26 U.S.C. § 957 — Controlled foreign corporations; United

Page 2200 TITLE 26—INTERNAL REVENUE CODE [§ 956A Subsec. (c)(2). Pub. L. 105–34, § 1173(a), added subpars. (J) and (K) and concluding provisions. 1996—Subsec. (b)(1). Pub. L. 104–188, § 1501(b)(2), reen- acted heading without change and amended text gen- erally. Prior to amendment, text read as follows: ‘‘For purposes of this section, the term ‘applicable earnings’ has the meaning given to such term by section 956A(b), except that the provisions of such section excluding earnings and profits accumulated in taxable years be- ginning before October 1, 1993, shall be disregarded.’’ Subsec. (b)(3). Pub. L. 104–188, § 1501(b)(3), reenacted heading without change and amended text generally. Prior to amendment, text read as follows: ‘‘Rules simi- lar to the rules of section 956A(e) shall apply for pur- poses of this section.’’ 1993—Subsec. (a). Pub. L. 103–66, § 13232(a)(2), added subsec. (a) and struck out former subsec. (a) which con- sisted of introductory provisions and pars. (1) to (3) set- ting out general rules for calculating amount of earn- ings of a controlled foreign corporation invested in United States and pro rata share of the increase for any taxable year in earnings of such a corporation invested in United States property. Subsecs. (b) to (d). Pub. L. 103–66, § 13232(a), added subsec. (b) and redesignated former subsecs. (b) and (c) as (c) and (d), respectively. Subsec. (e). Pub. L. 103–66, § 13232(b), added subsec. (e). 1986—Subsec. (b)(3)(A). Pub. L. 99–514 inserted ‘‘(other than subparagraph (H) thereof)’’. 1984—Subsec. (b)(2)(I). Pub. L. 98–369, § 801(d)(8), added subpar. (I). Subsec. (b)(3). Pub. L. 98–369, § 123(b), added par. (3). 1976—Subsec. (b)(2)(F) to (H). Pub. L. 94–455, § 1021(a), added subpars. (F) and (G) and redesignated former sub- par. (F) as (H). Subsec. (c). Pub. L. 94–455, § 1906(b)(13)(A), struck out ‘‘or his delegate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2004 AMENDMENT Pub. L. 108–357, title IV, § 407(c), Oct. 22, 2004, 118 Stat. 1499, provided that: ‘‘The amendments made by this section [amending this section] shall apply to taxable years of foreign corporations beginning after December 31, 2004, and to taxable years of United States share- holders with or within which such taxable years of for- eign corporations end.’’ Pub. L. 108–357, title VIII, § 837(b), Oct. 22, 2004, 118 Stat. 1596, provided that: ‘‘The amendment made by this section [amending this section] shall take effect on the date of the enactment of this Act [Oct. 22, 2004].’’ EFFECTIVE DATE OF 1997 AMENDMENT Pub. L. 105–34, title XI, § 1173(b), Aug. 5, 1997, 111 Stat. 989, provided that: ‘‘The amendments made by this sec- tion [amending this section] shall apply to taxable years of foreign corporations beginning after December 31, 1997, and to taxable years of United States share- holders with or within which such taxable years of for- eign corporations end.’’ Amendment by section 1601(e) of Pub. L. 105–34 effec- tive as if included in the provisions of the Small Busi- ness Job Protection Act of 1996, Pub. L. 104–188, to which it relates, see section 1601(j) of Pub. L. 105–34, set out as a note under section 23 of this title. EFFECTIVE DATE OF 1996 AMENDMENT Amendment by Pub. L. 104–188 applicable to taxable years of foreign corporations beginning after Dec. 31, 1996, and to taxable years of United States shareholders within which or with which such taxable years of for- eign corporations end, see section 1501(d) of Pub. L. 104–188, set out as a note under section 904 of this title. EFFECTIVE DATE OF 1993 AMENDMENT Amendment by Pub. L. 103–66 applicable to taxable years of controlled foreign corporations beginning after Sept. 30, 1993, and to taxable years of United States shareholders in which or with which such taxable years of controlled foreign corporations end, see section 13232(d) of Pub. L. 103–66, set out as a note under sec- tion 951 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–514 effective, except as oth- erwise provided, as if included in the provisions of the Tax Reform Act of 1984, Pub. L. 98–369, div. A, to which such amendment relates, see section 1881 of Pub. L. 99–514, set out as a note under section 48 of this title. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by section 123(b) of Pub. L. 98–369 appli- cable to accounts receivable and evidences of indebted- ness transferred after Mar. 1, 1984, in taxable years end- ing after such date, with an exception, see section 123(c) of Pub. L. 98–369, set out as a note under section 864 of this title. Amendment by section 801(d)(8) of Pub. L. 98–369 ap- plicable to transactions after Dec. 31, 1984, in taxable years ending after such date, see section 805(a)(1) of Pub. L. 98–369, as amended, set out as a note under sec- tion 245 of this title. EFFECTIVE DATE OF 1976 AMENDMENT Pub. L. 94–455, title X, § 1021(c), Oct. 4, 1976, 90 Stat. 1619, as amended by Pub. L. 99–514, § 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ‘‘The amendments made by this section [amending this section and section 958 of this title] shall apply to taxable years of foreign cor- porations beginning after December 31, 1975, and to tax- able years of United States shareholders (within the meaning of section 951(b) of the Internal Revenue Code of 1986 [formerly I.R.C. 1954]) within which or with which such taxable years of such foreign corporations end. In determining for purposes of any taxable year re- ferred to in the preceding sentence the amount referred to in section 956(a)(2)(A) of the Internal Revenue Code of 1986 for the last taxable year of a corporation begin- ning before January 1, 1976, the amendments made by this section shall be deemed also to apply to such last taxable year.’’ PLAN AMENDMENTS NOT REQUIRED UNTIL JANUARY 1, 1989 For provisions directing that if any amendments made by subtitle A or subtitle C of title XI [§§ 1101–1147 and 1171–1177] or title XVIII [§§ 1800–1899A] of Pub. L. 99–514 require an amendment to any plan, such plan amendment shall not be required to be made before the first plan year beginning on or after Jan. 1, 1989, see section 1140 of Pub. L. 99–514, as amended, set out as a note under section 401 of this title. [§ 956A. Repealed. Pub. L. 104–188, title I, § 1501(a)(2), Aug. 20, 1996, 110 Stat. 1825] Section, added Pub. L. 103–66, title XIII, § 13231(b), Aug. 10, 1993, 107 Stat. 496; amended Pub. L. 104–188, title I, § 1703(i)(2), (3), Aug. 20, 1996, 110 Stat. 1876, re- lated to earnings invested in excess passive assets. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF REPEAL Repeal by Pub. L. 104–188 applicable to taxable years of foreign corporations beginning after Dec. 31, 1996, and to taxable years of United States shareholders within which or with which such taxable years of for- eign corporations end, see section 1501(d) of Pub. L. 104–188, set out as an Effective Date of 1996 Amendment note under section 904 of this title. § 957. Controlled foreign corporations; United States persons (a) General rule For purposes of this title, the term ‘‘con- trolled foreign corporation’’ means any foreign corporation if more than 50 percent of— Page 2201 TITLE 26—INTERNAL REVENUE CODE § 957 (1) the total combined voting power of all classes of stock of such corporation entitled to vote, or (2) the total value of the stock of such cor- poration, is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such foreign corporation. (b) Special rule for insurance For purposes only of taking into account in- come described in section 953(a) (relating to in- surance income), the term ‘‘controlled foreign corporation’’ includes not only a foreign cor- poration as defined by subsection (a) but also one of which more than 25 percent of the total combined voting power of all classes of stock (or more than 25 percent of the total value of stock) is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such corporation, if the gross amount of pre- miums or other consideration in respect of the reinsurance or the issuing of insurance or annu- ity contracts not described in section 953(e)(2) exceeds 75 percent of the gross amount of all premiums or other consideration in respect of all risks. (c) United States person For purposes of this subpart, the term ‘‘United States person’’ has the meaning assigned to it by section 7701(a)(30) except that— (1) with respect to a corporation organized under the laws of the Commonwealth of Puer- to Rico, such term does not include an indi- vidual who is a bona fide resident of Puerto Rico, if a dividend received by such individual during the taxable year from such corporation would, for purposes of section 933(1), be treated as income derived from sources within Puerto Rico, and (2) with respect to a corporation organized under the laws of Guam, American