restrictions or limitations imposed under the laws of any foreign country.
(c) Records and accounts of United States shareholders
(1) Records and accounts to be maintained
The Secretary may by regulations require each person who is, or has been, a United States shareholder of a controlled foreign corporation to maintain such records and accounts as may be prescribed by such regulations as necessary to carry out the provisions of this subpart and subpart G.
(2) Two or more persons required to maintain or furnish the same records and accounts with respect to the same foreign corporation
Where, but for this paragraph, two or more United States persons would be required to maintain or furnish the same records and accounts as may by regulations be required under paragraph (1) with respect to the same controlled foreign corporation for the same period, the Secretary may by regulations provide that the maintenance or furnishing of such records and accounts by only one such person shall satisfy the requirements of paragraph (1) for such other persons.
(d) Treatment of certain branches
(1) In general
For purposes of this chapter, section 6038, section 6046, and such other provisions as may be specified in regulations—
(A) a qualified insurance branch of a controlled foreign corporation shall be treated as a separate foreign corporation created under the laws of the foreign country with respect to which such branch qualifies under paragraph (2), and
(B) except as provided in regulations, any amount directly or indirectly transferred or credited from such branch to one or more other accounts of such controlled foreign corporation shall be treated as a dividend paid to such controlled foreign corporation.
(2) Qualified insurance branch
For purposes of paragraph (1), the term "qualified insurance branch" means any branch of a controlled foreign corporation which is licensed and predominantly engaged on a permanent basis in the active conduct of an insurance business in a foreign country if—
(A) separate books and accounts are maintained for such branch,
(B) the principal place of business of such branch is in such foreign country,
(C) such branch would be taxable under subchapter L if it were a separate domestic corporation, and
(D) an election under this paragraph applies to such branch.
An election under this paragraph shall apply to the taxable year for which made and all subsequent taxable years unless revoked with the consent of the Secretary.
(3) Regulations
The Secretary shall prescribe such regulations as may be necessary or appropriate to carry out the purposes of this subsection.
(e) Gain on certain stock sales by controlled foreign corporations treated as dividends
(1) In general
If a controlled foreign corporation sells or exchanges stock in any other foreign corporation, gain recognized on such sale or exchange shall be included in the gross income of such controlled foreign corporation as a dividend to the same extent that it would have been so included under section 1248(a) if such controlled foreign corporation were a United States person. For purposes of determining the amount which would have been so includible, the determination of whether such other foreign corporation was a controlled foreign corporation shall be made without regard to the preceding sentence.
(2) Same country exception not applicable
Clause (i) of section 954(c)(3)(A) shall not apply to any amount treated as a dividend by reason of paragraph (1).
(3) Clarification of deemed sales
For purposes of this subsection, a controlled foreign corporation shall be treated as having sold or exchanged any stock if, under any provision of this subtitle, such controlled foreign corporation is treated as having gain from the sale or exchange of such stock.
(4) Coordination with dividends received deduction
(A) In general
If, for any taxable year of a controlled foreign corporation beginning after December 31, 2017, any amount is treated as a dividend under paragraph (1) by reason of a sale or exchange by the controlled foreign corporation of stock in another foreign corporation held for 1 year or more, then, notwithstanding any other provision of this title—
(i) the foreign-source portion of such dividend shall be treated for purposes of section 951(a)(1)(A) as subpart F income of the selling controlled foreign corporation for such taxable year,
(ii) a United States shareholder with respect to the selling controlled foreign corporation shall include in gross income for the taxable year of the shareholder with or within which such taxable year of the controlled foreign corporation ends an amount equal to the shareholder's pro rata share (determined in the same manner as under section 951(a)(2)) of the amount treated as subpart F income under clause (i), and
(iii) the deduction under section 245A(a) shall be allowable to the United States shareholder with respect to the subpart F income included in gross income under clause (ii) in the same manner as if such subpart F income were a dividend received by the shareholder from the selling controlled foreign corporation.
(B) Application of basis or similar adjustment
For purposes of this title, in the case of a sale or exchange by a controlled foreign corporation of stock in another foreign corporation in a taxable year of the selling controlled foreign corporation beginning after December 31, 2017, rules similar to the rules of section 961(d) shall apply.
