I.R.C. § 952(a) In General —
For purposes of this subpart, the term “subpart F income"
means, in the case of any controlled foreign corporation, the sum of—
I.R.C. § 952(a)(1) —
insurance income (as defined under section 953),
I.R.C. § 952(a)(2) —
the foreign base company income
(as determined under section 954),
I.R.C. § 952(a)(3) —
an amount equal to the product of—
I.R.C. § 952(a)(3)(A) —
the income of such corporation other than income which—
I.R.C. § 952(a)(3)(A)(i) —
is attributable to earnings and profits of the foreign corporation included in the
gross income of a United States person under section 951 (other than by reason of this paragraph), or
I.R.C. § 952(a)(3)(A)(ii) —
is described in subsection (b), multiplied by
I.R.C. § 952(a)(3)(B) —
the international boycott factor
(as determined under section 999),
I.R.C. § 952(a)(4) —
the sum of the amounts of any illegal bribes, kickbacks, or other payments (within
the meaning of section 162(c)) paid by or on behalf of the corporation during the taxable year of the corporation
directly or indirectly to an official, employee, or agent in fact of a government,
and
I.R.C. § 952(a)(5) —
the income of such corporation derived from any foreign country during any period
during which section 901(j) applies to such foreign country.
The payments referred to in paragraph (4) are payments
which would be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor
were a United States person. For purposes of paragraph
(5), the income described therein shall be reduced, under regulations prescribed
by the Secretary, so as to take into account deductions
(including taxes) properly allocable to such income.
I.R.C. § 952(b) Exclusion Of United States Income —
In the case of a controlled foreign corporation, subpart F income does not include
any item of income from sources within the United States which is effectively connected
with the conduct by such corporation of a trade or business within the United States
unless such item is exempt from taxation (or is subject to a reduced rate of tax)
pursuant to a treaty obligation of the United States. For purposes of this subsection,
any exemption (or reduction) with respect to the tax imposed by section 884 shall
not be taken into account.
I.R.C. § 952(c) Limitation
I.R.C. § 952(c)(1) In General
I.R.C. § 952(c)(1)(A) Subpart F Income Limited To Current Earnings And Profits —
For purposes of subsection (a), the subpart F income of any controlled foreign corporation
for any taxable year shall not exceed the earnings and profits of such corporation
for such taxable year.
I.R.C. § 952(c)(1)(B) Certain Prior Year Deficits May Be Taken Into Account
I.R.C. § 952(c)(1)(B)(i) In General —
The amount included in the gross income of any United States shareholder under section
951(a)(1)(A) for any taxable year and attributable to a qualified activity shall be reduced by
the amount of such shareholder's pro rata share of any qualified deficit.
I.R.C. § 952(c)(1)(B)(ii) Qualified Deficit —
The term “qualified deficit” means any deficit in earnings and profits of the controlled
foreign corporation for any prior taxable year which began after December 31, 1986,
and for which the controlled foreign corporation was a controlled foreign corporation;
but only to the extent such deficit--
I.R.C. § 952(c)(1)(B)(ii)(I) —
is attributable to the same qualified activity as the activity giving rise to the
income being offset, and
I.R.C. § 952(c)(1)(B)(ii)(II) —
has not previously been taken into account under this subparagraph.
In determining the deficit attributable to qualified
activities described in subclause (II) or (III) of clause (iii), deficits in earnings
and profits (to the extent not previously taken into account under this section)
for taxable years beginning after 1962 and before 1987 also shall be taken into account.
In the case of the qualified activity described in clause (iii)(I), the rule of
the preceding sentence shall apply, except that “1982” shall be substituted for “1962”.
I.R.C. § 952(c)(1)(B)(iii) Qualified Activity —
For purposes of this paragraph, the term “qualified activity” means any activity
giving rise to—
I.R.C. § 952(c)(1)(B)(iii)(I) —
foreign base company sales income,
I.R.C. § 952(c)(1)(B)(iii)(II) —
foreign base company services income,
I.R.C. § 952(c)(1)(B)(iii)(III) —
in the case of a qualified insurance company, insurance income or foreign personal
holding company income, or
I.R.C. § 952(c)(1)(B)(iii)(IV) —
in the case of a qualified financial institution, foreign personal holding company
income.
