Taxation of Income Earned by Foreign Subsidiaries: The Subpart F and PFIC Regimes (Currently Unavailable)

Author: Robert J. Misey

CPE Credit:  2 hours for CPAs
2 hours Federal Tax Law for CTEC
2 hours Federal Tax Related for EAs and OTRPs

Many U.S. taxpayers erroneously think that they do not have to pay U.S. taxes on income earned by their foreign subsidiaries. There are two major exceptions to deferral of income earned by foreign subsidiaries — the Subpart F and the Passive Foreign Investment Company (PFIC) regimes. Both of these regimes constitute traps for the unwary who may unknowingly be subject to taxes and penalties for failure to comply.

Presented by Robert Misey, J.D., LL.M., M.B.A., and Benjamin Genzer, J.D., this practical two-hour course will help you understand the tax rules and potential pitfalls presented by income earned from foreign subsidiaries. Mr. Misey will focus on the identification, taxation and reporting of Subpart F income and the role of PFICs in your or your clients' corporate structure.

Publication Date: August 2017

Designed For
Business tax and finance executives, directors, managers and staff; CPAs; Enrolled Agents; tax preparers and staff; accountants, attorneys and financial advisors who work with and advise businesses that have cross-border operations, activities and issues

Topics Covered

  • Determination of whether a foreign corporation is a controlled foreign corporation ("CFC")
  • How to structure ownership so that a foreign corporation is not a CFC
  • Identification of Subpart F income for inclusion on a U.S. taxpayer's return
  • Use of the exceptions to avoid including Subpart F income
  • Understanding the inclusion for investment in U.S. property, including the pledge of foreign assets
  • Reporting Subpart F income on Form 5471
  • Determination of whether a foreign corporation is a Passive Foreign Investment Company (PFIC) - The Assets Test - The Income Test
  • Understanding the two alternatives by which PFICs can be taxed - Excess Distributions - Qualified Electing Funds
  • Reporting for PFICs on Form 8621

Learning Objectives

  • Recognize the principles surrounding the taxation of income earned by foreign subsidiaries
  • Identify, exclude, and report Subpart F income
  • Identify and report PFIC income
  • Recognize why Congress created the Subpart F anti-deferral regime
  • Differentiate examples of controlled foreign corporation (CFC)
  • Describe income earned by a CFC would be considered Subpart F income
  • Recognize scenarios where the de maximis rule for Subpart F income applies
  • Identify when a taxpayer has an inclusion of income under Subpart F or through a QEF election, double taxation is avoided
  • Differentiate PFIC distributions from being taxed as excess distributions
  • Recognize the definition of a U.S. shareholder of a CFC
  • Identify the two requirements for Subpart F income
  • Recognize when Subpart F income is limited
  • Identify the type of income for a Foreign personal holding company income
  • Differentiate characteristics when determining whether a corporation is a PFIC
  • Describe the reason a QEF has to be elected, but Subpart F inclusion doesn't
  • Recognize when the marked to market election is used
  • Identify the requirements to be completed when a taxpayer has Subpart F income
  • Differentiate when a U.S. shareholder can exclude Supbart F income
  • Recognize what additional information is required if a Form 8621, Part V, Line 15e is greater than zero

Level
Intermediate

Instructional Method
Self-Study

NASBA Field of Study
Taxes (2 hours)

Program Prerequisites
Basic knowledge of U.S. international income taxation.

Advance Preparation
None

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