The Internal Revenue Service (IRS) issued Revenue Procedure 2019-40 (Section 958(b)(4)) and proposed regulations that provide relief to certain U.S. persons that own stock in certain foreign corporations. This is to address the problems created by the “downward attribution” issue where foreign corporations that were not controlled foreign corporations (CFCs) in the past, have now become CFCs because of the Tax Cuts and Jobs Act (TCJA).
Section 958 provides rules for determining direct, indirect and constructive stock ownership. The repeal of Section 958(b)(4) was part of the TCJA. As a result of this repeal, stock of a foreign corporation owned by a foreign person can be attributed to a U.S. person for purposes of determining whether the U.S. person or another U.S. person is a U.S. shareholder of the foreign corporation and, therefore, whether the foreign corporation is a CFC. As a result, U.S. persons not previously treated as U.S. shareholders may be treated as U.S. shareholders, and foreign corporations not previously treated as CFCs may be treated as CFCs.
The Treasury Department is aware that, in certain circumstances, taxpayers are required to include in gross income amounts under Sections 951 (“subpart F inclusion amounts”) and 951A (“GILTI inclusion amounts”) solely because of the repeal of Section 958(b)(4), even though those taxpayers may have limited ability to determine whether such foreign corporations are CFCs and to obtain the information necessary to accurately determine these amounts.
The Revenue Procedure 2019-40 and proposed regulations will:
If you own stock in a foreign corporation, contact our international tax advisors at Moore Doeren Mayhew for assistance with understanding your reporting requirements and how these relief provisions may benefit your tax situation.
This article is a reprint from Moore Doeren Mayhew’s GlobalView. An independent Member Firm of Moore International Limited.
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