For companies with Controlled Foreign Corporations (CFCs) that are members of foreign partnerships, the IRS's Office of Chief Counsel has given more detail on the anti-abuse rule. In Chief Counsel Advice 201420017, the IRS concluded that, by law, the parent of an affiliated group of CFCs must incorporate income loans made by a disregarded foreign entity to the CFC.

The anti-abuse rule, or Internal Revenue Code Sec. 956 states that stockholders of a CFC who own shares in that company on the last day of its tax year typically must include:

• The excess of their pro rata share of the average amount of U.S. property owned by the CFC over that share of the CFC's earnings and profits from amounts included in their gross income in the past.
• The shareholder's proportional share of the applicable CFC profit.

The Chief Counsel's regulations suggest to U.S. multinationals that, when setting up financial structures offshore, it is important to use discretion. For more information and a more detailed explanation, please read our article, "IRS Clarifies Rule on Loans Involving CFC Investments".