Prior to 2018, domestic corporation X owns all the stock of controlled foreign corporation (CFC)T. X's acquisition cost for the CFC investment is $150,000. The CFC reports E&P of $200,000 since the domestic corporation acquired its interest, of which $120,000 was Subpart F income. The CFC makes a cash distribution of $90,000 to the domestic corporation. What is the domestic corporation's basis for its investment in T immediately after the cash distribution?
A)$150,000
B)$180,000
C)$230,000
D)none of the above

Question

Quizplus · Accepted Answer

The initial basis of the investment is $150,000. Since the CFC has Subpart F income of $120,000, this amount is included in X's income and increases the basis to $270,000 ($150,000 + $120,000). When the CFC distributes $90,000 cash, X's basis is reduced by this amount to $180,000 ($270,000 - $90,000). Therefore, the correct answer is B.

Prior to 2018, Domestic Corporation X Owns All the Stock