November 27 2019

Final regulations issued on ownership attribution for determining whether person is related to CFC, and on rents derived in active conduct of trade or business

Source: IBFD Tax Research Platform News

The US Treasury Department and the US Internal Revenue Service (IRS) have issued final regulations (9883) under sections 954 and 958 of the US Internal Revenue Code (IRC) to provide guidance related to the determination of foreign base company income (FBCI), which is a subcategory of subpart F income.

The final regulations were published in the Federal Register on 19 November 2019.

The final regulations provide guidance regarding the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation (CFC) under IRC section 954(d)(3). The final regulations limit the application of the downward attribution rules of IRC section 318(a)(3)(A) for purposes of the definition of a related person in IRC section 954(d)(3) to avoid inappropriately treating entities, including CFCs, that do not have a significant relationship to each other as related persons.

In addition, the final regulations provide rules for determining whether a CFC is considered to derive rents in the active conduct of a trade or business for purposes of computing foreign personal holding company income (FPHCI).

The final regulations adopt the proposed regulations (REG–125135–15), published on 20 May 2019, without changes (see United States-1, News 20 May 2019).

The final regulations are designated Treasury Regulations sections 1.954-0, 1.954-1, 1.954-2, and 1.958-2.

The final regulations generally apply to taxable years of CFCs ending on or after 19 November 2019, and taxable years of US shareholders in which or with which such taxable years end.