26 U.S.C. § 952 : US Code - Section 952: Subpart F income defined

Search 26 U.S.C. § 952 : US Code - Section 952: Subpart F income defined

(a) In general
For purposes of this subpart, the term "subpart F income" means,
in the case of any controlled foreign corporation, the sum of -
(1) insurance income (as defined under section 953),
(2) the foreign base company income (as determined under
section 954),
(3) an amount equal to the product of -
(A) the income of such corporation other than income which -
(i) is attributable to earnings and profits of the foreign
corporation included in the gross income of a United States
person under section 951 (other than by reason of this
paragraph), or
(ii) is described in subsection (b),
multiplied by
(B) the international boycott factor (as determined under
section 999),
(4) the sum of the amounts of any illegal bribes, kickbacks, or
other payments (within the meaning of section 162(c)) paid by or
on behalf of the corporation during the taxable year of the
corporation directly or indirectly to an official, employee, or
agent in fact of a government, and
(5) the income of such corporation derived from any foreign
country during any period during which section 901(j) applies to
such foreign country.
The payments referred to in paragraph (4) are payments which would
be unlawful under the Foreign Corrupt Practices Act of 1977 if the
payor were a United States person. For purposes of paragraph (5),
the income described therein shall be reduced, under regulations
prescribed by the Secretary, so as to take into account deductions
(including taxes) properly allocable to such income.
(b) Exclusion of United States income
In the case of a controlled foreign corporation, subpart F income
does not include any item of income from sources within the United
States which is effectively connected with the conduct by such
corporation of a trade or business within the United States unless
such item is exempt from taxation (or is subject to a reduced rate
of tax) pursuant to a treaty obligation of the United States. For
purposes of the preceding sentence, income described in paragraph
(2) or (3) of section 921(d) (!1) shall be treated as derived from
sources within the United States. For purposes of this subsection,
any exemption (or reduction) with respect to the tax imposed by
section 884 shall not be taken into account.
(c) Limitation
(1) In general
(A) Subpart F income limited to current earnings and profits
For purposes of subsection (a), the subpart F income of any
controlled foreign corporation for any taxable year shall not
exceed the earnings and profits of such corporation for such
taxable year.
(B) Certain prior year deficits may be taken into account
(i) In general
The amount included in the gross income of any United
States shareholder under section 951(a)(1)(A)(i) for any
taxable year and attributable to a qualified activity shall
be reduced by the amount of such shareholder's pro rata share
of any qualified deficit.
(ii) Qualified deficit
The term "qualified deficit" means any deficit in earnings
and profits of the controlled foreign corporation for any
prior taxable year which began after December 31, 1986, and
for which the controlled foreign corporation was a controlled
foreign corporation; but only to the extent such deficit -
(I) is attributable to the same qualified activity as the
activity giving rise to the income being offset, and
(II) has not previously been taken into account under
this subparagraph.
In determining the deficit attributable to qualified
activities described in subclause (II) or (III) of clause
(iii), deficits in earnings and profits (to the extent not
previously taken into account under this section) for taxable
years beginning after 1962 and before 1987 also shall be
taken into account. In the case of the qualified activity
described in clause (iii)(I), the rule of the preceding
sentence shall apply, except that "1982" shall be substituted
for "1962".
(iii) Qualified activity
For purposes of this paragraph, the term "qualified
activity" means any activity giving rise to -
(I) foreign base company oil related income,
(II) foreign base company sales income,
(III) foreign base company services income,
(IV) in the case of a qualified insurance company,
insurance income or foreign personal holding company
income, or
(V) in the case of a qualified financial institution,
foreign personal holding company income.
(iv) Pro rata share
For purposes of this paragraph, the shareholder's pro rata
share of any deficit for any prior taxable year shall be
determined under rules similar to rules under section
951(a)(2) for whichever of the following yields the smaller
share:
(I) the close of the taxable year, or
(II) the close of the taxable year in which the deficit
arose.
(v) Qualified insurance company
For purposes of this subparagraph, the term "qualified
insurance company" means any controlled foreign corporation
predominantly engaged in the active conduct of an insurance
business in the taxable year and in the prior taxable years
in which the deficit arose.
(vi) Qualified financial institution
For purposes of this paragraph, the term "qualified
financial institution" means any controlled foreign
corporation predominantly engaged in the active conduct of a
banking, financing, or similar business in the taxable year
and in the prior taxable year in which the deficit arose.
(vii) Special rules for insurance income
(I) In general
An election may be made under this clause to have section
953(a) applied for purposes of this title without regard to
the same country exception under paragraph (1)(A) thereof.
Such election, once made, may be revoked only with the
consent of the Secretary.
(II) Special rules for affiliated groups
In the case of an affiliated group of corporations
(within the meaning of section 1504 but without regard to
section 1504(b)(3) and by substituting "more than 50
percent" for "at least 80 percent" each place it appears),
no election may be made under subclause (I) for any
controlled foreign corporation unless such election is made
for all other controlled foreign corporations who are
members of such group and who were created or organized
under the laws of the same country as such controlled
foreign corporation. For purposes of clause (v), in
determining whether any controlled corporation described in
the preceding sentence is a qualified insurance company,
all such corporations shall be treated as 1 corporation.
(C) Certain deficits of member of the same chain of
corporations may be taken into account
(i) In general
A controlled foreign corporation may elect to reduce the
amount of its subpart F income for any taxable year which is
attributable to any qualified activity by the amount of any
deficit in earnings and profits of a qualified chain member
for a taxable year ending with (or within) the taxable year
of such controlled foreign corporation to the extent such
deficit is attributable to such activity. To the extent any
deficit reduces subpart F income under the preceding
sentence, such deficit shall not be taken into account under
subparagraph (B).
(ii) Qualified chain member
For purposes of this subparagraph, the term "qualified
chain member" means, with respect to any controlled foreign
corporation, any other corporation which is created or
organized under the laws of the same foreign country as the
controlled foreign corporation but only if -
(I) all the stock of such other corporation (other than
directors' qualifying shares) is owned at all times during
the taxable year in which the deficit arose (directly or
through 1 or more corporations other than the common
parent) by such controlled foreign corporation, or
(II) all the stock of such controlled foreign corporation
(other than directors' qualifying shares) is owned at all
times during the taxable year in which the deficit arose
(directly or through 1 or more corporations other than the
common parent) by such other corporation.
(iii) Coordination
This subparagraph shall be applied after subparagraphs (A)
and (B).
(2) Recharacterization in subsequent taxable years
If the subpart F income of any controlled foreign corporation
for any taxable year was reduced by reason of paragraph (1)(A),
any excess of the earnings and profits of such corporation for
any subsequent taxable year over the subpart F income of such
foreign corporation for such taxable year shall be
recharacterized as subpart F income under rules similar to the
rules applicable under section 904(f)(5).
(3) Special rule for determining earnings and profits
For purposes of this subsection, earnings and profits of any
controlled foreign corporation shall be determined without regard
to paragraphs (4), (5), and (6) of section 312(n). Under
regulations, the preceding sentence shall not apply to the extent
it would increase earnings and profits by an amount which was
previously distributed by the controlled foreign corporation.
(d) Income derived from foreign country
The Secretary shall prescribe such regulations as may be
necessary or appropriate to carry out the purposes of subsection
(a)(5), including regulations which treat income paid through 1 or
more entities as derived from a foreign country to which section
901(j) applies if such income was, without regard to such entities,
derived from such country.