PROPOSED REGULATIONS REDUCE SECTION 956 INCLUSION FOR CERTAIN CORPORATIONS

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PROPOSED REGULATIONS REDUCE SECTION 956 INCLUSION FOR CERTAIN CORPORATIONS

Posted by Kim Chen on November 2nd, 2018

Under IRC Sec. 956, U.S. shareholders of a Controlled Foreign Corporation (CFC) are taxed on their prorata share of the CFC’s increase in earnings invested in U.S. property. However, the IRS has determined that newly enacted IRC Sec. 245A, which provides a deduction for certain foreign-sourced dividends, creates inconsistencies between actual dividends and Section 956 inclusion amounts. Therefore, under recently issued proposed regulations, the Section 956 amount for a U.S. shareholder is reduced to the extent a Section 245A deduction would have been allowed if the shareholder had received a distribution from the CFC. The reduction doesn’t apply to noncorporate U.S. shareholders, regulated investment companies, and real estate investment trusts. Taxpayers may rely on the proposed regulations for tax years of a CFC beginning after 12/31/17, and for tax years of a U.S. shareholder in which or with which such tax years of the CFC end. REG-114540-18 .