Determining U.S. Shareholder and CFC Status

A U.S. person includes a citizen or resident of the United States, a domestic partnership, a domestic corporation, domestic estates, and certain trusts (IRC Sec 7701(a)(30)).

A U.S. shareholder is any U.S. person who owns or is considered as owning 10 percent or more of the total combined voting power or 10 percent or more of the total value of shares of stock of a foreign corporation (IRC Sec 951(b)).

And, a CFC is a foreign corporation owned (directly, indirectly, or constructively) by U.S. shareholders, whose ownership is more than 50 percent of the combined voting power or value of the stock of a foreign corporation (IRC Sec 957(a)).

Many tax professionals struggle with determining who qualifies as a U.S. shareholder, which foreign entities meet the definition of a CFC, and whether direct, indirect, and particularly constructive ownership rules may apply. The Tax Cuts and Jobs Act of 2017 (TCJA) further complicated these analyses with the repeal of Section 958(b)(4). This Section prevented the attribution of stock ownership from foreign entities to lower-level U.S. persons. Consequently, more U.S. persons are now treated as U.S. shareholders.

These determinations, however, are necessary. The IRS has in place a practice unit under the Large Business & International (LB&I) Division devoted to Section 958 Rules for Determining Stock Ownership. These same determinations impact whether Form 5471, Information Return of U.S. Persons With Respect to CFCs, must be filed. Not filing or incorrectly filing Form 5471 when required can generate harsh penalties.

Listen as our panel of experienced international tax advisers provides actionable steps and examples for determining U.S. shareholder and CFC status.

1. Determining U.S. shareholder and CFC status: introduction
2. U.S. person
3. U.S. shareholder
4. CFCs
5. Attribution rules
   1. Direct ownership
   2. Indirect ownership
   3. Constructive ownership
6. Safe harbor relief
7. Form 5471

The panel will cover these and other critical issues:

• Which categories of Form 5471 filers apply based on CFC status
• Common misunderstandings that lead to incorrect CFC classifications
• Attribution rules and ownership thresholds for U.S. shareholders
• Real life examples clarifying the complexities of CFC status determinations

Learning Objectives

After completing this course, you will be able to:

• Identify U.S. persons under IRC Section 7701(a)(30)
• Determine who qualifies as a U.S. shareholder
• Ascertain the criteria for indirect ownership of a CFC
• Decide how to avoid common Form 5471 pitfalls

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of international taxation including residency determination, foreign entity classifications, application of treaty benefits, as well as GILTI, Subpart F, and the related Section 250 deductions.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).