Subpart F

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Subpart F

Summary of Subpart F

A provision of the Internal Revenue Code (Sections 951-64) that imposes U.S. income taxes on the undistributed earnings of “controlled foreign corporations.”Subpart F was incorporated into the Code by the Revenue Act of 1962; prior to that time, earnings by foreign subsidiaries of U.S. firms were not subject to U.S. income taxes until actually distributed to the parent. For purposes of tax treatment, a “controlled foreign corporation”is defined as a company in which “U.S. shareholders”own or control 51 percent of the voting stock of all classes. A “U.S. shareholder”is a “U.S. person”(within the meaning of Section 957 (d) of the Code) who owns or controls 10 percent or more of the voting stock, of all classes, of the company.

The income of a controlled foreign corporation is taxable under Subpart F on:

1. Foreign base company income, which consists of; a. Foreign personal holding company income, Section 954 (c)

b. Foreign base company sales income, Section 954(d)

c. Foreign base company service income, Section 954 (e)

d. Foreign base company shipping income. Section 954(f).

2. Income on the insurance of U.S. risks.

3. The sum of illegal bribes, kickbacks, or similar payments (within the meaning of Section 162(c) Internal Revenue Code) to any foreign official.

4. Certain income as specified in Section 952(a)(3) multiplied by the international boycott factor (read this and related legal terms for further details).

(Main Author: William J. Miller)

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