Call Now (800) 681-1295
Close

US Shareholders Taxed on Distributive Share of CFC Income

Table of Contents

    Those persons who qualify as “U.S. shareholders” of a CFC are taxed on their distributive share of the income of the CFC that is deemed “Subpart F income”—that income that is effectively connected income (see above).

    However, those individuals who do not so qualify (i.e. those individuals who own 10% or less of the stock) are not immediately taxed on their distributive share. But there is an exception to this rule. In particular, IRC § 951(a)(1) requires certain shareholders of a controlled foreign corporation to include certain amounts in income, even if the corporation has not distributed these amounts. The rule is that if a foreign corporation is a CFC for at least 30 consecutive days during the year as a result of the constructive ownership rules, then all of the U.S. shareholders who are also shareholders on the last day of the CFC’s tax year will be taxed, even if it were not actually distributed to the shareholder. IRC §951(a)(1).

    One of the main purposes of the Subpart F rules is to discourage people from attempting to defer paying U.S. taxes by placing businesses overseas in places where certain taxes are levied at a low rate or not at all (i.e. tax havens). These rules were designed to limit an artificial deferral of tax by using offshore entities subject to a low tax. The CFC rules are required only for the income of an entity that is not currently taxed to the owners of the entity.

    Tax Help Videos

    Representing Clients from U.S. and International Locations Regarding Federal and California Tax Issues

    tax lawyers

    Main Office

    Orange County
    2601 Main St. Penthouse Suite
    Irvine, CA 92614
    (949) 681-3502

    Our headquarters is located in Irvine, CA. Our beautiful 19,700 office space is staffed full-time and always available for our clients to meet with our highly qualified and experienced staff of Attorneys, Certified Public Accountants and Enrolled Agents. We also offer virtual consultations and can travel to meet with clients in one of our satellite offices.

    Outside of our 4 hour initial consultation option, we do not charge travel time or travel expenses when traveling to one of our Satellite offices, or surrounding business districts, where it is necessary to meet personally with taxing authority personnel, make court appearances, or any in person meeting deemed necessary for the effective representation of a client. To make this as flexible, efficient, and convenient as possible, David W. Klasing is an Instrument Rated Private Pilot and Utilizes the Firms Cirrus SR22 to service client’s in California and in the Southwest by air. Offices outside these areas are serviced via commercial jet airlines. None of these costs are charged to our clients.

    Satellite Offices

    California
    (310) 492-5583
    (760) 338-7035
    (916) 290-6625
    (415) 287-6568
    (909) 991-7557
    (619) 780-2538
    (661) 432-1480
    (818) 935-6098
    (805) 200-4053
    (510) 764-1020
    (408) 643-0573
    (760) 338-7035
    Arizona
    (602) 975-0296
    New Mexico
    (505) 206-5308
    New York
    (332) 224-8515
    Texas
    (512) 828-6646
    Washington, DC
    (202) 918-9329
    Nevada
    (702) 997-6465
    Florida
    (786) 999-8406
    Utah
    (385) 501-5934