26 USC 952 - Subpart F income defined

View all text of Subpart F [§ 951 - § 965]

§ 952. Subpart F income defined

(a) In generalFor 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

(1) In general

(A) Subpart F income limited to current earnings and profits

(B) Certain prior year deficits may be taken into account

(i) In general

(ii) Qualified deficitThe 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),1

1 See References in Text note below.

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),1 the rule of the preceding sentence shall apply, except that “1982” shall be substituted for “1962”.

(iii) Qualified activityFor purposes of this paragraph, the term “qualified activity” means any activity giving rise to—(I) foreign base company sales income,(II) foreign base company services income,(III) in the case of a qualified insurance company, insurance income or foreign personal holding company income, or(IV) in the case of a qualified financial institution, foreign personal holding company income.

(iv) Pro rata shareFor 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

(vi) Qualified financial institution

(vii) Special rules for insurance income(I) In general(II) Special rules for affiliated groups

(i) In general

(ii) Qualified chain memberFor 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

(2) Recharacterization in subsequent taxable years

(3) Special rule for determining earnings and profits

(d) Income derived from foreign country

(Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1008; amended Pub. L. 89–809, title I, § 104(j), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 94–455, title X, §§ 1062, 1065(a)(1), title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1650, 1653, 1834; Pub. L. 97–248, title II, § 288(b)(1), Sept. 3, 1982, 96 Stat. 571; Pub. L. 99–509, title VIII, § 8041(b), Oct. 21, 1986, 100 Stat. 1963; Pub. L. 99–514, title XII, § 1221(b)(3)(A), (f), title XVIII, § 1876(c)(1), Oct. 22, 1986, 100 Stat. 2552, 2554, 2898; Pub. L. 100–647, title I, § 1012(i)(16), (22)–(25)(A), title VI, § 6131(a), Nov. 10, 1988, 102 Stat. 3510–3512, 3720; Pub. L. 105–34, title XI, § 1112(c)(1), Aug. 5, 1997, 111 Stat. 969; Pub. L. 108–357, title IV, § 415(c)(1), Oct. 22, 2004, 118 Stat. 1511; Pub. L. 109–135, title IV, § 412(kk), Dec. 21, 2005, 119 Stat. 2639; Pub. L. 110–172, § 11(g)(14), Dec. 29, 2007, 121 Stat. 2490; Pub. L. 115–97, title I, §§ 14211(b)(1), 14212(b)(1)(C), Dec. 22, 2017, 131 Stat. 2217.)