Stephen C. Fox, CPA
U.S. International Tax
Stephen C. Fox, CPA, CMA
PO Box 880695
Port Saint Lucie,  FL  34988
+1(973) 610-5669

Controlled Foreign Corporations

 

U.S. shareholders of Controlled Foreign Corporations (CFCs) must include in their income currently their share of the CFC's portable income under Subpart F. This Subpart F income includes most investment income, income from selling goods or performing services if a related party is involved, and certain other types of income. In addition, each such shareholder must file Form 5471 with his/her/its federal tax return. These very complex anti-deferral rules have been in effect since 1962.

 

There's some good news. Most business income the CFC earns in its country of incorporation is not Subpart F income.  A U.S. shareholder can defer income when the CFC buys goods from a related party and sell them in the CFC's home country. Further, income subject to 31.5% or more foreign tax is not subject to Subpart F. Corporate 10% or more shareholders of a CFC also can get a deemed paid foreign tax credit when they receive dividends or recognize Subpart F income from the controlled foreign corporation.

 

S corporations and partnerships often benefit from making a Check the Box election (see link on left) on Form 8832 to treat a CFC as a flow-through entity. Where the CFC pays significant tax, the flow through of foreign tax credits to individual members is often preferable to deferral that may be possible with a non-checked CFC. See the Journal of Taxation article on International Tax Planning for Closely Held U.S. Multinationals on this site.
 
Watch videos on U.S. Subpart F rules:

 

Call Steve Fox for experienced international tax advice for shareholders of controlled foreign corporations.

 
It's your business:  get personal.  Call Steve Fox at  1(973) 610-5669  or  email steve @ sfoxcpa .com
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