HR-2186 : Still Just a Bill

H.R. 2186, titled "To amend the Internal Revenue Code of 1986 to restore the limitation on downward attribution of stock ownership in applying constructive ownership rules," proposes significant changes to U.S. international tax law concerning the taxation of foreign corporate income.

• The bill primarily aims to limit what is known as "downward attribution" of stock ownership. This means it generally prevents a United States person from being considered to own stock that is directly owned by a person or entity that is not a United States person. This adjustment modifies how "United States shareholders" and "controlled foreign corporations" (CFCs) are identified under current tax law, particularly reversing a change made by previous tax legislation.
• To address potential tax avoidance that might arise from this change, the legislation introduces new categories: "foreign controlled United States shareholders" (FCUS) and "foreign controlled foreign corporations" (FCFC). These new categories ensure that certain U.S. investors and foreign corporations, which might no longer meet the original definitions due to the attribution changes, will still be subject to similar U.S. tax rules for foreign income, including provisions related to Subpart F income and Global Intangible Low-Taxed Income (GILTI).
• Essentially, this bill refines how U.S. persons are deemed to own shares in foreign companies and how they are taxed on the income generated by those companies, especially in situations where foreign entities hold significant control.
• The amendments are set to take effect for taxable years of foreign corporations beginning before January 1, 2025, and each subsequent taxable year, affecting relevant United States persons accordingly.