IRS Publishes Final Regulations Under Sections 954 and 956
Focus of the recent Section 956 regulations
| 1. The definition of funding with respect to Section 956 Anti Avoidance provisions: |
These rules address what happens when a CFC with Earnings and Profits funds a new CFC and then new CFC extends a loan to the US shareholder. In this way the CFC that actually extends the loan has no E&P and a Section 956 inclusion is avoided. The new regulations address this type of transaction when it is structured with the intent to avoid an inclusion.
| 2.Also under the Anti-avoidance provisions the treatment of acquisitions of U.S. property by a Partnership controlled by a CFC; |
With these provisions the IRS addresses another common structure used to potentially avoid Section 956. This approach has the CFC as a controlling partner in a partnership that has what is considered an “investment in U.S. property” under Section 956 as opposed to the CFC directly owning the “investment in U.S. property”.
| 3.Application of Section 956 to related party factoring transactions; |
These rules provide guidance on when a CFC acquiring the trade receivables of its U.S. shareholder would be deemed a Section 956 inclusion.
| 4. The IRS and Treasury reserves on and will continue to study the issue how a Section 956 inclusion is computed when multiple CFCs serve as pledgers or guarantors of a single obligation. |
Who these rules may affect
- U.S. shareholder of multiple CFCs with back to back funding (loan, equity or other) and an Investment in U.S. property;
- U.S. shareholders of CFCs that are controlling partners in partnerships; and
- U.S. shareholders of a CFCs that engage in related party factoring of trade receivables.
For more information or questions, please reach out to our International Tax Services Team at [email protected].
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Chaya Siegfried, CPA, MST T (742) 842 3113 [email protected] |
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