Jokerz, a CFC of a U.S. parent, generated $80,000 Subpart F foreign base company services income in its first year of operations. The next year, Jokerz distributes $50,000 cash to the parent, from those service profits. The parent is taxed on $0 in the first year (tax deferral rules apply) and $50,000 in the second year.

Question

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The U.S. parent is taxed on the $80,000 of Subpart F income in the first year it is earned by Jokerz, regardless of whether any cash is distributed. Subpart F income is taxed to the U.S. shareholders in the year it is earned, not in the year it is distributed.