I.R.C. § 952(c)(1)(B)(iv) Pro Rata Share —
For purposes of this paragraph, the shareholder's pro rata share of any deficit
for any prior taxable year shall be determined under rules similar to rules under
section 951(a)(2) for whichever of the following yields the smaller share:
I.R.C. § 952(c)(1)(B)(iv)(I) —
the close of the taxable year, or
I.R.C. § 952(c)(1)(B)(iv)(II) —
the close of the taxable year in which the deficit arose.
I.R.C. § 952(c)(1)(B)(v) Qualified Insurance Company —
For purposes of this subparagraph, the term “qualified insurance company” means
any controlled foreign corporation predominantly engaged in the active conduct of
an insurance business in the taxable year and in the prior taxable years in which
the deficit arose.
I.R.C. § 952(c)(1)(B)(vi) Qualified Financial Institution —
For purposes of this paragraph, the term “qualified financial institution” means
any controlled foreign corporation predominantly engaged in the active conduct of
a banking, financing, or similar business in the taxable year and in the prior taxable
year in which the deficit arose.
I.R.C. § 952(c)(1)(B)(vii) Special Rules For Insurance Income
I.R.C. § 952(c)(1)(B)(vii)(I) In General —
An election may be made under this clause to have section 953(a) applied for purposes of this title without regard to the same country exception
under
paragraph (1)(A) thereof. Such election, once made, may be revoked only with the
consent of the Secretary.
I.R.C. § 952(c)(1)(B)(vii)(II) Special Rules For Affiliated Groups —
In the case of an affiliated group of corporations
(within the meaning of section 1504 but without regard to section 1504(b)(3) and by substituting “more than 50 percent” for “at least 80 percent"
each place it appears), no election may be made under subclause (I)
for any controlled foreign corporation unless such election is made for all other
controlled foreign corporations who are members of such group and who were created
or organized under the laws of the same country as such controlled foreign corporation.
For purposes of clause (v), in determining whether any controlled corporation described
in the preceding sentence is a qualified insurance company, all such corporations
shall be treated as 1 corporation.
I.R.C. § 952(c)(1)(C) Certain Deficits Of Member Of The Same Chain Of Corporations May Be Taken Into Account
I.R.C. § 952(c)(1)(C)(i) In General —
A controlled foreign corporation may elect to reduce the amount of its subpart F
income for any taxable year which is attributable to any qualified activity by the
amount of any deficit in earnings and profits of a qualified chain member for a taxable
year ending with (or within) the taxable year of such controlled foreign corporation
to the extent such deficit is attributable to such activity. To the extent any deficit
reduces subpart F income under the preceding sentence, such deficit shall not be
taken into account under subparagraph (B).
I.R.C. § 952(c)(1)(C)(ii) Qualified Chain Member —
For purposes of this subparagraph, the term “qualified chain member” means, with
respect to any controlled foreign corporation, any other corporation which is created
or organized under the laws of the same foreign country as the controlled foreign
corporation but only if—
I.R.C. § 952(c)(1)(C)(ii)(I) —
all the stock of such other corporation
(other than directors' qualifying shares) is owned at all times during the taxable
year in which the deficit arose (directly or through 1 or more corporations other
than the common parent) by such controlled foreign corporation, or
I.R.C. § 952(c)(1)(C)(ii)(II) —
all the stock of such controlled foreign corporation (other than directors' qualifying
shares) is owned at all times during the taxable year in which the deficit arose
(directly or through 1 or more corporations other than the common parent) by such
other corporation.
I.R.C. § 952(c)(1)(C)(iii) Coordination —
This subparagraph shall be applied after subparagraphs
(A) and (B).
I.R.C. § 952(c)(2) Recharacterization In Subsequent Taxable Years —
If the subpart F income of any controlled foreign corporation for any taxable year
was reduced by reason of paragraph (1)(A), any excess of the earnings and profits
of such corporation for any subsequent taxable year over the subpart F income of
such foreign corporation for such taxable year shall be recharacterized as subpart
F income under rules similar to the rules applicable under section 904(f)(5).
