What is Subpart F Income?
Certain categories of CFC income that US shareholders must include in their taxable income currently, regardless of whether it's distributed.
Definition
Subpart F income refers to specific categories of income earned by a Controlled Foreign Corporation (CFC) that must be included in the US taxable income of US shareholders, even if no actual distribution is made. Categories include foreign personal holding company income (dividends, interest, rents, royalties), foreign base company sales income, and foreign base company services income. Subpart F rules prevent US taxpayers from deferring tax by parking passive income in foreign corporations.
Who Needs to Know This?
US persons who are 10% or greater shareholders of CFCs with passive or mobile income. Common for US expats with foreign business interests.
Key Deadline
Reported on annual tax return with Form 5471
Potential Penalties
Standard accuracy-related penalties plus Form 5471 penalties ($10,000 per year per CFC)
Related Forms
Common Mistakes to Avoid
- 1Not recognizing which income categories are Subpart F
- 2Confusing Subpart F with GILTI (different rules apply)
- 3Not applying the de minimis or full inclusion rules
- 4Missing the same-country exception
Related Terms
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