(C) Foreign-source portion
For purposes of this paragraph, the foreign-source portion of any amount treated as a dividend under paragraph (1) shall be determined in the same manner as under section 245A(c).
(Added
Editorial Notes
References in Text
The Foreign Corrupt Practices Act of 1977, referred to in subsec. (a), is title I of
Amendments
2017—Subsec. (b).
Subsec. (e)(4).
1997—Subsec. (e).
1988—Subsec. (d).
1982—Subsec. (a).
1981—Subsec. (a).
1976—Subsec. (a).
Subsecs. (b), (c)(1), (2).
1969—Subsec. (a).
Statutory Notes and Related Subsidiaries
Effective Date of 2017 Amendment
Amendment by section 14212(b)(4) of
Effective Date of 1997 Amendment
Effective Date of 1988 Amendment
Effective Date of 1982 Amendment
Amendment by
Effective Date of 1981 Amendment
Amendment by
Effective Date of 1976 Amendment
Amendment by section 1065(b) of
§965. Treatment of deferred foreign income upon transition to participation exemption system of taxation
(a) Treatment of deferred foreign income as subpart F income
In the case of the last taxable year of a deferred foreign income corporation which begins before January 1, 2018, the subpart F income of such foreign corporation (as otherwise determined for such taxable year under section 952) shall be increased by the greater of—
(1) the accumulated post-1986 deferred foreign income of such corporation determined as of November 2, 2017, or
(2) the accumulated post-1986 deferred foreign income of such corporation determined as of December 31, 2017.
(b) Reduction in amounts included in gross income of United States shareholders of specified foreign corporations with deficits in earnings and profits
(1) In general
In the case of a taxpayer which is a United States shareholder with respect to at least one deferred foreign income corporation and at least one E&P deficit foreign corporation, the amount which would (but for this subsection) be taken into account under section 951(a)(1) by reason of subsection (a) as such United States shareholder's pro rata share of the subpart F income of each deferred foreign income corporation shall be reduced by the amount of such United States shareholder's aggregate foreign E&P deficit which is allocated under paragraph (2) to such deferred foreign income corporation.
(2) Allocation of aggregate foreign E&P deficit
The aggregate foreign E&P deficit of any United States shareholder shall be allocated among the deferred foreign income corporations of such United States shareholder in an amount which bears the same proportion to such aggregate as—
(A) such United States shareholder's pro rata share of the accumulated post-1986 deferred foreign income of each such deferred foreign income corporation, bears to
(B) the aggregate of such United States shareholder's pro rata share of the accumulated post-1986 deferred foreign income of all deferred foreign income corporations of such United States shareholder.
(3) Definitions related to E&P deficits
For purposes of this subsection—
(A) Aggregate foreign E&P deficit
(i) In general
The term "aggregate foreign E&P deficit" means, with respect to any United States shareholder, the lesser of—
(I) the aggregate of such shareholder's pro rata shares of the specified E&P deficits of the E&P deficit foreign corporations of such shareholder, or
(II) the amount determined under paragraph (2)(B).
(ii) Allocation of deficit
If the amount described in clause (i)(II) is less than the amount described in clause (i)(I), then the shareholder shall designate, in such form and manner as the Secretary determines—
(I) the amount of the specified E&P deficit which is to be taken into account for each E&P deficit corporation with respect to the taxpayer, and
(II) in the case of an E&P deficit corporation which has a qualified deficit (as defined in section 952), the portion (if any) of the deficit taken into account under subclause (I) which is attributable to a qualified deficit, including the qualified activities to which such portion is attributable.
(B) E&P deficit foreign corporation
The term "E&P deficit foreign corporation" means, with respect to any taxpayer, any specified foreign corporation with respect to which such taxpayer is a United States shareholder, if, as of November 2, 2017—
(i) such specified foreign corporation has a deficit in post-1986 earnings and profits,
(ii) such corporation was a specified foreign corporation, and
(iii) such taxpayer was a United States shareholder of such corporation.
(C) Specified E&P deficit
The term "specified E&P deficit" means, with respect to any E&P deficit foreign corporation, the amount of the deficit referred to in subparagraph (B).
