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 $3,800,000 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 shares are owned by U.S. shareholders. Therefore, both the U.S. corporation and the U.S. individual will have a deemed dividend equal to their respective shares of Boomerang's subpart F income, which total $2,090,000 ($1,520,000 for the U.S. corporation and $570,000 for the U.S. individual). The Australian corporation is not a U.S. shareholder and is not subject to subpart F taxation.

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