I.R.C. § 952(c)(3) Special Rule For Determining Earnings And Profits —
For purposes of this subsection, earnings and profits of any controlled foreign
corporation shall be determined without regard to paragraphs (4), (5), and (6) of
section 312(n). Under regulations, the preceding sentence shall not apply to the extent it would
increase earnings and profits by an amount which was previously distributed by the
controlled foreign corporation.
I.R.C. § 952(d) Income Derived From Foreign Country —
The Secretary shall prescribe such regulations as may be necessary or appropriate
to carry out the purposes of subsection
(a)(5), including regulations which treat income paid through 1 or more entities
as derived from a foreign country to which section 901(j) applies if such income was, without regard to such entities, derived from such country.
(Added Pub. L. 87-834, 12(a), Oct. 16, 1962, 76 Stat. 1008, and amended Pub. L. 89-809, title I, 104(j), Nov. 13, 1966, 80 Stat. 1562; Pub. L. 94-455, title X, 1062, 1065(a)(1), title XIX, 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1650,
1653, 1834; Pub. L. 97-248,
title II, 288(b)(1), Sept. 3, 1982, 96 Stat. 571; Pub. L. 99-509, title VIII, 8041(b), Oct. 21, 1986, 100 Stat. 1963; Pub. L. 99-514, title XII, 1221(b)(3)(A), (f), title XVIII, 1876(c)(1), Oct. 22, 1986, 100 Stat.
2552, 2554, 2898; Pub. L. 100-647, title I, 1012(i)(16), (22)-(25)(A), title VI, 6131(a), Nov. 10, 1988, 102 Stat.
3510-3512, 3720; Pub. L. 105-34, title XI, Sec. 1112(c)(1), Aug. 5, 1997, 111 Stat 788; Pub. L. 108-357, title IV, Sec. 415(c)(1), Oct. 22, 2004, 118 Stat. 1418; Pub. L. 109-135, title IV, Sec. 412(kk), Dec. 21, 2005, 119 Stat. 2577; Pub. L. 110-172, Sec. 11(g)(14), Dec. 29, 2007, 121 Stat. 2473; Pub. L. 115-97, title I, Secs. 14211(b)(1), 14212(b)(1)(C), Dec. 22, 2017, 131 Stat. 2054.)
BACKGROUND NOTES
AMENDMENTS
2017 - Subsec. (c)(1)(B)(i). Pub. L. 115-97, Sec. 14212(b)(1)(C), amended clause (i) by substituting “section 951(a)(1)(A)”
for “section 951(a)(1)(A)(i)”.
Subsec. (c)(1)(B)(iii)(I)-(V). Pub. L. 115-97, Sec. 14211(b)(1), amended clause (iii) by striking subclause (I) and by redesignating subclauses (II)-(V)
as subclauses (I)-(IV), respectively. Before being struck, subclause (I) read as follows:
“(I) foreign base company oil related income,”.
2007 - Subsec. (b). Pub. L. 110-172, Sec. 11(g)(14), amended subsec. (b) by striking the last sentence. Before being struck, it read
as follows: “For purposes of this subsection, any exemption
(or reduction) with respect to the tax imposed by section 884 shall not be taken
into account.”
2005 — Subsec. (c)(1)(B)(ii). Pub. L. 109-135, Sec. 412(kk), amended clause (ii) by substituting “subclause (II) or (III)
of clause (iii)” for “clause (iii)(III) or (IV)” and by substituting “clause
(iii)(I)” for “clause (iii)(II)”.
2004 - Subsec. (c)(1)(B)(iii). Pub. L. 108-357, Sec. 415(c)(1), amended clause (iii) by striking subclause (I) and redesignating subclause
(II)-(VI) as subclause (I)-(V), respectively. Before being struck, subclause (I) read
as follows:"(I) foreign base company shipping income,”.
1997--Subsec. (b). Pub. L. 105-34, Sec. 1112(c)(1), added a new sentence at the end of subsection (b).
1988--Subsec. (c)(1)(B)(ii). Pub. L. 100-647, 1012(i)(24), inserted at end “In determining the deficit attributable to qualified
activities described in clause (iii)(III) or (IV), deficits in earnings and profits
(to the extent not previously taken into account under this section)
for taxable years beginning after 1962 and before 1987 also shall be taken into account.
