What is Controlled Foreign Corporation?
A foreign corporation with more than 50% ownership by US shareholders, subject to special tax rules requiring current income inclusion.
Definition
A Controlled Foreign Corporation (CFC) is a foreign corporation in which US shareholders (each owning 10% or more) collectively own more than 50% of the total voting power or value. US shareholders of CFCs must include their pro-rata share of certain CFC income (Subpart F income and GILTI) in their US taxable income, even if no distributions are made. This prevents US taxpayers from deferring tax on foreign earnings.
Who Needs to Know This?
US persons who are 10% or greater shareholders in foreign corporations where US shareholders collectively own more than 50%. Common for US expats with foreign business interests.
Key Deadline
Form 5471 filed with annual tax return
Potential Penalties
$10,000 penalty per year per CFC for failure to file Form 5471; potential criminal penalties
Related Forms
Common Mistakes to Avoid
- 1Not realizing 10% ownership threshold includes constructive ownership
- 2Failing to file Form 5471 (severe penalties)
- 3Not understanding Subpart F income categories
- 4Missing GILTI inclusion requirements
Related Terms
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