Question

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USCo manufactures and markets electrical components. USCo operates outside the United States through a number of CFCs, each of which is organized in a different country. These CFCs derived the following income for the current year:

Determine the amount of income that USCo must report as a deemed dividend under subpart F in each scenario. (Leave no answer blank. Enter zero if applicable.)

a. F1 has gross income of $9.50 million, including $380,000 of foreign personal holding company interest and $9.12 million of gross income from the sale of inventory that F1 manufactured at a factory located within its home country

Answer 1

Since the manufacturing process was carried out in a factory located within the country, the gross income derived from such inventory will not be treated as Foreign base company sales income.

The interest income of $380,000 will be qualified as Foreign person holding company income. It has to be not shown in Subpart F, it has to satisfy De minimis rule of interest is less than $1 million and 5% of gross income.

In the given question, the interest is less than $1 million and also less than 5% of gross income (that is $475,000).

So interest income will not be shown in subpart F