(4) Treatment of earnings and profits in future years
(A) Reduced earnings and profits treated as previously taxed income when distributed
For purposes of applying section 959 in any taxable year beginning with the taxable year described in subsection (a), with respect to any United States shareholder of a deferred foreign income corporation, an amount equal to such shareholder's reduction under paragraph (1) which is allocated to such deferred foreign income corporation under this subsection shall be treated as an amount which was included in the gross income of such United States shareholder under section 951(a).
(B) E&P deficits
For purposes of this title, with respect to any taxable year beginning with the taxable year described in subsection (a), a United States shareholder's pro rata share of the earnings and profits of any E&P deficit foreign corporation under this subsection shall be increased by the amount of the specified E&P deficit of such corporation taken into account by such shareholder under paragraph (1), and, for purposes of section 952, such increase shall be attributable to the same activity to which the deficit so taken into account was attributable.
(5) Netting among United States shareholders in same affiliated group
(A) In general
In the case of any affiliated group which includes at least one E&P net surplus shareholder and one E&P net deficit shareholder, the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by each such E&P net surplus shareholder shall be reduced (but not below zero) by such shareholder's applicable share of the affiliated group's aggregate unused E&P deficit.
(B) E&P net surplus shareholder
For purposes of this paragraph, the term "E&P net surplus shareholder" means any United States shareholder which would (determined without regard to this paragraph) take into account an amount greater than zero under section 951(a)(1) by reason of subsection (a).
(C) E&P net deficit shareholder
For purposes of this paragraph, the term "E&P net deficit shareholder" means any United States shareholder if—
(i) the aggregate foreign E&P deficit with respect to such shareholder (as defined in paragraph (3)(A) without regard to clause (i)(II) thereof), exceeds
(ii) the amount which would (but for this subsection) be taken into account by such shareholder under section 951(a)(1) by reason of subsection (a).
(D) Aggregate unused E&P deficit
For purposes of this paragraph—
(i) In general
The term "aggregate unused E&P deficit" means, with respect to any affiliated group, the lesser of—
(I) the sum of the excesses described in subparagraph (C), determined with respect to each E&P net deficit shareholder in such group, or
(II) the amount determined under subparagraph (E)(ii).
(ii) Reduction with respect to E&P net deficit shareholders which are not wholly owned by the affiliated group
If the group ownership percentage of any E&P net deficit shareholder is less than 100 percent, the amount of the excess described in subparagraph (C) which is taken into account under clause (i)(I) with respect to such E&P net deficit shareholder shall be such group ownership percentage of such amount.
(E) Applicable share
For purposes of this paragraph, the term "applicable share" means, with respect to any E&P net surplus shareholder in any affiliated group, the amount which bears the same proportion to such group's aggregate unused E&P deficit as—
(i) the product of—
(I) such shareholder's group ownership percentage, multiplied by
(II) the amount which would (but for this paragraph) be taken into account under section 951(a)(1) by reason of subsection (a) by such shareholder, bears to
(ii) the aggregate amount determined under clause (i) with respect to all E&P net surplus shareholders in such group.
(F) Group ownership percentage
For purposes of this paragraph, the term "group ownership percentage" means, with respect to any United States shareholder in any affiliated group, the percentage of the value of the stock of such United States shareholder which is held by other includible corporations in such affiliated group. Notwithstanding the preceding sentence, the group ownership percentage of the common parent of the affiliated group is 100 percent. Any term used in this subparagraph which is also used in section 1504 shall have the same meaning as when used in such section.
(c) Application of participation exemption to included income
(1) In general
In the case of a United States shareholder of a deferred foreign income corporation, there shall be allowed as a deduction for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section an amount equal to the sum of—
(A) the United States shareholder's 8 percent rate equivalent percentage of the excess (if any) of—
(i) the amount so included as gross income, over
(ii) the amount of such United States shareholder's aggregate foreign cash position, plus
(B) the United States shareholder's 15.5 percent rate equivalent percentage of so much of the amount described in subparagraph (A)(ii) as does not exceed the amount described in subparagraph (A)(i).