Samoa, or the Northern Mariana Islands— (A) 80 percent or more of the gross income of which for the 3-year period ending at the close of the taxable year (or for such part of such period as such corporation or any pred- ecessor has been in existence) was derived from sources within such a possession or was effectively connected with the conduct of a trade or business in such a possession, and (B) 50 percent or more of the gross income of which for such period (or part) was de- rived from the active conduct of a trade or business within such a possession, such term does not include an individual who is a bona fide resident of Guam, American Samoa, or the Northern Mariana Islands. For purposes of subparagraphs (A) and (B) of paragraph (2), the determination as to whether income was derived from the active conduct of a trade or business within a possession shall be made under regulations prescribed by the Sec- retary. (Added Pub. L. 87–834, § 12(a), Oct. 16, 1962, 76 Stat. 1017; amended Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 99–514, title XII, §§ 1221(b)(3)(C), 1222(a), 1224(a), 1273(a), Oct. 22, 1986, 100 Stat. 2553, 2556, 2558, 2595; Pub. L. 108–357, title VIII, § 908(c)(5), Oct. 22, 2004, 118 Stat. 1656; Pub. L. 115–97, title I, § 14101(e)(2), Dec. 22, 2017, 131 Stat. 2192; Pub. L. 115–141, div. U, title IV, § 401(a)(164), Mar. 23, 2018, 132 Stat. 1192.) Editorial Notes AMENDMENTS 2018—Subsec. (b). Pub. L. 115–141 substituted ‘‘con- tracts not described in section 953(e)(2)’’ for ‘‘contracts described in section 953(a)(1)’’. 2017—Subsec. (a). Pub. L. 115–97 substituted ‘‘title’’ for ‘‘subpart’’ in introductory provisions. 2004—Subsec. (c). Pub. L. 108–357, § 908(c)(5)(B), struck out ‘‘derived from sources within a possession, was ef- fectively connected with the conduct of a trade or busi- ness within a possession, or’’ after ‘‘whether income was’’ in concluding provisions. Subsec. (c)(2)(B). Pub. L. 108–357, § 908(c)(5)(A), sub- stituted ‘‘active conduct of a’’ for ‘‘conduct of an ac- tive’’. 1986—Subsec. (a). Pub. L. 99–514, § 1222(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: ‘‘For purposes of this subpart, the term ‘controlled foreign corporation’ means any foreign cor- poration of which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of own- ership of section 958(b), by United States shareholders on any day during the taxable year of such foreign cor- poration.’’ Subsec. (b). Pub. L. 99–514, § 1222(a)(2), inserted ‘‘(or more than 25 percent of the total value of stock)’’. Pub. L. 99–514, § 1221(b)(3)(C), substituted ‘‘insurance income’’ for ‘‘income derived from insurance of United States risks’’. Subsec. (c). Pub. L. 99–514, § 1273(a), added par. (2) and concluding provisions and struck out former pars. (2) and (3) which read as follows: ‘‘(2) with respect to a corporation organized under the laws of the Virgin Islands, such term does not include an individual who is a bona fide resident of the Virgin Islands and whose income tax obligation under this subtitle for the taxable year is satisfied pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), by pay- ing tax on income derived from all sources both within and outside the Virgin Islands into the treasury of the Virgin Islands, and ‘‘(3) with respect to a corporation organized under the laws of any other possession of the United States, such term does not include an individual who is a bona fide resident of any such other possession and whose income derived from sources within possessions of the United States is not, by reason of section 931(a), includible in gross income under this subtitle for the taxable year.’’ Pub. L. 99–514, § 1224(a), redesignated subsec. (d) as (c) and struck out former subsec. (c) which provided cir- cumstances under which for purposes of this subpart, the term ‘‘controlled foreign corporation’’ would not include certain corporations created or organized in Puerto Rico or a possession of the United States or under the laws of Puerto Rico or a possession of the United States. Subsec. (d). Pub. L. 99–514, § 1224(a), redesignated sub- sec. (d) as (c). 1976—Subsec. (c) Pub. L. 94–455 struck out ‘‘or his del- egate’’ after ‘‘Secretary’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2017 AMENDMENT Amendment by Pub. L. 115–97 applicable to distribu- tions made after Dec. 31, 2017, see section 14101(f) of 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.