A Note on Controlled Foreign Corporations

Some PFICs are also Controlled Foreign Corporations (“CFCs”), or foreign corporations with 50% or more ownership by U.S. shareholders, who each own at least 10% of the corporation. The Taxpayers Relief Act of 1997 helps to simplify PFIC rules by making the PFIC not subject to certain CFC pass-through rules for U.S. shareholders owning at least 10 percent.

It is imperative to remember that this is an oversimplification of the rules relating PFICs and there are many exceptions, qualifications and further requirements regarding the above. Additionally, these rules are based on the U.S. tax code, and discussion of California tax treatment is beyond the scope of this site, as it differs from federal treatment.