(2) 8 and 15.5 percent rate equivalent percentages
For purposes of this subsection—
(A) 8 percent rate equivalent percentage
The term "8 percent rate equivalent percentage" means, with respect to any United States shareholder for any taxable year, the percentage which would result in the amount to which such percentage applies being subject to a 8 percent rate of tax determined by only taking into account a deduction equal to such percentage of such amount and the highest rate of tax specified in section 11 for such taxable year. In the case of any taxable year of a United States shareholder to which section 15 applies, the highest rate of tax under section 11 before the effective date of the change in rates and the highest rate of tax under section 11 after the effective date of such change shall each be taken into account under the preceding sentence in the same proportions as the portion of such taxable year which is before and after such effective date, respectively.
(B) 15.5 percent rate equivalent percentage
The term "15.5 percent rate equivalent percentage" means, with respect to any United States shareholder for any taxable year, the percentage determined under subparagraph (A) applied by substituting "15.5 percent rate of tax" for "8 percent rate of tax".
(3) Aggregate foreign cash position
For purposes of this subsection—
(A) In general
The term "aggregate foreign cash position" means, with respect to any United States shareholder, the greater of—
(i) the aggregate of such United States shareholder's pro rata share of the cash position of each specified foreign corporation of such United States shareholder determined as of the close of the last taxable year of such specified foreign corporation which begins before January 1, 2018, or
(ii) one half of the sum of—
(I) the aggregate described in clause (i) determined as of the close of the last taxable year of each such specified foreign corporation which ends before November 2, 2017, plus
(II) the aggregate described in clause (i) determined as of the close of the taxable year of each such specified foreign corporation which precedes the taxable year referred to in subclause (I).
(B) Cash position
For purposes of this paragraph, the cash position of any specified foreign corporation is the sum of—
(i) cash held by such foreign corporation,
(ii) the net accounts receivable of such foreign corporation, plus
(iii) the fair market value of the following assets held by such corporation:
(I) Personal property which is of a type that is actively traded and for which there is an established financial market.
(II) Commercial paper, certificates of deposit, the securities of the Federal government and of any State or foreign government.
(III) Any foreign currency.
(IV) Any obligation with a term of less than one year.
(V) Any asset which the Secretary identifies as being economically equivalent to any asset described in this subparagraph.
(C) Net accounts receivable
For purposes of this paragraph, the term "net accounts receivable" means, with respect to any specified foreign corporation, the excess (if any) of—
(i) such corporation's accounts receivable, over
(ii) such corporation's accounts payable (determined consistent with the rules of section 461).
(D) Prevention of double counting
Cash positions of a specified foreign corporation described in clause (ii), (iii)(I), or (iii)(IV) of subparagraph (B) shall not be taken into account by a United States shareholder under subparagraph (A) to the extent that such United States shareholder demonstrates to the satisfaction of the Secretary that such amount is so taken into account by such United States shareholder with respect to another specified foreign corporation.
(E) Cash positions of certain non-corporate entities taken into account
An entity (other than a corporation) shall be treated as a specified foreign corporation of a United States shareholder for purposes of determining such United States shareholder's aggregate foreign cash position if any interest in such entity is held by a specified foreign corporation of such United States shareholder (determined after application of this subparagraph) and such entity would be a specified foreign corporation of such United States shareholder if such entity were a foreign corporation.
(F) Anti-abuse
If the Secretary determines that a principal purpose of any transaction was to reduce the aggregate foreign cash position taken into account under this subsection, such transaction shall be disregarded for purposes of this subsection.
(d) Deferred foreign income corporation; accumulated post-1986 deferred foreign income
For purposes of this section—
(1) Deferred foreign income corporation
The term "deferred foreign income corporation" means, with respect to any United States shareholder, any specified foreign corporation of such United States shareholder which has accumulated post-1986 deferred foreign income (as of the date referred to in paragraph (1) or (2) of subsection (a)) greater than zero.
(2) Accumulated post-1986 deferred foreign income
The term "accumulated post-1986 deferred foreign income" means the post-1986 earnings and profits except to the extent such earnings—
(A) are attributable to income of the specified foreign corporation which is effectively connected with the conduct of a trade or business within the United States and subject to tax under this chapter, or
(B) in the case of a controlled foreign corporation, if distributed, would be excluded from the gross income of a United States shareholder under section 959.
