What are Controlled Foreign Corporations (CFCs)?

Controlled Foreign Corporations (CFCs) are foreign companies in which U.S. persons (including U.S. companies, U.S. citizens, and U.S. residents) own at least 50 percent of the total combined voting power of all classes of stock. CFCs are subject to special rules regarding taxation in the U.S. and in Minnesota. From a U.S. and Minnesota perspective, CFCs’ income and profits must be reported and taxed in the U.S. and Minnesota. This is done by including the income from the CFC in the U.S. person’s taxable income if the CFC is a passive foreign company, or by calculating a Subpart F inclusion if the CFC is a controlled foreign corporation. In addition, any U.S. person who owns 10 percent or more of a CFC is required, under U.S. and Minnesota law, to report information about the CFC, its owners, and its income to the Internal Revenue Service (IRS). The purpose of this reporting is to ensure the CFC pays the correct amount of tax. The taxation of CFCs under U.S. and Minnesota law is complicated, and it is important for taxpayers to consult with a tax professional or attorney to ensure they are in compliance. For taxpayers in Minnesota, the Minnesota Department of Revenue has resources to help with understanding and complying with the CFC rules.

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What are Controlled Foreign Corporations (CFCs)?

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