Final regulations under Section 956 adopt an aggregate approach to CFCs transacting with foreign partnerships

New, final regulations under Section 956 (T.D. 9792), addressing the treatment of U.S. property held by a controlled foreign corporation (CFC) in connection with certain transactions involving partnerships, adopted, with some modifications, the proposed and temporary regulations released in September 2015.  

In addition, the final regulations adopted, without change, temporary regulations that provide rules regarding when a CFC is considered to derive rents and royalties in the active conduct of a trade or business (active rents and royalties exception) for purposes of determining foreign personal holding company income.

The final regulations also adopt, without substantive change, a portion of the proposed regulations (REG-209001-86) issued in 1988. The 1988 proposed regulations relate to the application of Section 956 to property acquired by a CFC in some related party factoring transactions.

Finally, the IRS concurrently published regulations (REG-114734-16) that propose to amend Treas. Reg. Sec. 1.956-4(b), so that a CFC that is a partner in a controlled partnership determines its share of U.S. property held by the partnership under the liquidation value percentage method, regardless of the existence of any special allocation of income or gain from the property.

Read Grant Thornton LLP’s previous coverage on the proposed and temporary regulations here.

Contacts David Sites
Partner, Washington National Tax Office
+1 202 861 4104

Cory Perry
Experienced Manager, Washington National Tax Office
+1 202 521 1509

Tax professional standards statement
This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.