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Video instructions and help with filling out and completing form 5471 instructions 2021
Music Applause Music in the good old days back when I was a kid the big evil multinationals used to shift income to tax haven subsidiaries and then loan it back to the US parent they didn't pay us tax on the income till they formally declared a dividend which might be never the subsidiaries were referred to as foreign base companies because they had very little substance that was pretty much halted in 1962 with subpart F the key anti deferral provision subpart F makes us shareholders of controlled foreign corporations recognized portable income of the CFC as the CFC earns it it also makes those US shareholders recognize income if it is loaned back to a related US person or used to invest in u.s. property subpart F applies only the US shareholders of controlled foreign corporations this means us persons who own 10% or more of the voting power of a foreign corporation which is more than 50% owned by voter value by such 10% owners attribution rules apply to determine whether the percentage of ownership test is met so u.s. persons whether individual or corporation who own shares in a CFC have to include in their income their pro rata share of the CFCs subpart F net income as well as their pro rata share of the CFCs investment in u.s. property this has treated a lot like a dividend except it's not a qualified dividend eligible for reduced tax rates for individuals here's an example Jane is a US citizen who owns 60% of a Cayman corporation that owns a beachfront rental villa the rent income of the villa net of expenses is subpart F income if the net profits of the corporation for 2021 are $10,000 then Jane must include $6,000 in her taxable income in 2021 even if there's no dividend dividends are not again taxable if they're paid from subpart F income which comes first so Jane doesn't have to pay tax a second time when the Cayman corporation pays her a dividend not all of the income of a CFC must be included subpart F applies only to those kinds of income that can be easily shifted here are the kinds of income involved foreign personal holding company income is passive income the definition of passive income we discussed earlier and the exceptions are actually in subpart F subpart F income also includes profits from buying goods from a related party and selling them to anyone or buying goods from anyone and selling them to a related party where the goods are both made in and for use in a country other than the cfcs country of incorporation whoo that's a hard one to get out so this is aimed at wholesale outfits that just buy and sell goods they didn't make themselves like what the Japanese call trading companies subpart F income also includes income from performing services outside the CFCs country of incorporation but only if these services.