Windmill Corporation, a Dutch corporation, is owned by the following unrelated persons: 50 percent by a U.S. corporation, 5 percent by a U.S. individual, and 45 percent by a Swiss corporation. During the year, Windmill earned $2,000,000 of subpart F income. Which of the following statements is True about the application of subpart F to the income earned by Windmill?
A) Windmill is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,000,000 and $100,000, respectively.
B) Windmill is a CFC and only the U.S. corporation will have a deemed dividend of $1,000,000.
C) Windmill is a CFC and the U.S. corporation, U.S. individual, and Swiss corporation will have a deemed dividend of $1,500,000, $100,000, and $900,000, respectively.
D) Windmill is not a CFC and none of the shareholders will have a deemed dividend under subpart F.

Question

Quizplus · Accepted Answer

Windmill is not a CFC because the U.S. shareholders (the U.S. corporation in this case) do not own more than 50 percent of the corporation's stock. The individual is not considered a U.S. shareholder because ownership is less than 10 percent.

Windmill Corporation, a Dutch Corporation, Is Owned by the Following