CFC (Controlled Foreign Corporation) Rules

Controlled Foreign Corporation (CFC) rules are tax regulations that apply to U.S. taxpayers who have ownership in foreign corporations. These rules aim to prevent tax avoidance by ensuring that income earned by foreign subsidiaries is reported and taxed in the U.S. When a U.S. person controls a foreign company (usually by owning a significant percentage of shares), the CFC rules require them to report certain types of income, known as Subpart F income, which is taxed immediately in the U.S., regardless of whether the income is distributed. This helps close loopholes that allow profit shifting to low-tax jurisdictions.