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In Altria Group Inc. v. United States (No. 3:23-cv-00293), the U.S. District Court for the Eastern District of Virginia granted the government’s motion for judgment, holding that income from certain foreign subsidiaries of Anheuser-Busch InBev (ABI) was properly attributed to Altria Group Inc. (Altria).
Altria, a Virginia corporation, owned approximately 10.2% of ABI, a publicly traded Belgian corporation, throughout the 2017 tax year. ABI wholly owned a U.S. subsidiary and several foreign subsidiaries. As a result of the repeal of Section 958(b)(4) under the 2017 Tax Cuts and Jobs Act (TCJA), the subsidiaries in question were treated as controlled foreign corporations (CFCs) under the downward attribution rules, with their income attributable to Altria for purposes of calculating its tax liability.
Altria challenged this treatment, arguing that the repeal of Section 958(b)(4) did not cause the subsidiaries to constitute CFCs with respect to Altria, and it sought a refund of taxes paid on Subpart F inclusions attributable to the subsidiaries.
The court rejected Altria’s argument, finding that the downward attribution of ABI’s ownership in the subsidiaries to ABI’s U.S. subsidiary is valid. The ruling means that the subsidiaries are, in fact CFCs, and Altria must be taxed on its proportional share of the subsidiaries’ Subpart F income. The court also rejected a Fifth Amendment argument made by Altria, concluding that Congress acted with a legitimate purpose to prevent tax avoidance and that the Supreme Court’s guidance in Moore v. United States, 602 U.S. 572 (2024) supports the constitutionality of the tax.
Grant Thornton Insight:
Taxpayers evaluating potential challenges to the application of the Subpart F rules to certain foreign-controlled CFCs after the repeal of Section 958(b)(4) should carefully consider the outcome of this case as they assess their claims.
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