The Applications of Downward Attribution to De Minimis Ownership

Lee Zimet, Senior Director with Alvarez & Marsal Taxand, LLC, was published in the January 27 issue of Tax Notes Federal and Tax Notes International. In his report, Mr. Zimet explores whether U.S. persons that may have been unintentionally or unfairly affected by the introduction of downward attribution under amended section 958(b) can use a de minimis exception to the Form 5471 filling requirement for U.S. shareholders.

“The Tax Cuts and Jobs Act drastically changed the stock ownership attribution rules under section 958(b), which are generally used to determine if a foreign corporation is a controlled foreign corporation and if a U.S. person is a U.S. shareholder of a foreign corporation. Before the TCJA, downward attribution did not apply under section 958(b) to treat a U.S. person as owning stock owned by a foreign person. The TCJA eliminated that exception. As a result, downward attribution can now apply broadly and in many situations that Congress may not have anticipated,” Mr. Zimet wrote.

“Despite the IRS’s position, there are several procedural arguments available to taxpayers to avoid some of the compliance problems caused by de minimis ownership in a foreign entity…

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