To the extent provided in regulations or other guidance prescribed by the Secretary, in the case of any controlled foreign corporation which has shareholders which are not United States shareholders, accumulated post-1986 deferred foreign income shall be appropriately reduced by amounts which would be described in subparagraph (B) if such shareholders were United States shareholders.
(3) Post-1986 earnings and profits
The term "post-1986 earnings and profits" means the earnings and profits of the foreign corporation (computed in accordance with sections 964(a) and 986, and by only taking into account periods when the foreign corporation was a specified foreign corporation) accumulated in taxable years beginning after December 31, 1986, and determined—
(A) as of the date referred to in paragraph (1) or (2) of subsection (a), whichever is applicable with respect to such foreign corporation, and
(B) without diminution by reason of dividends distributed during the taxable year described in subsection (a) other than dividends distributed to another specified foreign corporation.
(e) Specified foreign corporation
(1) In general
For purposes of this section, the term "specified foreign corporation" means—
(A) any controlled foreign corporation, and
(B) any foreign corporation with respect to which one or more domestic corporations is a United States shareholder.
(2) Application to certain foreign corporations
For purposes of sections 951 and 961, a foreign corporation described in paragraph (1)(B) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)).
(3) Exclusion of passive foreign investment companies
Such term shall not include any corporation which is a passive foreign investment company (as defined in section 1297) with respect to the shareholder and which is not a controlled foreign corporation.
(f) Determinations of pro rata share
(1) In general
For purposes of this section, the determination of any United States shareholder's pro rata share of any amount with respect to any specified foreign corporation shall be determined under rules similar to the rules of section 951(a)(2) by treating such amount in the same manner as subpart F income (and by treating such specified foreign corporation as a controlled foreign corporation).
(2) Special rules
The portion which is included in the income of a United States shareholder under section 951(a)(1) by reason of subsection (a) which is equal to the deduction allowed under subsection (c) by reason of such inclusion—
(A) shall be treated as income exempt from tax for purposes of sections 705(a)(1)(B) and 1367(a)(1)(A), and
(B) shall not be treated as income exempt from tax for purposes of determining whether an adjustment shall be made to an accumulated adjustment account under section 1368(e)(1)(A).
(g) Disallowance of foreign tax credit, etc.
(1) In general
No credit shall be allowed under section 901 for the applicable percentage of any taxes paid or accrued (or treated as paid or accrued) with respect to any amount for which a deduction is allowed under this section.
(2) Applicable percentage
For purposes of this subsection, the term "applicable percentage" means the amount (expressed as a percentage) equal to the sum of—
(A) 0.771 multiplied by the ratio of—
(i) the excess to which subsection (c)(1)(A) applies, divided by
(ii) the sum of such excess plus the amount to which subsection (c)(1)(B) applies, plus
(B) 0.557 multiplied by the ratio of—
(i) the amount to which subsection (c)(1)(B) applies, divided by
(ii) the sum described in subparagraph (A)(ii).
(3) Denial of deduction
No deduction shall be allowed under this chapter for any tax for which credit is not allowable under section 901 by reason of paragraph (1) (determined by treating the taxpayer as having elected the benefits of subpart A of part III of subchapter N).
(4) Coordination with section 78
With respect to the taxes treated as paid or accrued by a domestic corporation with respect to amounts which are includible in gross income of such domestic corporation by reason of this section, section 78 shall apply only to so much of such taxes as bears the same proportion to the amount of such taxes as—
(A) the excess of—
(i) the amounts which are includible in gross income of such domestic corporation by reason of this section, over
(ii) the deduction allowable under subsection (c) with respect to such amounts, bears to
(B) such amounts.
(h) Election to pay liability in installments
(1) In general
In the case of a United States shareholder of a deferred foreign income corporation, such United States shareholder may elect to pay the net tax liability under this section in 8 installments of the following amounts:
(A) 8 percent of the net tax liability in the case of each of the first 5 of such installments,
(B) 15 percent of the net tax liability in the case of the 6th such installment,
(C) 20 percent of the net tax liability in the case of the 7th such installment, and
(D) 25 percent of the net tax liability in the case of the 8th such installment.
