Frequently Asked Questions
Who is eligible for the U.S. Property Investment Exceptions?
CFCs that need to hold U.S. assets or provide liquidity to U.S. affiliates without triggering a Section 956 inclusion.
How does the U.S. Property Investment Exceptions work?
Provides specific exceptions to the rule that treats investments in U.S. property as taxable deemed distributions, including U.S. bank deposits, export property, and certain stock of unrelated domestic corporations.
What law authorizes the U.S. Property Investment Exceptions?
The U.S. Property Investment Exceptions is authorized under IRC §956(c)(2) of the Internal Revenue Code (Title 26, United States Code).
Statutory Text — IRC §956
Source: Internal Revenue Code, Title 26, United States Code
§ 956. Investment of earnings in United States property(a) General ruleIn the case of any controlled foreign corporation, the amount determined under this section with respect to any United States shareholder for any taxable year is the lesser of—(1) the excess (if any) of—(A) such shareholder’s pro rata share of the average of the amounts of United States property held (directly or indirectly) by the controlled foreign corporation as of the close of each quarter of such taxable year, over
(B) the amount of earnings and profits described in section 959(c)(1)(A) with respect to such shareholder, or
(2) such shareholder’s pro rata share of the applicable earnings of such controlled foreign corporation.
The amount taken into account under paragraph (1) with respect to any property shall be its adjusted basis as determined for purposes of computing earnings and profits, reduced by any liability to which the property is subject.
(b) Special rules(1) Applicable earningsFor purposes of this section, the term “applicable earnings” means, with respect to any controlled foreign corporation, the sum of—(A) the amount (not including a deficit) referred to in section 316(a)(1) to the extent such amount was accumulated in prior taxable years, and
(B) the amount referred to in section 316(a)(2),
but reduced by distributions made during the taxable year and by earnings and profits described in section 959(c)(1).
(2) Special rule for U.S. property acquired before corporation is a controlled foreign corporationIn applying subsection (a) to any taxable year, there shall be disregarded any item of United States property which was acquired by the controlled foreign corporation before the first day on which such corporation was treated as a controlled foreign corporation. The aggregate amount of property disregarded under the preceding sentence shall not exceed the portion of the applicable earnings of such controlled foreign corporation which were accumulated during periods before such first day.
(3) Special rule where corporation ceases to be controlled foreign corporationIf any foreign corporation ceases to be a controlled foreign corporation during any taxable year—(A) the determination of any United States shareholder’s pro rata share shall be made on the basis of stock owned (within the meaning of section 958(a)) by such shareholder on the last day during the taxable year on which the foreign corporation is a controlled foreign corporation,
(B) the average referred to in subsection (a)(1)(A) for such taxable year shall be determined by only taking into account quarters ending on or before such last day, and
(C) in determining applicable earnings, the amount taken into account by reason of being described in paragraph (2) of section 316(a) shall be the portion of the amount so described which is allocable (on a pro rata basis) to the part of such year during which the corporation is a controlled foreign corporation.
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