Academic journal article Journal of Accountancy

IRS Provides CFC Relief for Property Affected by Hurricanes: Certain Obligations of U.S. Persons Can Be Excepted from U.S. Property

Academic journal article Journal of Accountancy

IRS Provides CFC Relief for Property Affected by Hurricanes: Certain Obligations of U.S. Persons Can Be Excepted from U.S. Property

Article excerpt

In Notice 2017-68, the IRS announced that certain obligations of U.S. persons received by controlled foreign corporations (CFCs) would be excluded from U.S. property for purposes of Sec. 956(c) if the obligation was received in exchange for property that, if transported to the United States for temporary storage because of Hurricane Irma or Hurricane Maria, would not be treated as U.S. property under Notice 2017-55.

Sec. 956 requires a U.S. shareholder of a CFC to include in income for any tax year the shareholder's pro rata share of the CFC's "applicable earnings" or, if less, the shareholder's pro rata share of the average of the amounts of U.S. property held by the CFC over its earnings and profits as described in Sec. 959(c)(1)(A). For this purpose, "U.S. property" includes an obligation of a U.S. person (Sec. 956(c) (1)(C)), unless arising in connection with the sale or processing of property where the obligation's amount during the tax year does not exceed an amount that would be ordinary and necessary to carry on the trade or business of the U.S. person and counterparty if the sale or processing transaction had been made between unrelated persons (Sec. 956(c)(2)(C)).

In Notice 2017-55, the IRS announced that a CFC would not be treated as holding U.S. property as the result of temporarily storing for safekeeping in the United States in anticipation of, or as a result of, Hurricane Irma or Hurricane Maria any Sec. 1221(a)(1) property (generally, inventory or other property held for sale to customers in the ordinary course of the taxpayer's trade or business) that had been located in an area affected by the hurricanes on or before Sept. 5, 2017 (Irma), or Sept. 17, 2017 (Maria), including Puerto Rico and the U.S. Virgin Islands. Such affected areas are those identified by the Federal Emergency Management Agency as subject to a major disaster or emergency declaration. (Although Puerto Rico and the U.S. Virgin Islands are U.S. possessions, Sec. 7701(a)(9) defines "United States" when used in a geographical sense, as by Sec. …

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