Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $4,800,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Boomerang?

Question

Quizplus · Accepted Answer

Boomerang meets the definition of a controlled foreign corporation (CFC) because more than 50 percent of its stock is owned by U.S. shareholders. Therefore, under subpart F, the U.S. shareholders must include in their income their pro rata share of Boomerang's subpart F income. In this case, the U.S. corporation and U.S. individual will have deemed dividends of $1,920,000 and $720,000, respectively. The Australian corporation will not have a deemed dividend because it is not a U.S. shareholder.

Boomerang Corporation, a New Zealand Corporation, Is Owned by the Following