A controlled foreign corporation (CFC)is incorporated in Country B, and is 100% owned by American Manufacturing Corporation. It purchases raw materials from its U.S. parent corporation, manufactures widgets, and sells 70% of the widgets to unrelated purchasers in Country A and 30% to unrelated purchasers in Country B. All widgets will be used in the countries in which they are purchased. The sales produce $100,000 of taxable income. The foreign-based company sales income reportable by American Manufacturing Corporation under the Subpart F rules is
A)$0.
B)$30,000.
C)$70,000.
D)$100,000.

Question

Quizplus · Accepted Answer

Under the Subpart F rules, income from sales of products that are both manufactured and sold outside the U.S. by a Controlled Foreign Corporation (CFC) does not generally constitute Subpart F income. Since the CFC is incorporated in Country B, manufactures the widgets there, and sells them to unrelated purchasers in both Country A and Country B, with all widgets used in the countries where they are purchased, this income would not be considered Subpart F income. Therefore, American Manufacturing Corporation would not have to report any of this income under Subpart F rules.

A Controlled Foreign Corporation (CFC)is Incorporated in Country B, and Is