CFC Subpart F Inclusions for U.S. Partnerships – Impact on Calendar Year 2023 Taxpayers


Treasury Decision 9960 materially altered the reporting of international tax items for domestic Partnerships and S-Corporations (flow-through entities). For tax years beginning after January 25, 2022, such entities report items of Subpart F as pass-through items and not at the entity level.

This was consistent with the final regulations in TD 9866 issued in 2019, which provided for this treatment for items of GILTI. This treatment for Subpart F was also provided for in the 2019 Proposed Regulations (REG-101828-19). Prior to the final regulations, such entities reported these items at the entity level. This meant that less than 10% of shareholders and foreign persons were potentially subject to Subpart F inclusions.


The 2018 Proposed Regulations (REG–104390–18) provided a “hybrid approach” for including GILTI and Subpart F for flow-through entities (referred to as a U.S. shareholder partnership) that owned a controlled foreign corporation (CFC). The hybrid approach provided for entity treatment for non-U.S. owners (non-U.S. shareholder partners) but aggregate (i.e., flow-through treatment) for U.S. owners (U.S. shareholder partners).

Final Regulations TD 9866 were issued on June 21, 2019, impacting U.S. shareholder partnerships’ reporting for GILTI items. The hybrid approach was not followed; instead, the aggregate approach was adopted. Under these final regulations, the partnership does not determine GILTI at the partnership level.

This means the partners are not receiving a distributive share of the partnership’s 951A inclusion for partnership-owned CFCs. Instead, they are treated as proportionately owning the stock of the partnership-owned CFCs.  Accordingly, for purposes of Section 951A, income inclusions are determined directly by the U.S. shareholder partners.

The final regulations applied to tax years beginning after December 31, 2017 (cf. §1.951A-7). At the same time, the final Section 951A regulations were issued, and the Treasury Department and the IRS published proposed regulations (REG–101828–19). Aligning the final Section 951A regulations, the 2019 proposed regulations treated domestic partnerships as aggregates when determining income inclusions under Section 951 and for other provisions where Section 951 is the operative section.


Final Regulations TD 9660 were issued on January 25, 2022. These regulations aligned the treatment of Subpart F items with the treatment of GILTI items as provided for in the 2019 final regulations. Under these, a U.S. Shareholder Partnership (i.e., a domestic Partnership or S-Corporation that owns a CFC) reports Subpart F items on an aggregate basis under Treas. Reg. 1.958-1(d)(1).

In other words, only for purposes of determining inclusions under Section 951(a), the partnership or flow-through isn’t considered as owning the CFC. Instead, the partners and shareholders are considered to own their proportionate share of the CFC. These Subpart F items are reported on Schedules K-2 and K-3, as applicable, for both GILTI and Subpart F items. The individual owners then report such items on their returns (e.g., on a Form 8992) and other reporting forms as necessary. It should be noted that this does not apply to other reporting requirements. For example, a U.S. shareholder partnership is still considered to be a U.S. shareholder for purposes of submitting Form 5471.

With the sweeping changes made under TCJA, it takes time for reporting mechanisms to match the statute. As regulators continue to improve the implementation of reporting in regard to foreign items, further changes can be expected.

Please contact our Global Business Services team with questions regarding CFC Inclusions or any other international tax situation.

Charlie Petelka, is a Tax Consultant in the firm’s Global Business Services practice and is responsible for assisting clients and adding depth in all areas of the firm’s international tax consulting services, including preparing client calculations, international forms, IC-DISC tax, etc.

Greg Lambrecht, CPA is a Principal in the firm’s Global Business Services practice and advises clients on international tax matters including understanding the consequences and opportunities associated with global tax planning decisions. He also assists clients in managing increasingly complex compliance requirements of companies with international operations.

Lambrecht joins McGuire Sponsel from the Big Four with over a decade of experience leading complex international tax projects for Fortune 150 clients and over 20 years of total experience in international tax.

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