In this article, recently published in the Journal of Taxation, Will analyzes the requirements for an individual US shareholder (either directly or through a partnership or pass-through entity) to obtain capital gains rates on qualified dividends from a foreign corporation under § 1(h)(11)(C), with a focus on foreign corporations that qualify for the benefits of a tax treaty. Section 1(h)(11) is an important element of a US individual or pass-through entity obtaining benefits from a deferral structure involving foreign holdings. In addition, the article analyzes the interaction between the qualified dividend income and CFC and PFIC classification, including the Section 962 election, the Rodriguez case, and usage of the CFC/PFIC overlap rule.
This article is an important read for closely held CFCs (outside of a domestic C corporation) and their owners and advisors.
*This article was originally published in the October 2015 Journal of Taxation and is reprinted with permission.