The new tax law places the taxation of foreign-source income at the forefront of developing tax planning strategies for U.S. individual and corporate shareholders. Notable changes to Subpart F, the dividends received deduction ("D.R.D."), and the possible pitfalls involved with transfers of stock in foreign corporations require a careful analysis of new rules affecting the reporting of foreign-source income.
Subpart F requires that certain income of a controlled foreign corporation ("C.F.C.") be deemed distributed to the U.S. shareholders and subject to taxation. The expansion of Subpart F now increases the amount of C.F.C. income currently taxable to U.S. shareholders and rules regarding C.F.C. ownership, treating more foreign corporations as C.F.C.'s.
The D.R.D. under Code 245A allows a 100% deduction for the foreign-source portion of dividends received from specified 10%-owned foreign corporations by domestic corporations that are U.S. shareholders. A specified 10%-owned foreign corporation is any foreign corporation with a U.S. shareholder, even if the foreign corporation is not a C.F.C. The D.R.D. may also apply to dividends received directly or through partnerships, so long as the requirements are met.
Furthermore, for purposes of sales or exchanges of stock in a foreign corporation by a U.S. shareholder, amounts received are treated as dividends for purposes of D.R.D. if treated as such under Code 1248. Tax professionals and advisers must be mindful of the potential tax pitfalls associated with the new rules as applied to foreign-source income.
Listen as our panel provide guidance on the differences between the new tax rules and prior law impacting U.S. shareholders of foreign assets, the impact of the expansion of Subpart F, obtaining the D.R.D., and ensuring reporting compliance and avoiding tax pitfalls in the sale or transfer of foreign interests.
- Taxation of foreign source income: prior law vs. new tax law
- Expansion of Subpart F: increase of the amount of C.F.C. income and new C.F.C. ownership rules
- Code 245A and deducting foreign source dividends received
- Treatment of sales or transfers of stock in foreign corporations
- Effective tax planning techniques for foreign source income
The panel will review these and other key issues:
- How the ownership rules of C.F.C. have changed under the new tax law
- The increase in the amount of C.F.C. income taxable to U.S. shareholders
- The treatment of foreign source income under the new rules
- Deducting the foreign source portion of dividends-received income and understanding reporting requirements
- Tax implications of sales or transfers of foreign interests by U.S. shareholders or corporations
- Best practices and planning techniques for counsel and tax professionals regarding the taxation of foreign income