Tax treatment liquidating distribution pfic
Consequently, when a CFC sells stock of a lower-tier corporation, the U. shareholders of the CFC will have to include their share of the gain from the sale as subpart F income, which will be taxed immediately at ordinary income rates.Check-the-Box Elections Pursuant to the “check-the-box” entity classification rules, a business entity that is not treated as a per se corporation is an “eligible entity” that may elect its classification for federal income tax purposes.(Hint: foreign mutual funds almost certainly are PFICs. How will you report your gain on disposition of the PFIC stock on your tax return? If you don’t know what those words mean, then you probably didn’t make those elections and you are forced to use the default method described here.So even normal people can own PFICs, to their absolute horror.) You sell your PFIC stock. If you use the default method, the Internal Revenue Code uses the phrase “section 1291 fund” to describe your PFIC.Generally, the effective date of a check-the-box election cannot be more than 75 days prior to the date on which the election is filed. These requirements may be met if: The conversion from a corporation into a partnership or disregarded entity pursuant to a check-the-box election results in a deemed liquidation of the corporation on the day immediately preceding the effective date of the election.Distributions of property in liquidation of the corporation generally are treated as taxable events, as if the shareholders sold their stock back to the corporation in exchange for the corporation’s assets. Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund.
The IRS rules for Passive Foreign Investment Companies are almost unmatched in complexity and in their rigid yet confusing elements.Where a foreign corporation is classified as a “controlled foreign corporation” (“CFC”) for an uninterrupted period of 30 days or more during any taxable year, however, its U. shareholders must include in income their pro rata share of the Subpart F income of the CFC for that taxable year, whether or not such earnings are distributed. In addition to the inability to defer taxation on its share of a CFC’s subpart F income, one of the pitfalls of a U. shareholder owning stock in a CFC is that subpart F income is treated as ordinary income to the U. shareholder (currently taxed at a maximum federal income tax rate of 39.6 percent), regardless of whether the CFC is resident in a jurisdiction that has an income tax treaty with the United States. Among other things, subpart F income generally includes passive investment income (e.g., interest, dividends, rents and royalties) and net gain from the sale of property that gives rise to passive investment income.A CFC is a foreign corporation, more than 50 percent of which is owned (by vote or value), directly or indirectly, by “U. Gain on the sale of stock in a foreign corporation, for example, falls within this category.If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return.If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate.