US Co owns 100% of Foreign Co (a CFC). Foreign Co earns $100,000 of interest income (Subpart F income) and has no other income. Foreign Co distributes nothing. What is the tax consequence to US Co?

Answer options:

No tax until repatriation.

US Co recognizes $100,000 of income currently.

US Co recognizes $50,000 (GILTI deduction applies).

Foreign Co pays U.S. tax directly.

How to approach this question

Identify Subpart F income (passive income like interest). It is taxable immediately to the U.S. shareholder regardless of distribution.

Full Answer

B.US Co recognizes $100,000 of income currently.✓ Correct

IRC §951(a). A U.S. shareholder of a CFC must include in gross income their pro rata share of the CFC's Subpart F income (which includes passive interest income) for the year, regardless of whether it is distributed.

Common mistakes

Thinking deferral applies until cash is received.

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