- 10 - book gain from the sale of the Read-Rite shares in the amount of $22,540,004. Discussion The subpart F provisions (sections 951 through 964) require U.S. shareholders of a controlled foreign corporation (CFC) to recognize certain income (subpart F income) at the time the CFC earns that income, rather than later when such earnings are distributed as a dividend.4 Subpart F income includes foreign base company income as determined under section 954. See sec. 952(a)(2). Under section 954(a)(1), foreign base company income includes foreign personal holding company income (FPHCI). Current taxation of FPHCI under the subpart F regime is intended to tax “income which is passive in character.” S. Rept. 1881, 87th Cong., 2d Sess. (1962), 1962-3 C.B. 707, 788. In enacting the FPHCI subpart F provisions, Congress intended to tax income that arose from “portfolio types of investments” or “where the company [was] merely passively receiving investment income.” Id. at 789. Accordingly, gains arising from a CFC’s passive or portfolio investments typically create FPHCI under section 954. See, e.g., sec. 954(c)(1)(A) (treating dividends, interest, rents and annuities as FPHCI) and (B)(i) (treating the proceeds 4 The parties agree that Conner Malaysia is a CFC of Conner U.S.Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011