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II. Internal Revenue Code and Regulations
The principal provisions of the Internal Revenue Code at
issue are sections 951 and 956. Sections 951 and 956 are found
in subpart F of part III, subchapter N, chapter 1 of the Internal
Revenue Code (subpart F). Subpart F concerns itself with
controlled foreign corporations. The term “controlled foreign
corporation” is defined in section 957(a).7 Section 951 provides
that each U.S. shareholder of a controlled foreign corporation
shall include in gross income certain amounts, including “his pro
rata share (determined under section 956(a)(2)) of the
corporation’s increase in earnings invested in United States
property”.
In pertinent part, section 956 provides:
(a) General Rules.--For purposes of this subpart--
(1) Amount of investment. The amount of
earnings of a controlled foreign corporation
7 Sec. 957(a) provides:
General Rule.--For purposes of this subpart, the term
“controlled foreign corporation” means any foreign
corporation if more than 50 percent of--
(1) the total combined voting power of all classes
of stock of such corporation entitled to vote, or
(2) the total value of the stock of such
corporation,
is owned (within the meaning of section 958(a)), or is
considered as owned by applying the rules of ownership
of section 958(b), by United States shareholders on any
day during the taxable year of such foreign
corporation.
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