What is the de minimis rule for Subpart F income?

De minimis is defined as annual Subpart F income that is the lesser of 5% of gross income of the CFC or $1 million. Alternatively, there is a full inclusion rule for Subpart F income that requires 100% inclusion if the sum of the annual CFC’s Subpart F income exceeds 70% of total gross income of the CFC.

Is subpart F income passive?

To prevent this offshore abuse, the Code required, and to this day still requires, Subpart F income (made up of mainly “passive” income) to be included in the current-year taxable income of a CFC’s “United States shareholder,”5 whether or not such income is distributed in the current year.

What income is included in Subpart F?

Subpart F income includes: insurance income, foreign base company income, international boycott factor income, illegal bribes, and income derived from a §901(j) foreign country, which are countries that sponsor terrorism or are otherwise not recognized by the US, such as Iran and North Korea.

What is the difference between Gilti and Subpart F?

“The most fundamental distinction between the definitions of Subpart F income and GILTI is this — Subpart F income is defined initially by what it includes, while GILTI is defined initially by what it excludes.”

What is full inclusion Subpart F?

Subpart F income is included in the gross income of a United States shareholder of a controlled foreign corporation under the rules of section 951 and thus is subject to current taxation under section 1, 11 or 55 of the Internal Revenue Code.

How do you determine if an entity is a CFC?

In general, a foreign corporation is a CFC if more than 50 percent of its voting power or value is owned by U.S. Shareholders. A U.S. Shareholder of a foreign corporation is a U.S. person who owns 10 percent or more of the total voting power of that foreign corporation.

What is Subpart F recapture?

Under paragraph (f), a recapture account is reduced either when amounts in the account are recharacterized as Subpart F income or when the corporation makes an actual distribution from the separate category containing the recapture account. [

What is the de minimis rule for foreign base company income?

Under the de minimis rule of section 954 (b) (3) (A) and § 1.954-1 (b) (1) (i), none of CFC’s income is treated as foreign base company income. All of CFC’s income, therefore, is treated as general category income and tested income.

What are the requirements for Subpart F income?

There are other requirements, such as required current year earnings and profit (E&P) and other rules, which we will summarize. We will explain the basics of Subpart F Income, and how it is intertwined with CFC.

When is a de minimis benefit excludable as a benefit?

A certificate that allows an employee to receive a specific item of personal property that is minimal in value, provided infrequently, and is administratively impractical to account for, may be excludable as a de minimis benefit, depending on facts and circumstances.

What is the Subpart F inclusion for passive category income?

Under section 904 (d) (3) (B) and paragraph (c) (5) of this section, the subpart F inclusion is passive category income to USP. Under section 959 (a), the distribution from CFC1 to USP is excluded from USP’s gross income .