US “TCJ Act” Tightening of CFC Rules Eliminates Common Approach To Post-Death Avoidance Of US Beneficiary Taxation

by Bryan Cave

On December 22, 2017, President Trump signed into law H.R. 1 (Pub. L. No. 115-97), known as the Tax Cuts and Jobs Act (the “Act”). The Act is the first major overhaul of the Internal Revenue Code (the “Code”) in more than 30 years.  

The Act includes as a “revenue raiser” the elimination of an obscure provision of the controlled foreign corporation (“CFC”) regime the effect of which is that priority review is required of the estate plan or trust administration of a living foreign individual who (i) owns, or is the settlor of a trust that owns, a majority interest by vote or value of a foreign entity that is characterized currently as corporation and (ii) anticipates that following the death of the individual the majority of the shares will be owned by or for the benefit of US taxpayers.

The repealed provision is the long-standing exception that the “Subpart F” income of a foreign corporation that is not controlled by U.S. shareholders for at least 30 days during a calendar year is not taxed to the US shareholders. As a result, starting 1st January 2018, an individual treated as a (direct or indirect) U.S. shareholder of a CFC at any time during the taxable year must include Subpart F income arising in the corporation during the shareholding period in which it was a CFC in gross income (even if that period is only for one day in the calendar year).

Since the advent of the “check-the-box” election regime, a common element of estate plans for foreign individuals and for immediate post-death administration of trusts of which a living foreign individual is settlor with US taxpayer heirs or trust beneficiaries has been causing a check-the-box election to be made with respect to each relevant foreign corporation effective soon after the death of the foreign individual. A combination of the CFC 30 day rule and the ability to file a check-the-box election with an effective date of up to 75 days prior to the date the election is filed allowed many foreign individuals and their trustees and anticipated executors to avoid taking steps to minimize potentially adverse taxation of US beneficiaries beginning immediately after the death of the foreign individual during that individual’s lifetime. Where the foreign corporation invests from time to time in assets that are considered situate in the United States for US Federal estate tax purposes, that combination of 30 day CFC rule and retroactive check-the-box election rule was crucial to achieving with relative simplicity both protection from US estate tax on the death of the foreign individual and avoidance of onerous income taxation of the US beneficiaries following the death of the foreign individual.

Most affected entities should first ascertain whether the simple expedient of implementing the anticipated check-the-box election during the lifetime of the foreign individual rather than after death is possible and appropriate in all the circumstances. If not then consideration must be given to the benefits and burdens of a number of alternative steps to minimize or eliminate the risk of adverse income taxation of US beneficiaries under the CFC rules if the entity election is made effective after the death of the foreign individual.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Bryan Cave | Attorney Advertising

Written by:

Bryan Cave

Bryan Cave on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.