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
   International Tax      Controlled Foreign Corporations

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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