The U.S. Court of Appeals for the Third Circuit today affirmed U.S. Tax Court’s conclusions that for the years at issue (2007 and 2008) a U.S. shareholder of two controlled foreign corporations (CFCs) that in turn had guaranteed loans made to a U.S. person must include in its gross income the CFCs' applicable earnings and that the amount included in gross income is subject to tax as ordinary income.
The case is: SIH Partners LLLP v. Commissioner, No. 18-1863 (3d Cir. May 7, 2019). Read the Third Circuit’s decision [PDF 141 KB]
The taxpayer (a passthrough entity) was the U.S. shareholder of two CFCs (one established in Ireland and the other in the Cayman Islands).
The taxpayer contended that the regulations were invalid. Alternatively, the taxpayer asserted that the amounts included in income under sections 951(a)(1)(B) and 956(d) were to be taxed as qualified dividend income.
The Tax Court granted summary judgment for the government finding that:
The Third Circuit today affirmed the Tax Court’s “decision and order in its entirety.”
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