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II. Code and Regulations
A. The Code
The provision of the Code principally at issue is section
954. Section 954 is found in subpart F of part III, subchapter
N, chapter 1, subtitle A of the Code (Subpart F), which
encompasses sections 951-964. Subpart F is concerned with
controlled foreign corporations (CFCs). Neither party disputes
that, in 1997, both Dover UK and H&C (up until it became a
disregarded entity) were CFCs, as that term is defined in section
957(a). Section 951 provides that each United States shareholder
of a CFC shall include in gross income certain amounts, including
“his pro rata share * * * of the * * * [CFC’s] subpart F income”
for the taxable year. Sec. 951(a)(1)(A)(i).5 Subpart F income
includes “foreign base company income (as determined under
section 954)”. Sec. 952(a)(2). Pursuant to section 954(a)(1),
foreign base company income includes FPHCI, which is defined, in
pertinent part, in section 954(c) as follows:
(c) Foreign Personal Holding Company Income.--
(1) In general.--For purposes of subsection (a)(1), the
term “foreign personal holding company income” means the
4(...continued)
Withdrawn, But Still Under Attack”, 32 Tax Mgmt. Int. J. 515
(Oct. 10, 2003); Click, “Treasury Withdraws Extraordinary Check-
the-Box Regulations”, 101 Tax Notes 95 (Oct. 6, 2003).
5 The parties do not dispute that petitioner constituted a
“United States shareholder”, as defined in sec. 951(b), with
respect to Dover UK on the date of the sale of the H&C stock.
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