26 U.S.C. § 956 : US Code - Section 956: Investment of earnings in United States property

Search 26 U.S.C. § 956 : US Code - Section 956: Investment of earnings in United States property

(a) General rule
In the case of any controlled foreign corporation, the amount
determined under this section with respect to any United States
shareholder for any taxable year is the lesser of -
(1) the excess (if any) of -
(A) such shareholder's pro rata share of the average of the
amounts of United States property held (directly or indirectly)
by the controlled foreign corporation as of the close of each
quarter of such taxable year, over
(B) the amount of earnings and profits described in section
959(c)(1)(A) with respect to such shareholder, or
(2) such shareholder's pro rata share of the applicable
earnings of such controlled foreign corporation.
The amount taken into account under paragraph (1) with respect to
any property shall be its adjusted basis as determined for purposes
of computing earnings and profits, reduced by any liability to
which the property is subject.
(b) Special rules
(1) Applicable earnings
For purposes of this section, the term "applicable earnings"
means, with respect to any controlled foreign corporation, the
sum of -
(A) the amount (not including a deficit) referred to in
section 316(a)(1) to the extent such amount was accumulated in
prior taxable years, and
(B) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year and by
earnings and profits described in section 959(c)(1).
(2) Special rule for U.S. property acquired before corporation is
a controlled foreign corporation
In applying subsection (a) to any taxable year, there shall be
disregarded any item of United States property which was acquired
by the controlled foreign corporation before the first day on
which such corporation was treated as a controlled foreign
corporation. The aggregate amount of property disregarded under
the preceding sentence shall not exceed the portion of the
applicable earnings of such controlled foreign corporation which
were accumulated during periods before such first day.
(3) Special rule where corporation ceases to be controlled
foreign corporation
If any foreign corporation ceases to be a controlled foreign
corporation during any taxable year -
(A) the determination of any United States shareholder's pro
rata share shall be made on the basis of stock owned (within
the meaning of section 958(a)) by such shareholder on the last
day during the taxable year on which the foreign corporation is
a controlled foreign corporation,
(B) the average referred to in subsection (a)(1)(A) for such
taxable year shall be determined by only taking into account
quarters ending on or before such last day, and
(C) in determining applicable earnings, the amount taken into
account by reason of being described in paragraph (2) of
section 316(a) shall be the portion of the amount so described
which is allocable (on a pro rata basis) to the part of such
year during which the corporation is a controlled foreign
corporation.
(c) United States property defined
(1) In general
For purposes of subsection (a), the term "United States
property" means any property acquired after December 31, 1962,
which is -
(A) tangible property located in the United States;
(B) stock of a domestic corporation;
(C) an obligation of a United States person; or
(D) any right to the use in the United States of -
(i) a patent or copyright,
(ii) an invention, model, or design (whether or not
patented),
(iii) a secret formula or process, or
(iv) any other similar right,
which is acquired or developed by the controlled foreign
corporation for use in the United States.
