1. The scope of payments covered by section 954(c)(6) includes not only actual payments of dividends, interest, rents and royalties by a controlled foreign corporation (“CFC”) to a related CFC but also payments that are treated as dividends, interest, rents and royalties under the Code and regulations;
2. The related CFC dividends that are subject to section 954(c)(6) (that is, related CFC distributions out of earnings that are not excluded from the shareholder CFC’s gross income under section 959(b)) be allocated and apportioned based on earnings that are not treated as previously taxed earnings and profits under section 959(b);
3. All of a related CFC’s earnings be taken into account in applying section 954(c)(6) to dividend payments, even if such earnings were generated while it was not related to the CFC receiving such dividends;
4. Related party interest be directly allocated only against passive foreign personal holding company income for purposes of applying rules similar to the rules of section 904(d)(3)(C);
5. The approach of the current regulations under sections 952 and 954 dealing with CFC owned partnerships (the “Brown Group regulations”) be applied for purposes of applying section 954(c)(6) to payments made to partnerships with CFC partners;
6. The aggregate principles of partnership taxation be applied for purposes of applying section 954(c)(6) to payments made by partnerships with CFC partners;
7. The time of receipt or accrual of payments by a CFC be used in determining whether the requisite related party relationship exists for purposes of applying section 954(c)(6);
8. Section 864(d) interest only be ineligible for section 954(c)(6) treatment in situations that are clearly abusive or inconsistent with the policies of section 954(c)(6);
9. The factoring entity should be the tested party for purposes of determining the application of the look-through rule to factoring income treated as equivalent to interest under section 954(c)(1)(E);
10. An election be provided to permit U.S. shareholders of CFCs to elect not to apply section 954(c)(6) to payments received or accrued prior to May 17, 2006; and
11. The anti-abuse rule under section 954(c)(6) be narrowly construed to apply only to clear abuses with any regulations issued under such authority being prospective.
The AICPA is the national, professional organization of certified public accountants comprised of approximately 350,000 members. Our members advise clients on federal, state, and international tax matters, and prepare income and other tax returns for millions of Americans. Our members provide services to individuals, not-for-profit organizations, small and medium-sized businesses, as well as America’s largest businesses.