26 U.S.C. § 958 — Rules for determining stock ownership

Page 2202 TITLE 26—INTERNAL REVENUE CODE § 958 Pub. L. 115–97, set out as an Effective Date note under section 245A of this title. EFFECTIVE DATE OF 2004 AMENDMENT Amendment by Pub. L. 108–357 applicable to taxable years ending after Oct. 22, 2004, see section 908(d)(1) of Pub. L. 108–357, set out as an Effective Date note under section 937 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by section 1221(b)(3)(C) of Pub. L. 99–514 applicable to taxable years of foreign corporations be- ginning after Dec. 31, 1986, except as otherwise pro- vided, see section 1221(g) of Pub. L. 99–514, set out as a note under section 954 of this title. Pub. L. 99–514, title XII, § 1222(c), Oct. 22, 1986, 100 Stat. 2557, provided that: ‘‘(1) IN GENERAL.—The amendments made by this sec- tion [amending this section and section 552 of this title] shall apply to taxable years of foreign corporations be- ginning after December 31, 1986; except that for pur- poses of applying sections 951(a)(1)(B) and 956 of the In- ternal Revenue Code of 1986, such amendments shall take effect on August 16, 1986. ‘‘(2) TRANSITIONAL RULE.—In the case of any corpora- tion treated as a controlled foreign corporation by rea- son of the amendments made by this section, property acquired before August 16, 1986, shall not be taken into account under section 956(b) of the Internal Revenue Code of 1986. ‘‘(3) SPECIAL RULE FOR BENEFICIARY OF TRUST.—In the case of an individual— ‘‘(A) who is a beneficiary of a trust which was es- tablished on December 7, 1979, under the laws of a for- eign jurisdiction, and ‘‘(B) who was not a citizen or resident of the United States on the date the trust was established, amounts which are included in the gross income of such beneficiary under section 951(a) of the Internal Revenue Code of 1986 with respect to stock held by the trust (and treated as distributed to the trust) shall be treated as the first amounts which are distributed by the trust to such beneficiary and as amounts to which section 959(a) of such Code applies.’’ Pub. L. 99–514, title XII, § 1224(b), Oct. 22, 1986, 100 Stat. 2558, provided that: ‘‘(1) IN GENERAL.—The amendment made by sub- section (a) [amending this section] shall apply to tax- able years of foreign corporations beginning after De- cember 31, 1986; except that for purposes of applying sections 951(a)(1)(B) and 956 of the Internal Revenue Code of 1986, such amendments shall take effect on Au- gust 16, 1986. ‘‘(2) TRANSITIONAL RULE.—In the case of any corpora- tion treated as a controlled foreign corporation by rea- son of the amendment made by subsection (a), property acquired before August 16, 1986, shall not be taken into account under section 956(b) of the Internal Revenue Code of 1986.’’ Amendment by section 1273(a) of Pub. L. 99–514 appli- cable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as a note under section 931 of this title. § 958. Rules for determining stock ownership (a) Direct and indirect ownership (1) General rule For purposes of this subpart (other than sec- tion 960), stock owned means— (A) stock owned directly, and (B) stock owned with the application of paragraph (2). (2) Stock ownership through foreign entities For purposes of subparagraph (B) of para- graph (1), stock owned, directly or indirectly, by or for a foreign corporation, foreign part- nership, or foreign trust or foreign estate (within the meaning of section 7701(a)(31)) shall be considered as being owned proportion- ately by its shareholders, partners, or bene- ficiaries. Stock considered to be owned by a person by reason of the application of the pre- ceding sentence shall, for purposes of applying such sentence, be treated as actually owned by such person. (3) Special rule for mutual insurance compa- nies For purposes of applying paragraph (1) in the case of a foreign mutual insurance company, the term ‘‘stock’’ shall include any certificate entitling the holder to voting power in the corporation. (b) Constructive ownership For purposes of sections 951(b), 954(d)(3), 956(c)(2), and 957, section 318(a) (relating to con- structive ownership of stock) shall