(2) Date for payment of installments
If an election is made under paragraph (1), the first installment shall be paid on the due date (determined without regard to any extension of time for filing the return) for the return of tax for the taxable year described in subsection (a) and each succeeding installment shall be paid on the due date (as so determined) for the return of tax for the taxable year following the taxable year with respect to which the preceding installment was made.
(3) Acceleration of payment
If there is an addition to tax for failure to timely pay any installment required under this subsection, a liquidation or sale of substantially all the assets of the taxpayer (including in a title 11 or similar case), a cessation of business by the taxpayer, or any similar circumstance, then the unpaid portion of all remaining installments shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed). The preceding sentence shall not apply to the sale of substantially all the assets of a taxpayer to a buyer if such buyer enters into an agreement with the Secretary under which such buyer is liable for the remaining installments due under this subsection in the same manner as if such buyer were the taxpayer.
(4) Proration of deficiency to installments
If an election is made under paragraph (1) to pay the net tax liability under this section in installments and a deficiency has been assessed with respect to such net tax liability, the deficiency shall be prorated to the installments payable under paragraph (1). The part of the deficiency so prorated to any installment the date for payment of which has not arrived shall be collected at the same time as, and as a part of, such installment. The part of the deficiency so prorated to any installment the date for payment of which has arrived shall be paid upon notice and demand from the Secretary. This subsection shall not apply if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.
(5) Election
Any election under paragraph (1) shall be made not later than the due date for the return of tax for the taxable year described in subsection (a) and shall be made in such manner as the Secretary shall provide.
(6) Net tax liability under this section
For purposes of this subsection—
(A) In general
The net tax liability under this section with respect to any United States shareholder is the excess (if any) of—
(i) such taxpayer's net income tax for the taxable year in which an amount is included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section, over
(ii) such taxpayer's net income tax for such taxable year determined—
(I) without regard to this section, and
(II) without regard to any income or deduction properly attributable to a dividend received by such United States shareholder from any deferred foreign income corporation.
(B) Net income tax
The term "net income tax" means the regular tax liability reduced by the credits allowed under subparts A, B, and D of part IV of subchapter A.
(i) Special rules for S corporation shareholders
(1) In general
In the case of any S corporation which is a United States shareholder of a deferred foreign income corporation, each shareholder of such S corporation may elect to defer payment of such shareholder's net tax liability under this section with respect to such S corporation until the shareholder's taxable year which includes the triggering event with respect to such liability. Any net tax liability payment of which is deferred under the preceding sentence shall be assessed on the return of tax as an addition to tax in the shareholder's taxable year which includes such triggering event.
(2) Triggering event
(A) In general
In the case of any shareholder's net tax liability under this section with respect to any S corporation, the triggering event with respect to such liability is whichever of the following occurs first:
(i) Such corporation ceases to be an S corporation (determined as of the first day of the first taxable year that such corporation is not an S corporation).
(ii) A liquidation or sale of substantially all the assets of such S corporation (including in a title 11 or similar case), a cessation of business by such S corporation, such S corporation ceases to exist, or any similar circumstance.
(iii) A transfer of any share of stock in such S corporation by the taxpayer (including by reason of death, or otherwise).
(B) Partial transfers of stock
In the case of a transfer of less than all of the taxpayer's shares of stock in the S corporation, such transfer shall only be a triggering event with respect to so much of the taxpayer's net tax liability under this section with respect to such S corporation as is properly allocable to such stock.
(C) Transfer of liability
A transfer described in clause (iii) of subparagraph (A) shall not be treated as a triggering event if the transferee enters into an agreement with the Secretary under which such transferee is liable for net tax liability with respect to such stock in the same manner as if such transferee were the taxpayer.
(3) Net tax liability
A shareholder's net tax liability under this section with respect to any S corporation is the net tax liability under this section which would be determined under subsection (h)(6) if the only subpart F income taken into account by such shareholder by reason of this section were allocations from such S corporation.
