Controlled Foreign Corporation (CFC) Tax Issues and Compliance

Controlled Foreign Corporations (CFCs) are subject to complex US tax rules under Subpart F of the Internal Revenue Code. Understanding these rules is critical for taxpayers with foreign business interests.

What is a Controlled Foreign Corporation?

A CFC is a foreign corporation that is more than 50% owned (by vote or value) by US shareholders on any day during the taxable year. A US shareholder is defined as a US person who owns at least 10% of the foreign corporation's voting stock.

Subpart F Income

Subpart F income includes various types of income that are generally subject to immediate US taxation, even if not distributed to shareholders. This includes:

• Foreign personal holding company income (FPHCI)
• Foreign base company income
• Insurance income
• Certain oil-related income

Recent Tax Court Developments

Recent Tax Court decisions have provided important guidance on CFC taxation and compliance requirements. These cases help clarify the application of Subpart F rules in complex international structures.

Compliance Requirements

Taxpayers with CFC interests must comply with various reporting requirements, including:

• Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations)
• Annual information reporting
• Proper documentation of transactions

Need Help with CFC Issues?

If you have questions about CFC taxation or are facing an IRS audit related to foreign corporations, we can help. Contact us to discuss your specific situation.