Income Under Subpart F

Subpart f income includes subject to certain limitations.

Income under subpart f. Shareholders may have to pay tax on the earnings. Subpart f income is taxed at ordinary tax rates not at the lower dividend or capital gain rate. The subpart f income provisions eliminate deferral of us tax on some categories of foreign income by taxing certain us persons currently on their pro rata share of such income earned by their controlled foreign corporations cfcs. Illegal bribes kickbacks or other illegal payments made by the cfc.

Describe income earned by a cfc would be considered subpart f income recognize scenarios where the de maximis rule for subpart f income applies identify when a taxpayer has an inclusion of income under subpart f or through a qef election double taxation is avoided differentiate pfic distributions from being taxed as excess distributions. Essentially subpart f income involves cfcs controlled foreign corporations that accumulate certain specific types of income primarily passive income. 952 a in general. Fbcsi and foreign base company services income fbcsii under section 954 of the code.

Certain insurance income under 953. Foreign base company income under 954. Subpart f income determined under step 2 is allocated to a based on his ownership interest in f c. For purposes of this subpart the term subpart f income means in the case of any controlled foreign corporation the sum of 1 insurance income as defined under section 953.

Income generated controlled foreign corporations cfcs by the united states government is called as subpart f income. What is subpart f income. The kicker is that the ratable share of subpart f income may be attributable to the u s. This approach is based on the principles underlying the united states taxing jurisdiction.

Subpart f refers to foreign income and subpart f income is codified in internal revenue code section 952. A little more on what is subpart f income. Insurance income foreign base company income international boycott factor income illegal bribes and income derived from a 901 j foreign country which are countries that sponsor terrorism or are otherwise not recognized by the us such as iran and north korea. In the case of a controlled foreign corporation subpart f income does not include any item of income from sources within the united states which is effectively connected with the conduct by such corporation of a trade or business within the united states unless such item is exempt from taxation or is subject to a reduced rate of tax pursuant to a treaty obligation of the united states.

When a cfc has subpart f income under irc section that means the u s. A s pro rata share of subpart f income is 36 60 of 60. While subpart f income can be somewhat hard to define without being able to analyze a particular cfc s income one type of income will always be classified as subpart f income. Subpart f income allocable to the period from may 26 through december 31 2018 219 out of 365 days is 60 100 219 365.