(2) Exceptions
For purposes of subsection (a), the term "United States
property" does not include -
(A) obligations of the United States, money, or deposits with
-
(i) any bank (as defined by section 2(c) of the Bank
Holding Company Act of 1956 (12 U.S.C. 1841(c)), without
regard to subparagraphs (C) and (G) of paragraph (2) of such
section), or
(ii) any corporation not described in clause (i) with
respect to which a bank holding company (as defined by
section 2(a) of such Act) or financial holding company (as
defined by section 2(p) of such Act) owns directly or
indirectly more than 80 percent by vote or value of the stock
of such corporation;
(B) property located in the United States which is purchased
in the United States for export to, or use in, foreign
countries;
(C) any obligation of a United States person arising in
connection with the sale or processing of property if the
amount of such obligation outstanding at no time during the
taxable year exceeds the amount which would be ordinary and
necessary to carry on the trade or business of both the other
party to the sale or processing transaction and the United
States person had the sale or processing transaction been made
between unrelated persons;
(D) any aircraft, railroad rolling stock, vessel, motor
vehicle, or container used in the transportation of persons or
property in foreign commerce and used predominantly outside the
United States;
(E) an amount of assets of an insurance company equivalent to
the unearned premiums or reserves ordinary and necessary for
the proper conduct of its insurance business attributable to
contracts which are not contracts described in section
953(a)(1); (!1)
(F) the stock or obligations of a domestic corporation which
is neither a United States shareholder (as defined in section
951(b)) of the controlled foreign corporation, nor a domestic
corporation, 25 percent or more of the total combined voting
power of which, immediately after the acquisition of any stock
in such domestic corporation by the controlled foreign
corporation, is owned, or is considered as being owned, by such
United States shareholders in the aggregate;
(G) any movable property (other than a vessel or aircraft)
which is used for the purpose of exploring for, developing,
removing, or transporting resources from ocean waters or under
such waters when used on the Continental Shelf of the United
States;
(H) an amount of assets of the controlled foreign corporation
equal to the earnings and profits accumulated after December
31, 1962, and excluded from subpart F income under section
952(b);
(I) to the extent provided in regulations prescribed by the
Secretary, property which is otherwise United States property
which is held by a FSC and which is related to the export
activities of such FSC;
(J) deposits of cash or securities made or received on
commercial terms in the ordinary course of a United States or
foreign person's business as a dealer in securities or in
commodities, but only to the extent such deposits are made or
received as collateral or margin for (i) a securities loan,
notional principal contract, options contract, forward
contract, or futures contract, or (ii) any other financial
transaction in which the Secretary determines that it is
customary to post collateral or margin;
(K) an obligation of a United States person to the extent the
principal amount of the obligation does not exceed the fair
market value of readily marketable securities sold or purchased
pursuant to a sale and repurchase agreement or otherwise posted
or received as collateral for the obligation in the ordinary
course of its business by a United States or foreign person
which is a dealer in securities or commodities;
(L) securities acquired and held by a controlled foreign
corporation in the ordinary course of its business as a dealer
in securities if -
(i) the dealer accounts for the securities as securities
held primarily for sale to customers in the ordinary course
of business, and
(ii) the dealer disposes of the securities (or such
securities mature while held by the dealer) within a period
consistent with the holding of securities for sale to
customers in the ordinary course of business; and
(M) an obligation of a United States person which -
(i) is not a domestic corporation, and
(ii) is not -
(I) a United States shareholder (as defined in section
951(b)) of the controlled foreign corporation, or
(II) a partnership, estate, or trust in which the
controlled foreign corporation, or any related person (as
defined in section 954(d)(3)), is a partner, beneficiary,
or trustee immediately after the acquisition of any
obligation of such partnership, estate, or trust by the
controlled foreign corporation.
For purposes of subparagraphs (J), (K), and (L), the term "dealer
in securities" has the meaning given such term by section
475(c)(1), and the term "dealer in commodities" has the meaning
given such term by section 475(e), except that such term shall
include a futures commission merchant.
(3) Certain trade or service receivables acquired from related
United States persons
(A) In general
Notwithstanding paragraph (2) (other than subparagraph (H)
thereof), the term "United States property" includes any trade
or service receivable if -
(i) such trade or service receivable is acquired (directly
or indirectly) from a related person who is a United States
person, and
(ii) the obligor under such receivable is a United States
person.
(B) Definitions
For purposes of this paragraph, the term "trade or service
receivable" and "related person" have the respective meanings
given to such terms by section 864(d).
(d) Pledges and guarantees
For purposes of subsection (a), a controlled foreign corporation
shall, under regulations prescribed by the Secretary, be considered
as holding an obligation of a United States person if such
controlled foreign corporation is a pledgor or guarantor of such
obligations.
(e) Regulations
The Secretary shall prescribe such regulations as may be
necessary to carry out the purposes of this section, including
regulations to prevent the avoidance of the provisons (!2) of this
section through reorganizations or otherwise.