apply to the extent that the effect is to treat any United States person as a United States shareholder within the meaning of section 951(b), to treat a person as a related person within the meaning of section 954(d)(3), to treat the stock of a domestic corporation as owned by a United States share- holder of the controlled foreign corporation for purposes of section 956(c)(2), or to treat a foreign corporation as a controlled foreign corporation under section 957, except that— (1) In applying paragraph (1)(A) of section 318(a), stock owned by a nonresident alien in- dividual (other than a foreign trust or foreign estate) shall not be considered as owned by a citizen or by a resident alien individual. (2) In applying subparagraphs (A), (B), and (C) of section 318(a)(2), if a partnership, estate, trust, or corporation owns, directly or indi- rectly, more than 50 percent of the total com- bined voting power of all classes of stock enti- tled to vote of a corporation, it shall be con- sidered as owning all the stock entitled to vote. (3) In applying subparagraph (C) of section 318(a)(2), the phrase ‘‘10 percent’’ shall be sub- stituted for the phrase ‘‘50 percent’’ used in subparagraph (C). Paragraph (1) shall not apply for purposes of sec- tion 956(c)(2) to treat stock of a domestic cor- poration as not owned by a United States share- holder. (Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1018; amended Pub. L. 88–554, § 4(b)(5), Aug. 31, 1964, 78 Stat. 763; Pub. L. 94–455, title X, § 1021(b), Oct. 4, 1976, 90 Stat. 1619; Pub. L. 104–188, title I, §§ 1703(i)(4), 1704(t)(7), Aug. 20, 1996, 110 Stat. 1876, 1887; Pub. L. 115–97, title I, §§ 14213(a), 14301(c)(31), Dec. 22, 2017, 131 Stat. 2217, 2224.) Editorial Notes AMENDMENTS 2017—Subsec. (a)(1). Pub. L. 115–97, § 14301(c)(31), sub- stituted ‘‘960’’ for ‘‘960(a)(1)’’ in introductory provi- sions. Subsec. (b). Pub. L. 115–97, § 14213(a)(2), substituted ‘‘Paragraph (1)’’ for ‘‘Paragraphs (1) and (4)’’ in con- cluding provisions. Page 2203 TITLE 26—INTERNAL REVENUE CODE § 959 Subsec. (b)(4). Pub. L. 115–97, § 14213(a)(1), struck out par. (4) which read as follows: ‘‘Subparagraphs (A), (B), and (C) of section 318(a)(3) shall not be applied so as to consider a United States person as owning stock which is owned by a person who is not a United States per- son.’’ 1996—Subsec. (a)(1). Pub. L. 104–188, § 1704(t)(7), sub- stituted ‘‘section 960(a)(1)’’ for ‘‘sections 955(b)(1)(A) and (B), 955(c)(2)(A)(ii), and 960(a)(1)’’ in introductory provisions. Subsec. (b). Pub. L. 104–188, § 1703(i)(4), substituted ‘‘956(c)(2)’’ for ‘‘956(b)(2)’’ wherever appearing in intro- ductory and closing provisions. 1976—Subsec. (b). Pub. L. 94–455 inserted ‘‘956(b)(2)’’ after ‘‘purposes of sections 951(b), 954(d)(3),’’, ‘‘to treat the stock of a domestic corporation as owned by a United States shareholder of the controlled foreign cor- poration for purposes of section 956(b)(2)’’ after ‘‘mean- ing of section 954(d)(3)’’ and ‘‘Paragraphs (1) and (4) shall not apply for purposes of section 956(b)(2) to treat stock of a domestic corporation as not owned by a United States shareholder’’ following subpar. (4). 1964—Subsec. (b). Pub. L. 88–554 redesignated pars. (4) and (5) as (3) and (4), respectively, struck out former par. (3) which related to ownership of stock by a part- nership, estate, trust, or corporation for purposes of ap- plying first sentence of subpars. (A) and (B), and sub- par. (C)(i) of section 318(a)(2) of this title, and made amendments throughout subsec. (b) to conform to changes made in section 318 of this title by Pub. L. 88–554. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Pub. L. 115–97, title I, § 14213(b), Dec. 22, 2017, 131 Stat. 2217, provided that: ‘‘The amendments made by this section [amending this section] shall apply to— ‘‘(1) the last taxable year of foreign corporations beginning before January 1, 2018, and each subsequent taxable year of such foreign corporations, and ‘‘(2) taxable years of United States shareholders in which or with which such taxable years of foreign corporations end.’’ Amendment by section 14301(c)(31) of Pub. L. 115–97 applicable to taxable years of foreign corporations be- ginning after Dec. 31, 2017, and to taxable years of United States shareholders in which or with which such taxable years of foreign corporations end, see section 14301(d) of Pub. L. 115–97, set out as a note under sec- tion 78 of this title. EFFECTIVE DATE OF 1996 AMENDMENT Amendment by section 1703(i)(4) of Pub. L. 104–188 ef- fective as if included in the provision of the Revenue Reconciliation Act of 1993, Pub. L. 103–66, §§ 13001–13444, to which such amendment relates, see section 1703(o) of Pub. L. 104–188, set out as a note under section 39 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Amendment by Pub. L. 94–455 applicable to taxable years of foreign corporations beginning after Dec. 31, 1975, and to taxable years of United States shareholders within which or with which such taxable years of such corporations end, see section 1021(c) of Pub. L. 94–455, set out as a note under section 956 of this title. EFFECTIVE DATE OF 1964 AMENDMENT Amendment by Pub. L. 88–554 effective Aug. 31, 1964, except that for purposes of sections 302 and 304 of this title, such amendments shall not apply to distributions in payment for stock acquisitions or redemptions, if such acquisitions or redemptions occurred before Aug. 31, 1964, see section 4(c) of Pub. L. 88–554, set out as a note under section 318 of this title. § 959. Exclusion from gross income of previously taxed earnings and profits (a) Exclusion from gross income of United States persons For purposes of this chapter, the earnings and profits of a foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a) shall not, when— (1) such amounts are distributed to, or (2) such amounts would, but for this sub- section, be included under section 951(a)(1)(B) in the gross income of, such shareholder (or any other United States person who acquires from any person any por- tion of the interest of such United States share- holder in such foreign corporation, but only to the extent of such portion, and subject to such proof of the identity of such interest as the Sec- retary may by regulations prescribe) directly or indirectly through a chain of ownership de- scribed under section 958(a), be again included in the gross income of such United States share- holder (or of such other United States person). The rules of subsection (c) shall apply for pur- poses of paragraph (1) of this subsection and the rules of subsection (f) shall apply for purposes of paragraph (2) of this subsection. (b) Exclusion from gross income of certain for- eign subsidiaries For purposes of section 951(a), the earnings and profits of a controlled foreign corporation attributable to amounts which are, or have been, included in the gross income of a United States shareholder under section 951(a), shall not, when distributed through a chain of owner- ship described under section 958(a), be also in- cluded in the gross income of another controlled foreign corporation in such chain for purposes of the application of section 951(a) to such other controlled foreign corporation with respect to such United States shareholder (or to any other United States shareholder who acquires from any person any portion of the interest of such United States shareholder in the controlled for- eign corporation, but only to the extent of such portion, and subject to such proof of identity of such interest as the Secretary may prescribe by regulations). (c) Allocation of distributions For purposes of subsections (a) and (b), section 316(a) shall be applied by applying paragraph (2) thereof, and then paragraph (1) thereof— (1) first to the aggregate of— (A) earnings and profits attributable to amounts included in gross income under sec- tion 951(a)(1)(B) (or which would have been included except for subsection (a)(2) of this section), and (B) earnings and profits attributable to amounts included in gross income under sec- tion 951(a)(1)(C) (or which would have been included except for subsection (a)(3) of this section), with any distribution being allocated between earnings and profits described in subparagraph (A) and earnings and profits described in sub- paragraph (B) proportionately on the basis of