Attribution IRC 958

Under the idea of Attribution, one considers an individual to constructively own stocks that are, in reality, owned by someone else. It happens so because of the relation shared by these two individuals. Moreover, it is essentially needed for avoiding low tax reduction strategies made through a sale or a transfer between ‘related’ individuals.

The concept of this constructive ownership could be applied for determining if a US person is a US shareholder for an organization. On top of that, if he is determined as a US shareholder, the corporation could be either termed as either a Foreign Corporation or a Controlled Foreign Corporation. However, this rule cannot specify if the amount of the US shareholder’s Subpart F inclusion.

Important points to know-

• A corporation, partnership, or truth owning more 50% of the voting stock of a corporation could be considered to own 100% of the voting stocks of that corporation.
• If the stock is not owned by a non-resident alien individual, it would not be treated as owned by the US person.
• More than one member of a family could be attributed to the same stock as a child could own the same stocks that are owned by his parents and grandparents.

Since we have been discussing the Subpart F, we should dive into that for a little while to understand what the Subpart F Income (IRC 951) is.

Whether or not the US person has received an income from the Controlled Foreign Corporation, he is still liable to pay tax on the income received from this corporation. This income on which the tax is charged is known as the Subpart F Income. The reason for such an introduction was that with the stockpile money in the course of time, the Controlled Foreign Corporation would neither distribute nor issue it as income, interest, dividend, or even capital gains. Hence, the Controlled Foreign Corporation would issue loans to the shareholders that would not be a part of their income and when they fail to replay it, they can forgive so. It would look like a favor on the shareholder but would not be a major detriment to the corporation.

However, as we are discussing that the amounts are being charged upon. One must wonder, what are these amounts including?

In the general sense, if a foreign corporation that becomes a controlled foreign corporation for at least 30 days or more during a taxable year, the US persons shareholders (as defined by subsection (b)) of that corporation and they who owns (within the meaning of section 985 (a)) stock on the last day in that year, in such year, in which the corporation is a controlled foreign corporation shall include his gross income, for his taxable year in which or with which such taxable year of the corporation ends-

A-The sum of:

• His pro rata shares of the corporation’s Subpart F income for that year.
• His pro rata share of the corporation’s previously excluded Subpart F income withdrawn from investment in less developed countries for that year, and
• His pro rata shares of the corporation’s previously excluded Subpart F income withdrawn from foreign-based company’s shipping operations undertaken for such year.

B- The amount determined under the section 956 with respect to the shareholders for that year, only to an extent where it is not excluded from the gross income under section 959 (a) (2).