Treasury Finalizes Regulations for Certain Ownership Attribution Rules and the Active Rental Exception to Subpart F Income


On November 19, 2019, the Department of the Treasury and the Internal Revenue Service (collectively, Treasury) published final regulations regarding the attribution of ownership of stock or other interests for purposes of determining whether a person is a related person with respect to a controlled foreign corporation (CFC) under Section 954(d)(3) in the Federal Register. In addition, the final regulations provide rules for determining whether a CFC is considered to derive rents in the active conduct of a trade or business for purposes of computing foreign personal holding company income. The regulations finalize the proposed regulations published on May 20, 2019 (REG-125135-15), without change. For a summary discussion of the proposed regulations, see our May 2019 tax alert. For the dates of applicability for the final regulations, see Treas. Regs. §§1.954-1(f)(3), 1.954-2(i)(2), and 1.958-2(h).

Treasury notes in the preamble to the final regulations that it is separately studying the application of Section 958(b) following the repeal of Section 958(b)(4), and the final regulations do not address the application of the constructive ownership rules of Section 958(b) for purposes other than Section 954(d)(3).

BDO Insights

As discussed in the prior tax alert, these ownership attribution rules should prevent certain entities from being treated as related for certain purposes and the changes made to the active rental exception may make it more difficult for some CFCs to meet the substantiality safe harbor. Please contact an International Tax Specialist if you would like more information regarding the content of this tax alert.