Restores limitations on downward attribution of stock ownership to prevent U.S. persons from being considered as owning stock held by non-U.S. persons under certain conditions.
Ron Estes
Representative
KS-4
This bill amends the Internal Revenue Code to prevent U.S. persons from being deemed to own stock held by non-U.S. persons under specific conditions, modifying how Subpart F applies to "foreign controlled United States shareholders" of a "foreign controlled foreign corporation." It introduces new definitions and rules for these shareholders and corporations, treating them as United States shareholders and controlled foreign corporations for tax purposes. The changes apply to the last taxable year of foreign corporations beginning before January 1, 2025, and subsequent years.
Tax Code Shakeup: New Bill Rewrites Stock Ownership Rules for U.S. Investors in Foreign Companies Starting Before 2025
This bill tweaks the complex rules around how the IRS decides if a U.S. person or company technically 'owns' stock in a foreign business, potentially changing who pays U.S. taxes on foreign income. It specifically introduces a new section, 951B, aimed at 'foreign controlled United States shareholders' and their income from 'foreign controlled foreign corporations'. These changes apply starting with the last tax year of foreign corporations beginning before January 1, 2025.
Untangling Ownership Webs
At its core, this legislation modifies how stock ownership is 'attributed' – basically, how the tax code connects stock owned by one entity (like a foreign company) back to a U.S. person. The goal seems to be closing a loophole where certain ownership structures might have previously avoided specific U.S. anti-deferral tax rules (like Subpart F income). By adjusting these attribution rules, particularly limiting 'downward attribution' from foreign persons in specific scenarios, the bill could mean more U.S. individuals or companies are considered significant shareholders in foreign entities for tax purposes.
Introducing Section 951B: A New Category
The big addition is Section 951B. This creates new definitions: a 'foreign controlled United States shareholder' (think a U.S. person who'd own more than 50% of a foreign company under specific revised rules) and a 'foreign controlled foreign corporation' (a foreign company that isn't already a standard Controlled Foreign Corporation (CFC) but would be if these new shareholders were counted). If you fall into this new shareholder category, this section could require you to include certain income from that foreign corporation on your U.S. tax return, similar to how existing CFC rules work but applied to this newly defined group. This primarily affects U.S. persons with substantial, potentially controlling, stakes in foreign businesses that previously flew under the radar of existing anti-deferral regimes.
Flexibility, Fine Print, and Future Questions
The bill gives the Treasury Secretary significant power to write the specific regulations needed to make this work and, importantly, to prevent taxpayers from finding ways around these new rules. This offers flexibility but also creates some uncertainty (flagged as Medium Vagueness) about exactly how these rules will be applied in practice. Businesses and individuals potentially affected might face new compliance tasks and potentially higher U.S. tax bills on their foreign earnings (an Economic Burden concern). It's also worth noting these changes apply to tax years starting before January 1, 2025, and onwards, but the bill text doesn't specify an end date, adding another layer for long-term planning.