In the case of the qualified activity described in clause (iii)(II), the rule of the
preceding sentence shall apply, except that ‘1982’ shall be substituted for ‘1962’.”
Subsec. (c)(1)(B)(iii)(III) to (VI). Pub. L. 100-647, 1012(i)(22), (23), added subcls. (III) and (IV), redesignated former subcl. (III)
as (V) and substituted “insurance income or foreign personal holding company income,”
for “insurance income”, and redesignated former subcl. (IV)
as (VI).
Subsec. (c)(1)(B)(vii). Pub. L. 100-647, 6131(a), added cl. (vii).
Subsec. (c)(1)(C). Pub. L. 100-647, 1012(i)(25)(A), added subpar. (C).
Subsec. (c)(3). Pub. L. 100-647, 1012(i)(16), added par. (3).
1986--Subsec. (a). Pub. L. 99-509, 8041(b)(1), added par. (5)
and last sentence.
Subsec. (a)(1). Pub. L. 99-514, 1221(b)(3)(A), amended par. (1) generally. Prior to amendment, par. (1) read as
follows: “the income derived from the insurance of United States risks (as determined
under section 953), and”.
Subsec. (b). Pub. L. 99-514, 1876(c)(1), inserted last sentence.
Subsec. (c). Pub. L. 99-514, 1221(f), added subsec. (c) and struck out former subsec. (c) which read as follows:
“For purposes of subsection (a), the subpart F income of any controlled foreign corporation
for any taxable year shall not exceed the earnings and profits of such corporation
for such year reduced by the amount (if any) by which--
“(1) an amount equal to--
“(A) the sum of the deficits in earnings and profits for prior taxable years beginning
after December 31, 1962, plus
“(B) the sum of the deficits in earnings and profits for taxable years beginning after
December 31, 1959, and before January 1, 1963 (reduced by the sum of the earnings
and profits for such taxable years); exceeds
“(2) an amount equal to the sum of the earnings and profits for prior taxable years
beginning after December 31, 1962, allocated to other earnings and profits under section
959(c)(3).
For purposes of the preceding sentence, any deficit in earnings and profits for any
prior taxable year shall be taken into account under paragraph (1) for any taxable
year only to the extent it has not been taken into account under such paragraph for
any preceding taxable year to reduce earnings and profits of such preceding year.”
Subsec. (d). Pub. L. 99-509, 8041(b)(2), added subsec. (d).
Pub. L. 99-514, 1221(f), struck out subsec. (d), special rule in case of indirect ownership, which
read as follows: “For purposes of subsection (c), if--
“(1) a United States shareholder owns (within the meaning of section 958(a)) stock
of a foreign corporation, and by reason of such ownership owns (within the meaning
of such section)
stock of any other foreign corporation, and
“(2) any of such foreign corporations has a deficit in earnings and profits for the
taxable year, then the earnings and profits for the taxable year of each such foreign
corporation which is a controlled foreign corporation shall, with respect to such
United States shareholder, be properly reduced to take into account any deficit described
in paragraph (2) in such manner as the Secretary shall prescribe by regulations.”
1982--Subsec. (a). Pub. L. 97-248 inserted provision that the payments referred to in par. (4) are payments which would
be unlawful under the Foreign Corrupt Practices Act of 1977 if the payor were a United
States person.
1976--Subsec. (a)(3). Pub. L. 94-455, 1062(a), added par. (3).
Subsec. (a)(4). Pub. L. 94-455, 1065(a)(1), added par. (4).
Subsec. (d). Pub. L. 94-455, 1906(b)(13)(A), struck out “or his delegate” after “Secretary”.
1966--Subsec. (b). Pub. L. 89-809 substituted “In the case of a controlled foreign corporation, subpart F income does
not include any item of income from sources within the United States which is effectively
connected with the conduct by such corporation of a trade or business within the United
States unless such item is exempt from taxation (or is subject to a reduced rate of
tax) pursuant to a treaty obligation of the United States” for “Subpart F income does
not include any item includible in gross income under this chapter (other than this
subpart) as income derived from sources within the United States of a foreign corporation
engaged in trade or business in the United States”.
