What is 951B?
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Section 951B is a new provision of the Internal Revenue Code, enacted by the One Big Beautiful Bill Act (OBBBA), effective for tax years of foreign corporations beginning after December 31, 2025. It is designed to address certain structures involving U.S. persons who are controlled by foreign persons and who own significant interests in foreign corporations that are not otherwise classified as controlled foreign corporations (CFCs) under the traditional rules.
Key Features of Section 951B:
1. Purpose and Scope
Section 951B targets "foreign controlled United States shareholders" (FCUSS) of "foreign controlled foreign corporations" (FCFCs). The provision is intended to ensure that U.S. persons who are themselves controlled by foreign persons, and who in turn control foreign corporations, are subject to Subpart F and GILTI (now "net CFC tested income") inclusion rules, even if the foreign corporation is not a CFC under the standard definition (which requires more than 50% U.S. shareholder ownership).
2. Definitions
- Foreign Controlled United States Shareholder (FCUSS):
A U.S. person who would be a U.S. shareholder with respect to a foreign corporation if the ownership threshold in section 951(b) were "more than 50 percent" (rather than "10 percent or more"), and if the downward attribution rules of section 958(b)(4) were disregarded. - Foreign Controlled Foreign Corporation (FCFC):
A foreign corporation, other than a CFC, that would be a CFC if the definition of CFC in section 957(a) were applied by substituting "foreign controlled United States shareholders" for "United States shareholders," and by disregarding section 958(b)(4).
3. Application of Subpart F and GILTI Rules
- For any FCUSS of an FCFC, Subpart F (other than sections 951A, 951(b), and 957) is applied as if references to "United States shareholder" and "controlled foreign corporation" were replaced with "foreign controlled United States shareholder" and "foreign controlled foreign corporation," respectively.
- Section 951A (GILTI, now "net CFC tested income") and related provisions are applied to FCUSS and FCFCs as if the FCUSS were a U.S. shareholder and the FCFC were a CFC.
4. Regulatory Authority
The Secretary of the Treasury is authorized to issue regulations or other guidance as necessary to implement section 951B, including:- Treating FCUSS or FCFCs as U.S. shareholders or CFCs for other Code provisions (including reporting requirements).- Addressing the treatment of FCFCs that are passive foreign investment companies (PFICs).
5. Policy Rationale
Section 951B was enacted to address perceived abuses where foreign-parented groups could avoid U.S. anti-deferral rules by interposing U.S. entities that, while controlled by foreign persons, owned foreign corporations not meeting the CFC definition. By applying Subpart F and GILTI inclusions to these structures, section 951B realigns the rules with the original policy objectives of the anti-deferral regime, but does so in a more targeted manner than the broad downward attribution rules previously in effect.
6. Effective Date
Section 951B applies to tax years of foreign corporations beginning after December 31, 2025.
Summary: Section 951B creates a parallel anti-deferral regime for U.S. persons controlled by foreign persons who own more than 50% of a foreign corporation (an FCFC), ensuring that such U.S. persons are subject to Subpart F and GILTI inclusions with respect to their ownership, even if the foreign corporation is not a CFC under the standard rules. This provision is intended to close loopholes and prevent avoidance of U.S. anti-deferral rules in foreign-parented structures.
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