FROM THE OFFICE OF PUBLIC AFFAIRS
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August 5, 2004
JS-1838
Treasury and IRS Provide Guidance on Allocation of Earnings of Controlled
Foreign Corporations
Today the Treasury Department and the Internal Revenue Service issued proposed regulations providing guidance for determining a
These proposed regulations are intended to update the existing regulations in this area, which date back to 1965, to reflect the increased complexity of international business arrangements. "The proposed regulations provide results that are more consistent with the economic interests of shareholders in a controlled foreign corporation," said Greg Jenner, Acting Assistant Secretary for Tax Policy.
In particular, the proposed regulations provide detailed rules for determining a U.S. shareholder's pro rata share of subpart F amounts when the controlled foreign corporation has multiple classes of stock outstanding and the distribution of earnings among two or more classes of stock depends upon the exercise of discretion by the board of directors or similar governing body of the corporation. For purposes of determining a
The proposed regulations also provide that restrictions or limitations on the distribution of earnings to a U.S. shareholder that are structured by the corporation or its shareholders (e.g., as part of the terms of a class of stock or through other arrangements) generally are not be taken into account in determining a U.S. shareholder's pro rata share of subpart F amounts, subject to certain specified exceptions.
When issued in final form, the regulations will be effective for taxable years beginning on or after
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