No Dividend on CFC Midyear Distribution of Sub F Income

The IRS Office of Chief Counsel detailed in a memorandum published March 10, 2023 a scenario in which a controlled foreign corporation's midyear distribution of previously taxed earnings and profits to its U.S. owner would not be recognized as a gain.

The foreign entity's owner, a domestic corporation, is described in the memo as having included in its own gross income for the year Subpart F income and global intangible low-taxed income allocated to the foreign corporation.

Partway through the year, according to the memo, the foreign corporation distributes an amount equal to the Subpart F income and GILTI in the form of a dividend to its U.S. parent.

Under Internal Revenue Code Section 961(B)(1) And Subsection 1.961-2(C), The U.S. Entity Would Not Recognize A Gain On The Distribution, The Internal Revenue Service Said.

The adjusted basis of its stock in the foreign business would increase at first because of the U.S. company's inclusion of foreign income, but would then decrease due to the dividend, according to the memo.

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