Proposed rules would exempt corporate US shareholders from Sec. 956
 

Proposed rules would exempt corporate US shareholders from Sec. 956

The IRS issued proposed regulations (REG-114540-18) on Wednesday providing that Sec. 956, which requires an income inclusion by U.S. shareholders of controlled foreign corporations (CFCs) that invest in U.S. property, should not apply to corporate shareholders.

Under the participation exemption system introduced by P.L. 115-97, known as the Tax Cuts and Jobs Act, earnings of a CFC that are repatriated to a corporate U.S. shareholder as a dividend are typically effectively exempt from tax because the shareholder is permitted to take an equal and offsetting dividends-received deduction under Sec. 245A. A corporate U.S. shareholder’s Sec. 956 inclusion is not eligible for the Sec. 245A dividends-received deduction because it is not a dividend. As a result, continuing to have Sec. 956 apply to corporate U.S. shareholders of CFCs that qualify for Sec. 245A deductions would result in actual dividends and amounts that are “substantially the equivalent of a dividend” being treated differently, which the IRS says is at odds with Sec. 956’s manifest purpose.. Read more on the Journal of Accountancy.