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 $3,000,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Boomerang?
A)Boomerang is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $1,200,000 and $450,000, respectively.
B)Boomerang is a CFC and only the U.S. corporation will have a deemed dividend of $1,200,000.
C)Boomerang is a CFC and the U.S. corporation, U.S. individual, and Australian corporation will have a deemed dividend of $1,200,000, $450,000, and $1,350,000, respectively.
D)Boomerang is not a CFC and none of the shareholders will have a deemed dividend under subpart F.

Question

Quizplus · Accepted Answer

Boomerang meets the definition of a controlled foreign corporation (CFC) because more than 50% of the stock is owned by U.S. shareholders. Therefore, the subpart F rules apply to its income. The U.S. corporation and U.S. individual will have a deemed dividend equal to their respective ownership percentages (40% and 15%) of the subpart F income earned by Boomerang, which totals $1,200,000 and $450,000, 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