Frequently Asked Questions
Who is eligible for the CFC Intangible Asset Basis Increase?
Applies to Controlled Foreign Corporations (CFCs) conducting active research or licensing intangibles, making it easier to pass the PFIC asset test.
How does the CFC Intangible Asset Basis Increase work?
Increases the adjusted basis of total assets for a CFC by 100% of R&D expenses (last 3 years) and 300% of licensed intangible payments for PFIC testing purposes.
What law authorizes the CFC Intangible Asset Basis Increase?
The CFC Intangible Asset Basis Increase is authorized under IRC §1298(e) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §1298
Source: Internal Revenue Code, Title 26, United States Code
§ 1298. Special rules(a) Attribution of ownershipFor purposes of this part—(1) Attribution to United States personsThis subsection—(A) shall apply to the extent that the effect is to treat stock of a passive foreign investment company as owned by a United States person, and
(B) except to the extent provided in regulations, shall not apply to treat stock owned (or treated as owned under this subsection) by a United States person as owned by any other person.
(2) Corporations(A) In generalIf 50 percent or more in value of the stock of a corporation is owned, directly or indirectly, by or for any person, such person shall be considered as owning the stock owned directly or indirectly by or for such corporation in that proportion which the value of the stock which such person so owns bears to the value of all stock in the corporation.
(B) 50-percent limitation not to apply to PFICFor purposes of determining whether a shareholder of a passive foreign investment company is treated as owning stock owned directly or indirectly by or for such company, subparagraph (A) shall be applied without regard to the 50-percent limitation contained therein. Section 1297(d) shall not apply in determining whether a corporation is a passive foreign investment company for purposes of this subparagraph.
(3) Partnerships, etc.Stock owned, directly or indirectly, by or for a partnership, estate, or trust shall be considered as being owned proportionately by its partners or beneficiaries.
(4) OptionsTo the extent provided in regulations, if any person has an option to acquire stock, such stock shall be considered as owned by such person. For purposes of this paragraph, an option to acquire such an option, and each one of a series of such options, shall be considered as an option to acquire such stock.
(5) Successive applicationStock considered to be owned by a person by reason of the application of paragraph (2), (3), or (4) shall, for purposes of applying such paragraphs, be considered as actually owned by such person.
(b) Other special rulesFor purposes of this part—(1) Time for determinationStock held by a taxpayer shall be treated as stock in a passive foreign investment company if, at any time during the holding period of the taxpayer with respect to such stock, such corporation (or any predecessor) was a passive foreign investment company which was not a qualified electing fund. The preceding sentence shall not apply if the taxpayer elects to recognize gain (as of the last day of the last taxable year for which the company was a passive foreign investment company (determined without regard to the preceding sentence)) under rules similar to the rules of section 1291(d)(2).
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