Tradewinds is a Bermuda corporation that is 100% owned by Larkin, a U.S. corporation. Which of the following transactions generates subpart F income for U.S. tax purposes?

Question

Quizplus · Accepted Answer

Subpart F income is generated when a foreign corporation, in which U.S. shareholders own more than 50%, earns certain types of income, such as manufacturing and exporting goods. Option A does not generate subpart F income because the jewelry is manufactured and sold within Bermuda. Option C does not generate subpart F income because the jewelry is purchased from a related supplier and sold at retail in Bermuda. Option B generates subpart F income because Tradewinds, the foreign corporation, is manufacturing and selling goods to its U.S. parent company, Larkin.

Tradewinds Is a Bermuda Corporation That Is 100% Owned by Larkin