How Will Courts Rule On Foreign Base Sales Income Case?

Whirlpool Petition For Cert

In a brief filed on October 19, 2022, the IRS asked the U.S. Supreme Court to refuse to review the decision of the Sixth Circuit affirming, in a 2-1 split decision, that $45 million earned by appliance maker Whirlpool’s controlled foreign corporation (“CFC”) in Luxembourg was foreign base company sales income taxable under Subpart F of the Internal Revenue Code.

Whirlpool’s parent company maintains that income from its Luxembourg affiliate’s sales of appliances to its Mexican subsidiary cannot be taxed under Subpart F because it was generated by two foreign affiliates manufacturing different products.  However, the IRS contends that the transactions fall within the I.R.C. §954(d) definition of foreign base company sales income (“FBCSI”) earned by a U.S. parent’s CFC and are therefore taxable under Subpart F.

Through its domestic and foreign subsidiaries, Whirlpool engages in the manufacture and distribution of major household appliances, including refrigerators and washing machines, in the United States and abroad. Whirlpool International Holdings, S.a.r.l. (“WIH”),  is a wholly owned subsidiary of Whirlpool organized under the laws of Luxembourg. When it filed its petition, WIH had its principal place of business in Luxembourg. Before December 31, 2010, WIH was known as Maytag Corp. (Maytag) and was likewise engaged in the manufacture and distribution of household appliances.

Read More


International operations often give rise to unique (and sometime unanticipated) compliance obligations and complex reporting requirements. Recent tax reform rules and regulations have imposed a number of new requirements.  This post focuses on, and provides a short introduction to, the Controlled Foreign Corporation (“CFC”) rules under Subpart F of the Code.

Historically, U.S. taxpayers were not subject to tax on the income derived by a foreign subsidiary from operations outside the United States.  This concept—deferring the income of the foreign subsidiary until it is repatriated in the form of a dividend or otherwise—is known as deferral.  The Subpart F provisions were a congressional attempt to eliminate deferral for certain types of categories of foreign income.

Read More