(4) Election to pay deferred liability in installments
In the case of a taxpayer which elects to defer payment under paragraph (1)—
(A) subsection (h) shall be applied separately with respect to the liability to which such election applies,
(B) an election under subsection (h) with respect to such liability shall be treated as timely made if made not later than the due date for the return of tax for the taxable year in which the triggering event with respect to such liability occurs,
(C) the first installment under subsection (h) with respect to such liability shall be paid not later than such due date (but determined without regard to any extension of time for filing the return), and
(D) if the triggering event with respect to any net tax liability is described in paragraph (2)(A)(ii), an election under subsection (h) with respect to such liability may be made only with the consent of the Secretary.
(5) Joint and several liability of S corporation
If any shareholder of an S corporation elects to defer payment under paragraph (1), such S corporation shall be jointly and severally liable for such payment and any penalty, addition to tax, or additional amount attributable thereto.
(6) Extension of limitation on collection
Any limitation on the time period for the collection of a liability deferred under this subsection shall not be treated as beginning before the date of the triggering event with respect to such liability.
(7) Annual reporting of net tax liability
(A) In general
Any shareholder of an S corporation which makes an election under paragraph (1) shall report the amount of such shareholder's deferred net tax liability on such shareholder's return of tax for the taxable year for which such election is made and on the return of tax for each taxable year thereafter until such amount has been fully assessed on such returns.
(B) Deferred net tax liability
For purposes of this paragraph, the term "deferred net tax liability" means, with respect to any taxable year, the amount of net tax liability payment of which has been deferred under paragraph (1) and which has not been assessed on a return of tax for any prior taxable year.
(C) Failure to report
In the case of any failure to report any amount required to be reported under subparagraph (A) with respect to any taxable year before the due date for the return of tax for such taxable year, there shall be assessed on such return as an addition to tax 5 percent of such amount.
(8) Election
Any election under paragraph (1)—
(A) shall be made by the shareholder of the S corporation not later than the due date for such shareholder's return of tax for the taxable year which includes the close of the taxable year of such S corporation in which the amount described in subsection (a) is taken into account, and
(B) shall be made in such manner as the Secretary shall provide.
(j) Reporting by S corporation
Each S corporation which is a United States shareholder of a specified foreign corporation shall report in its return of tax under section 6037(a) the amount includible in its gross income for such taxable year by reason of this section and the amount of the deduction allowable by subsection (c). Any copy provided to a shareholder under section 6037(b) shall include a statement of such shareholder's pro rata share of such amounts.
(k) Extension of limitation on assessment
Notwithstanding section 6501, the limitation on the time period for the assessment of the net tax liability under this section (as defined in subsection (h)(6)) shall not expire before the date that is 6 years after the return for the taxable year described in such subsection was filed.
(l) Recapture for expatriated entities
(1) In general
If a deduction is allowed under subsection (c) to a United States shareholder and such shareholder first becomes an expatriated entity at any time during the 10-year period beginning on the date of the enactment of the Tax Cuts and Jobs Act 1 (with respect to a surrogate foreign corporation which first becomes a surrogate foreign corporation during such period), then—
(A) the tax imposed by this chapter shall be increased for the first taxable year in which such taxpayer becomes an expatriated entity by an amount equal to 35 percent of the amount of the deduction allowed under subsection (c), and
(B) no credits shall be allowed against the increase in tax under subparagraph (A).
(2) Expatriated entity
For purposes of this subsection, the term "expatriated entity" has the same meaning given such term under section 7874(a)(2), except that such term shall not include an entity if the surrogate foreign corporation with respect to the entity is treated as a domestic corporation under section 7874(b).
(3) Surrogate foreign corporation
For purposes of this subsection, the term "surrogate foreign corporation" has the meaning given such term in section 7874(a)(2)(B).
(m) Special rules for United States shareholders which are real estate investment trusts
(1) In general
If a real estate investment trust is a United States shareholder in 1 or more deferred foreign income corporations—
(A) any amount required to be taken into account under section 951(a)(1) by reason of this section shall not be taken into account as gross income of the real estate investment trust for purposes of applying paragraphs (2) and (3) of section 856(c) to any taxable year for which such amount is taken into account under section 951(a)(1), and
(B) if the real estate investment trust elects the application of this subparagraph, notwithstanding subsection (a), any amount required to be taken into account under section 951(a)(1) by reason of this section shall, in lieu of the taxable year in which it would otherwise be included in gross income (for purposes of the computation of real estate investment trust taxable income under section 857(b)), be included in gross income as follows:
(i) 8 percent of such amount in the case of each of the taxable years in the 5-taxable year period beginning with the taxable year in which such amount would otherwise be included.
