Tax Considerations When Exiting a Controlled Foreign Corporation

This CLE/CPE webinar will provide tax counsel and advisers guidance on the regulatory framework and tax implications when exiting a controlled foreign corporation (CFC) or a CFC dissolves. The panel will discuss the types of income that create a U.S. tax obligation and methods of dissolution. They will also cover pitfalls to avoid and offer planning advice for CFC stock dispositions, including coverage of Section 1248 dividend treatment, the election under Section 962 to tax individuals at corporate rates, and F reorganizations.

Exiting a CFC, or its dissolution, can create unforeseen and costly tax consequences such as long-term capital gains, ordinary income taxes, or other tax implications. However, in certain situations and with proper planning, certain mechanisms could be tax-free.

Generally speaking, income effectively connected to a U.S. trade or business and fixed or determinable annual or periodic income (FDAP) is not subject to U.S. corporate income tax. At the same time, Subpart F income and GILTI/NCTI income are subject to U.S. tax reporting.

Liquidation of a CFC or a check-the-box election can result in Subpart F or GILTI/NCTI income. While the top individual income tax rate is 37%, the top corporate income tax rate is 21%. Proper planning and an election under IRC Section 962 can mitigate taxes owed by certain CFC shareholders. CFC owners and their tax advisers need to understand the tax implications of exiting a CFC and the strategies available to lessen the tax consequences of CFC liquidations.

Listen as our panel of foreign tax specialists explains the tax ramifications of a CFC disposition and offers advice and strategies for CFC shareholders and their tax advisers.