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

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Tax Hot TopicsNew, 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


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