How CFC Ownership Can Lead to GILTI Inclusions

CFC ownership thresholds and trust ownership considerations

For CFC status, section 958 ownership includes direct and indirect, as well as constructive ownership by U.S. shareholders. A foreign corporation generally is a CFC if U.S. shareholders own more than 50 percent of its voting power or stock value on any day during its tax year.^[4]

A U.S. shareholder is a U.S. person who owns, directly, indirectly or constructively within the meaning of section 958, at least 10% of a foreign corporation's voting power or stock value.

Stock owned by or through a foreign trust is attributed to its beneficiaries under the section 958(a)(2) and 958(b) rules, which apply section 318(a)(2)(B)(i): stock owned by a trust is treated as owned proportionately by its beneficiaries according to their actuarial interests. Treas. Reg. section 1.958-1(d), Example 3, illustrates the result. Who is treated as owner of the trust, a grantor trust owner under sections 671 to 679 or the beneficiaries of a nongrantor trust, therefore matters before the CFC and PFIC rules are applied.^[10]

These definitions work together: the CFC threshold measures U.S. shareholders' combined ownership, while the shareholder threshold identifies the U.S. persons within that group. Form 8992 is used to calculate the GILTI inclusion and report related information. For taxable years beginning after 2025, section 951A uses the net CFC tested income (NCTI) rules. The NCTI rules make substantive changes, so historical GILTI calculations cannot simply be relabeled as NCTI calculations.^[4]

Historical GILTI inclusion and NCTI for taxable years beginning after 2025

Under the historical GILTI rules, the regulations require a U.S. shareholder who owns section 958(a) stock in a CFC to include any GILTI inclusion amount in gross income for the U.S. shareholder inclusion year. They define that amount as the excess, if any, of net CFC tested income over net deemed tangible income return. For taxable years beginning after 2025, section 951A requires inclusion of net CFC tested income. The applicable Form 8992 instructions explain the calculation for the taxable year concerned.^[1][2]

The inclusion is tied to shareholder status and ownership of section 958(a) stock, and the relevant shareholder inclusion year.^[1]

How tested income and loss are combined

Net CFC tested income is the excess, if any, of a shareholder's aggregate pro rata share of tested income from tested income CFCs over the aggregate pro rata share of tested loss from tested loss CFCs. The calculation combines the shareholder's shares across the relevant CFCs for the inclusion year.^[1]

The statutory definition likewise subtracts aggregate pro rata tested losses from aggregate pro rata tested income. The result cannot be below zero because the definition uses an excess, if any.^[2]

Tested income begins with a CFC's gross income after specified exclusions and is reduced by deductions, including taxes, properly allocable to that gross income. The statute also defines tested loss by reference to that framework.^[2]

CFC inclusion year and statutory start

The statute's GILTI inclusion rule applies for a shareholder's taxable year, while the regulations connect the calculation to CFC inclusion years ending with or within that shareholder year. This identifies the periods whose tested income and loss enter the aggregation.^[1]

CFC ownership and attribution through trusts

The restoration of section 958(b)(4) limits downward attribution from foreign owners when determining CFC status. Section 951B creates a narrower regime for foreign-controlled U.S. shareholders and foreign-controlled foreign corporations. A foreign-controlled U.S. shareholder is a U.S. shareholder that, after applying downward attribution, owns more than 50 percent of a foreign corporation's voting power or stock value, where that corporation is not itself a CFC. That shareholder may have inclusions under section 951A and Subpart F from that corporation.^[8][9]

The IRS instructions for Schedule A of Form 8992 require identifying each CFC and reporting the shareholder's pro rata shares of its tested income and tested loss. Under the GILTI rules for foreign corporation taxable years beginning before 2026, the Form 8992 instructions identify relevant filers by U.S. shareholder status and section 958(a) ownership on the last day the foreign corporation was a CFC in its tax year.^[4]

Questions and answers

Related pages

• Topic guides
• GILTI and net CFC tested income
• U.S. Reporting Forms for Foreign Entities
• When CFC and PFIC Rules Overlap