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?

Question

Quizplus · Accepted Answer

Boomerang meets the definition of a controlled foreign corporation (CFC) because more than 50 percent of its total combined voting power or value is owned by U.S. shareholders. Therefore, under subpart F, the U.S. shareholders will have a deemed dividend equal to their proportionate share of Boomerang's subpart F income. The U.S. corporation owns 40 percent of Boomerang, so it will have a deemed dividend of $1,200,000 (40% x $3,000,000). The U.S. individual owns 15 percent of Boomerang, so he or she will have a deemed dividend of $450,000 (15% x $3,000,000). The Australian corporation owns 45 percent of Boomerang, so it will not have a deemed dividend under subpart F, but may have other tax consequences for its share of Boomerang's income.

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