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Required Taxable Inclusions from the Loss of §1248 Shareholder Status

Volume 3 No 6    /    Read Article

By Rusudan Shervashidze and Andrew P. Mitchel

Rusudan Shervashidze and Andrew P. Mitchel continue their examination of U.S. tax rules applicable to cross-border reorganizations, formations, and liquidations. This month, they review the rules embodied in Code §1248, a provision that converts capital gain from the sale of shares in a C.F.C. into dividend income for certain shareholders. Although for individuals, the tax rates for qualified dividends and gains are the same, the source of the income is changed in a way that may allow a benefit for unused foreign taxes. If the dividend is not qualified, tax is imposed at a much greater rate. For corporations that are shareholders, dividend income may bring along indirect foreign tax credits. Code §1248 also defines the extent of a toll charge if a foreign corporation undergoes a tax-free reorganization that eliminates C.F.C. status.    See more →