(ii) 15 percent of such amount in the case of the 1st taxable year following such period.
(iii) 20 percent of such amount in the case of the 2nd taxable year following such period.
(iv) 25 percent of such amount in the case of the 3rd taxable year following such period.
(2) Rules for trusts electing deferred inclusion
(A) Election
Any election under paragraph (1)(B) shall be made not later than the due date for the first taxable year in the 5-taxable year period described in clause (i) of paragraph (1)(B) and shall be made in such manner as the Secretary shall provide.
(B) Special rules
If an election under paragraph (1)(B) is in effect with respect to any real estate investment trust, the following rules shall apply:
(i) Application of participation exemption
For purposes of subsection (c)(1)—
(I) the aggregate amount to which subparagraph (A) or (B) of subsection (c)(1) applies shall be determined without regard to the election,
(II) each such aggregate amount shall be allocated to each taxable year described in paragraph (1)(B) in the same proportion as the amount included in the gross income of such United States shareholder under section 951(a)(1) by reason of this section is allocated to each such taxable year.
(III)
(ii) Acceleration of inclusion
If there is a liquidation or sale of substantially all the assets of the real estate investment trust (including in a title 11 or similar case), a cessation of business by such trust, or any similar circumstance, then any amount not yet included in gross income under paragraph (1)(B) shall be included in gross income as of the day before the date of the event and the unpaid portion of any tax liability with respect to such inclusion shall be due on the date of such event (or in the case of a title 11 or similar case, the day before the petition is filed).
(n) Election not to apply net operating loss deduction
(1) In general
If a United States shareholder of a deferred foreign income corporation elects the application of this subsection for the taxable year described in subsection (a), then the amount described in paragraph (2) shall not be taken into account—
(A) in determining the amount of the net operating loss deduction under section 172 of such shareholder for such taxable year, or
(B) in determining the amount of taxable income for such taxable year which may be reduced by net operating loss carryovers or carrybacks to such taxable year under section 172.
(2) Amount described
The amount described in this paragraph is the sum of—
(A) the amount required to be taken into account under section 951(a)(1) by reason of this section (determined after the application of subsection (c)), plus
(B) in the case of a domestic corporation which chooses to have the benefits of subpart A of part III of subchapter N for the taxable year, the taxes deemed to be paid by such corporation under subsections (a) and (b) of section 960 for such taxable year with respect to the amount described in subparagraph (A) which are treated as a dividends 2 under section 78.
(3) Election
Any election under this subsection shall be made not later than the due date (including extensions) for filing the return of tax for the taxable year and shall be made in such manner as the Secretary shall prescribe.
(o) Regulations
The Secretary shall prescribe such regulations or other guidance as may be necessary or appropriate to carry out the provisions of this section, including—
(1) regulations or other guidance to provide appropriate basis adjustments, and
(2) regulations or other guidance to prevent the avoidance of the purposes of this section, including through a reduction in earnings and profits, through changes in entity classification or accounting methods, or otherwise.
(Added
Editorial Notes
References in Text
The date of the enactment of the Tax Cuts and Jobs Act, referred to in subsec. (l)(1), probably means the date of the enactment of title I of
Amendments
2017—
2005—Subsec. (a)(2)(B).
Subsec. (b)(2)(A).
Subsec. (b)(3).
Subsec. (c)(1).
"(A) which is certified on or before June 30, 2003, as being prepared in accordance with generally accepted accounting principles, and
"(B) which is used for the purposes of a statement or report—
"(i) to creditors,
"(ii) to shareholders, or
"(iii) for any other substantial nontax purpose.
In the case of a corporation required to file a financial statement with the Securities and Exchange Commission, such term means the most recent such statement filed on or before June 30, 2003."
Subsec. (d)(2).
Subsec. (d)(4).
Subsec. (e)(1).
Subsec. (f).
Statutory Notes and Related Subsidiaries
Effective Date of 2005 Amendment
Amendments by
Effective Date
Section applicable to taxable years ending on or after Oct. 22, 2004, see section 422(d) of