Subpart F Income
Subpart F income is certain categories of passive or easily movable income earned by a controlled foreign corporation that U.S. shareholders must include currently, regardless of distribution.
Explanation
Subpart F income includes foreign personal holding company income (dividends, interest, rents, royalties, capital gains), foreign base company sales income (buy-sell income involving related parties where goods are manufactured and sold outside the CFC's country), and foreign base company services income. The de minimis rule excludes Subpart F income if it is less than the lesser of 5% of gross income or $1 million. The full inclusion rule applies if Subpart F income exceeds 70% of gross income.
Key Points
- •Includes foreign personal holding company income, base company sales, and services income
- •De minimis rule: excluded if < lesser of 5% of gross income or $1M
- •Full inclusion if Subpart F exceeds 70% of gross income
Exam Tip
Subpart F income is included before GILTI — income already taxed under Subpart F is excluded from GILTI tested income to avoid double inclusion.
Frequently Asked Questions
Related Topics
Controlled Foreign Corporations (CFCs)
A controlled foreign corporation (CFC) is a foreign corporation in which U.S. shareholders (each owning 10% or more by vote or value) collectively own more than 50% of the stock by vote or value.
GILTI Tax
Global Intangible Low-Taxed Income (GILTI) is a category of CFC income that U.S. shareholders must include currently, designed to prevent profit shifting to low-tax jurisdictions through intangible assets.
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