Academic journal article Journal of Accountancy

CFC Credit Rules Eased

Academic journal article Journal of Accountancy

CFC Credit Rules Eased

Article excerpt

In response to the liquidity crisis, which has made it difficult for taxpayers to fund their operations, the IRS quickly responded on Oct. 3 with Notice 200891, temporarily expanding the short-term financing exception to IRC [section] 956. This measure will permit corporations to access cash from their controlled foreign corporations (CFCs) without having an income inclusion for U.S. tax purposes. Since the IRS stated that it did this to facilitate liquidity in the near term, the new exclusion rules apply only for the first two taxable years of a foreign corporation ending after Oct. 3, 2008, and does not apply to tax years beginning after Dec. 31, 2009. For calendar year corporations, the notice is applicable to tax years 2008 and 2009.

Generally, a loan from a CFC to its U.S. shareholder is treated as the acquisition of an obligation of a U.S. person by the CFC that is an investment in U. …

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