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Preferred Yet Neglected — A Plea for Guidance on Redemptions of C.F.C. Preferred Stock in the Wake of U.S. Tax Reform

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Preferred Yet Neglected — A Plea for Guidance on Redemptions of C.F.C. Preferred Stock in the Wake of U.S. Tax Reform

Most tax advisers in the U.S. view Code §1248 as a supporting part of U.S. C.F.C. rules. Under the provision, capital gain derived by a 10% shareholder of a C.F.C. from the sale or disposition of shares of the C.F.C. may be converted into dividend income to the extent of some or all of the accumulated earnings of the C.F.C. Prior to the Tax Cuts and Jobs Act of 2017, Code §1248 applied to all 10% U.S. Shareholders of a C.F.C. However, that is no longer the case. Whether the delinking was intentional is not clear. What is clear is that some U.S. Shareholders are not subject to Code §1248, and the tax consequences may be sub-optimal for the U.S. Shareholder. Neha Rastogi, Andreas A. Apostolides, and Stanley C. Ruchelman explain the pitfalls that may occur.

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Peeling the Onion to Allocate Subpart F Income – This Will Make You Cry!

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Peeling the Onion to Allocate Subpart F Income – This Will Make You Cry!

When Congress expanded the definition of a “U.S. Shareholder” in the T.C.J.A. by requiring the measurement of value as an alternative to voting power, it opened a Pandora’s box of issues.  First, more U.S. Persons became U.S. Shareholders.  Second, it imposed a difficult task for shareholders and corporations to measure relative value of all classes of shares and all holdings of shareholders.  Finally, many plans based on the existence of direct or direct or indirect dividend rights of foreign shareholders were shut down. Proposed regulations will modify the way Subpart F Income is allocated to various classes of shares having discretionary dividend rights. Neha Rastogi and Stanley C. Ruchelman explain the broadened scope of income inclusions under Subpart F.

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