Example.
Step 1-Determine gross income:
Step 2-Determine gross foreign base company income and gross insurance income:
Step 3-Determine adjusted gross foreign base company income and adjusted gross insurance income:
Step 4-Compute net foreign base company income:
Step 5-Compute net insurance income:
Step 6-Compute adjusted net foreign base company income:
Step 7-Compute adjusted net insurance income:
Step 8-Additions to or reduction of adjusted net foreign base company income by reason of section 952(c):
Controlled foreign corporations having a functional currency other than the U.S. dollar shall translate the $1,000,000 threshold using the exchange rate provided under section 989(b)(3) and the regulations thereunder for amounts included in income under section 951(a).
Example. USP is the sole United States shareholder of three controlled foreign corporations: CFC1, CFC2 and CFC3. The three controlled foreign corporations all have the same taxable year. The three controlled foreign corporations are partners in FP, a foreign entity classified as a partnership under section 7701(a)(2) and § 301.7701-3 of the regulations. For their current taxable years, each of the controlled foreign corporations derives all of its income other than foreign base company income from activities conducted through FP, and its foreign base company income from activities conducted both jointly through FP and separately without FP. Based on the facts in the table below, for their current taxable years, the foreign base company income derived by each controlled foreign corporation, including income derived from FP, is less than five percent of the gross income of each controlled foreign corporation and is less than $1,000,000:
CFC1 | CFC2 | CFC3 | |
Gross income | $4,000,000 | $8,000,000 | $12,000,000 |
Five percent of gross income | 200,000 | 400,000 | 600,000 |
Foreign base company income | 199,000 | 398,000 | 597,000 |
Thus, without the application of the anti-abuse rule of this subparagraph (5), each controlled foreign corporation would be treated as having no foreign base company income after the application of the de minimis rule of section 954(b)(3)(A) and § 1.954-1T(b)(1) .
However, under these facts the requirements of subdivision (i) of this paragraph (b)(4) are presumed to be met. The sum of the foreign base company income of the controlled foreign corporations is $1,194,000. Thus, the amount of adjusted gross foreign base company income will not be less than the amount of gross foreign base company income by reason of the de minimis rule of section 954(b)(3)(A) and this paragraph (b).
Example.
Step 1-Determine gross income:
Step 2-Compute gross foreign base company income and gross insurance income:
Step 3-Compute adjusted gross foreign base company income:
Step 4-Compute net foreign base company income:
Step 5-Compute net insurance income:
Step 6-Compute adjusted net foreign base company income:
Step 7-Compute adjusted net insurance income:
Step 8-Additions to or reduction of adjusted net foreign base company income by reason of section 952(c):
See paragraph (d)(4) of this section for the definition of the term "item of income." For rules concerning the treatment for foreign tax credit purposes of amounts excluded from subpart F under section 954(b)(4), see § 904-1.4(c)(1).
An election made under the procedure provided by this paragraph (d)(5) is binding on all United States shareholders of the controlled foreign corporation.
An item of income shall not be excluded from the definition of a category of gross foreign base company income or gross insurance income under this paragraph (e)(4) by reason of being included in the general definition of another category of gross foreign base company income or gross insurance income, if the item of income is excluded from that other category by a more specific provision of section 953 or 954 and the regulations thereunder. For example, income derived from a commodity transaction that is excluded from foreign personal holding company income under § 1.954-2T(f) as income from qualified active sales may be included in gross foreign base company income if it also meets the definition of foreign base company sales income. See § 1.954-2T(a)(2) for the coordination of overlapping categories within the definition of foreign personal holding company income.
26 C.F.R. §4.954-1