Subpart F income

Owners of Canadian Controlled Private Corporations Take Note!

What is Subpart F income?

Subpart F of the IRC (Internal Revenue Code) is a set of rules to ensure that U.S. persons cannot use controlled foreign corporations to defer tax on passive income.

The dividends, interest and rents earned by the corporation will be taxable to the shareholder,  directly  in proportion to the shareholder’s ownership.  This is true even though has been no actual distribution to the shareholder of that income.

Now, before you have a “heart attack”, you should get professional help (I mean tax and legal help). There are various elections that can be made to mitigate this.  But, all of this is expensive and time consuming.

Bottom Line: U.S. citizens abroad should think long and hard before incorporating a business.