Tag Archive for Subpart F Income

IRS Issues IPUs For CFCs & Subpart F Income, Which State Their Subpart F Audit Positions!

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On October 13, 2015 we posted LB&I Agents Lose Autonomy To Centralized Office That Will Be Using Data to Identify Compliance Risks For Audit!, where we discussed that tax practitioners will face new questions from examination teams as the IRS selects compliance risks based on data, in the Large Business and International Division’s (LB&I) move from individual audits of multinationals to broader considerations involving risk assessment.

While LB&I is scheduled to implement the new structure in early calendar year 2016, in recently released new International Practice Units (IPUs), the IRS has provided additional guidance to its examiners on the audit of foreign base company sales income (FBCSI), a category of subpart F income. These IPUs focus on supply chain structures with foreign sales and/or manufacturing branches (including disregarded entities) that may be used by U.S. multinationals to avoid the application of the FBCSI rules. Read more

Licensing Companies And Intangibles


A Licensing Company is a type of offshore company that involves intangible property and the licensing of its use. It involves a variety of issues relating to country disparity. This use of the offshore situs usually is a result of a particular foreign situs imposing withholding tax upon royalty income and is not treaty accommodating. Also, one may find peculiar foreign situs rules that effect the disposition of industrial property rights.

Licensing Companies seek International Financial Centers that provide more reliable substantive judicial systems to protect intangible and substantive rights, as compared to a country situs of licensing use. Licensing Companies also provide flexibility. The flexibility lies in the contracting for rights to use in different foreign locations. The issues of Subpart F Income, source of income concepts, and arm’s length pricing of related parties are the focus of structural planning. Read more

Foreign Corporations and Subpart F Income – Part I

TaxConnections Offshore BusinessForeign Corporations Generally. A foreign corporation entity is the vehicle of choice in utilizing the benefits of Financial Centers Offshore. A foreign corporation is one which is not created or organized in the United States and therefore is not a domestic corporation. A domestic corporation is taxable on its worldwide income. By definition, a foreign corporation is not a United States person and income is not taxable as a United States person. It is not subject to taxation of its accumulated earnings and profits until distributed to its United States shareholders. The general taxation of a foreign corporation is subject to the application of Subpart F Income taxation which is specifically designed to re-characterize foreign corporations as controlled foreign corporations.

Subpart F Income Taxation. Subpart F income rules are the core legislation designed to create controlled foreign corporations. By virtue of the codification, United States shareholders’ accumulated earnings of a foreign corporations’ profits are deemed distributed each taxable year. The accumulated earnings that would otherwise be lodged as foreign corporate accumulated earnings and not taxable until distributed, becomes taxable by Subpart F Income Read more