EFFECTIVE DATE OF 2017 AMENDMENTS
Amendments by sections 14211(b)(1) and 14212(b)(1)
of Pub. L. 115-97 effective for taxable years of foreign corporations beginning after December 31,
2017, and for taxable years of United States shareholders with or within which such
taxable years of foreign corporations end.
EFFECTIVE DATE OF 2007 AMENDMENT
Amendment by section 11(g)(14)
of Pub. L. 110-172 effective on the date of the enactment of this Act [Enacted: Dec. 29, 2007].
EFFECTIVE DATE OF 2005 AMENDMENTS
Amendments by section 412(kk) of Pub. L. 109-135 effective on the date of the enactment of this Act [Enacted: Dec. 21, 2005].
EFFECTIVE DATE OF 2004 AMENDMENTS
Amendments by section 415(c)(1) of Pub. L. 108-357 effective for taxable years of foreign corporations beginning after December
31, 2004, and for taxable years of United States shareholders with or within
which such taxable years of foreign corporations end.
EFFECTIVE DATE OF 1997 AMENDMENTS
Section 1112(2) of Pub. L. 105-34 provided that:
“The amendment made by paragraph (1) shall apply to taxable years beginning after
December 31, 1986 [enacted: Aug. 5, 1997]”.
EFFECTIVE DATE OF 1988 AMENDMENT
Amendment by section 1012(i)(16), (22)-(25)(A)
of Pub. L. 100-647 effective, except as otherwise provided, as if included in the provision of the Tax
Reform Act of 1986, Pub. L. 99-514, to which such amendment relates, see section 1019(a) of Pub. L. 100-647, set out as a note under section 1 of this title.
Section 6131(b) of Pub. L. 100-647 provided that: “The amendment made by this section
[amending this section] shall take effect as if included in the amendments made by
section 1221(f) of the Reform Act [Pub. L. 99-514].”
EFFECTIVE DATE OF 1986 AMENDMENTS
Amendment by section 1221(b)(3)(A), (f) of Pub. L. 99-514 applicable to taxable years of foreign corporations beginning after Dec. 31, 1986,
except as otherwise provided, see section 1221(g) of Pub. L. 99-514, set out as a note under section 954 of this title.
Amendment by section 1876(c)(1) of Pub. L. 99-514 effective, except as otherwise provided, as if included in the provisions of the
Tax Reform Act of 1984, Pub. L. 98-369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99-514, set out as a note under section 48 of this title.
Amendment by Pub. L. 99-509 effective Jan. 1, 1987, see section 8041(c) of Pub. L. 99-509, set out as a note under section 901 of this title.
EFFECTIVE DATE OF 1982 AMENDMENT
Amendment by Pub. L. 97-248 applicable to payments made after Sept. 3, 1982, see section 288(c) of Pub. L. 97-248, set out as a note under section 162 of this title.
EFFECTIVE DATE OF 1976 AMENDMENTS
Amendment by section 1062 of Pub. L. 94-455 applicable to participation in or cooperation with an international boycott more
than 30 days after Oct. 4, 1976, see section 1066(a) of Pub. L. 94-455, set out as a note under section 908 of this title.
Section 1066(b) of Pub. L. 94-455, as amended by Pub. L. 99-514, 2, Oct. 22, 1986, 100 Stat. 2095, provided that:
“The amendments made by section 1065 [amending this section and sections 995 and 964
of this title] apply to payments described in section 162(c) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]
made more than 30 days after the date of enactment of this Act [Oct. 4, 1976].”
EFFECTIVE DATE OF 1966 AMENDMENT
Amendment by Pub. L. 89-809 applicable with respect to taxable years beginning after Dec. 31, 1966, see section
104(n) of Pub. L. 89-809, set out as a note under section 11 of this title.
DETERMINATION OF CORPORATE EARNINGS AND PROFITS FOR PURPOSES OF APPLYING SUBSECTION
(c)(1)(A)
Section 1012(i)(6) of Pub. L. 100-647 provided that: “For purposes of applying section 952(c)(1)(A) of the 1986 Code, the
earnings and profits of any corporation shall be determined without regard to any
increase in earnings and profits under section 1023(e)(3)(C) of the Reform Act [Pub. L. 99-514, set out as an Effective Date note under section 846 of this title].”
