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Unlike the general rule barring the U.S. government from taxing foreign corporations, the U.S. does have power to tax U.S. shareholders of foreign corporations. The U.S. accomplishes this through the so-called Controlled Foreign Corporation (CFC) rules—found in Subpart F of the Internal Revenue Code. Subpart F deals with the U.S. taxation of amounts earned by controlled foreign corporations. More exactly, it provides that certain types of income from the CFCs, though undistributed, must be included in the gross income of the U.S. shareholder (in the year the income is earned by the CFC).
