Foreign Personal Holding Company Income Reporting: Mastering Subpart F Inclusions and Deemed Dividend Rules

A significant challenge for tax advisers serving clients with offshore holding companies is identifying, calculating and reporting foreign personal holding company income (FPHCI). From determining whether a U.S. taxpayer actually has a reportable ownership interest in an FPHCI to determining what income must be reported, tax advisers often face complex compliance challenges in calculating current tax on FPHC ownership and income.

Foreign personal holding company rules fall under the Subpart F regime. Section 954(c) defines an FPHC as a foreign entity that holds assets that generate passive income such as interest, dividends, and gains from sale of passive income-generating assets. However, the FPHC rules have numerous exceptions, as well as look-through rules that can recharacterize dividend payments based on the character of the income by the related payer to the holding company.

Identifying FPHCI is critical in determining whether undistributed income must be recognized as currently taxable under the Subpart F rules, and whether the income must be classified in the “passive bucket” for purposes of foreign tax credit calculations and limitations. Tax advisers serving clients with foreign holding companies should have an in-depth knowledge of the FPHCI rules to avoid unnecessary tax consequences.

Listen as our experienced panel goes beyond the basics to provide a deep and practical guide to the FPHCI rules, offering useful tools for both compliance and planning challenges.

1. Identifying FPHCI through ownership and income tests
   1. Indirect ownership
   2. Ownership attribution rules
   3. Treaty exclusions from gross income calculations
2. Reporting FPHC holdings and income
3. Treatment of undistributed FPHCI
4. Look-through provisions on distributions from related entities
5. Calculating foreign tax credit “buckets” for FPHCI

The panel will discuss these and other important questions:

• What passive activities qualify for exclusion from FPHCI calculations?
• How do the look-through rules operate to recharacterize certain dividend payments?
• What is the reporting treatment of the sale of FPHC ownership interests?
• How do the attribution rules function in determining ownership of an FPHC interest?

Learning Objectives

After completing this course, you will be able to:

• Recognize what constitutes both direct ownership and indirect ownership (through attribution rules) of an FPHC
• Discern what FPCHI must be reported as currently taxable
• Determine how to allocate FPHCI in appropriate foreign tax credit “buckets”
• Identify appropriate tax reporting treatment of sales of FPHC interests

• 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 at mid-level within the organization, preparing complex tax forms and schedules, supervising other preparers/accountants. Specific knowledge and understanding of foreign tax credit rules and passive/portfolio income definitions; familiarity with Subpart F income inclusions and deemed dividend provisions. Foundational knowledge of the Subpart F and Foreign Tax Credit rules.

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).