KPMG report: Regulations addressing tax treatment of U.S. partnerships and S corporations that own stock of CFCs, PFICs

Initial impressions and observations about regulations addressing tax treatment of U.S. partnerships, S corporations that own stock of CFCs and PFICs

Tax treatment of U.S. partnerships, S corporations that own stock of CFCs and PFICs

Regulations published in the Federal Register on January 25, 2022:

  • Final regulations (T.D. 9960) relating to the treatment of domestic partnerships and S corporations that own stock of controlled foreign corporations (CFCs) for purposes of determining amounts included in the gross income of their partners and shareholders with respect to the CFCs
  • Proposed regulations (REG-118250-20) providing guidance regarding the treatment of domestic partnerships and S corporations that own stock of passive foreign investment companies (PFICs) and their domestic partners and shareholders, including for purposes of making qualified electing fund (QEF) and mark-to-market (MTM) elections under the PFIC rules and the application of the CFC overlap rule
    • The proposed regulations further provide guidance related to partnerships and S corporations for purposes of determining controlling domestic shareholders of certain foreign corporations, related person insurance income (RPII) under section 953(c), and the election under Reg. section 1.1411-10(g) related to the net investment income tax.
    • The proposed regulations include rules described in Notice 2020-69 that allow an S corporation to be treated as an entity for purposes of CFC inclusions for certain years when certain conditions are satisfied.
    • The proposed regulations also include rules described in Notice 2019-46 that allow domestic partnerships and S corporations to apply a hybrid aggregate-entity approach for determining GILTI inclusions under proposed regulations (October 2018) for tax years that ended before June 22, 2019, if certain conditions are satisfied.
    • Finally, Prop. Reg. section 1.953-3(b)(1) and (5) (published in April 1991) is withdrawn.

Read a January 2022 report [PDF 348 KB] prepared by KPMG LLP that provides initial impressions and observations about these final and proposed rules.

 

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