Taxterity research

Is it a CFC? A classification issue map across the 2026 statutory boundary

Reviewed 2026-09-15 · AI-assisted draft and editing; sources and limitations remain visible for independent review.

Answer: Four separate questions get collapsed into one in practice, and the 2026 boundary makes that costly. First, is the person a United States shareholder under §951(b), which turns on 10 percent or more of voting power or of value, measured through §958(a) ownership and §958(b) attribution. Second, is the foreign corporation a controlled foreign corporation under §957(a), which turns on more than 50 percent of vote or value held by United States shareholders on any day during the taxable year. Third, which inclusion applies: subpart F and §956 under §951(a)(1), or the separate inclusion in §951A. Fourth, which Form 5471 filing category applies, which is a reporting question with its own tests. The statutory text in force on the review date shows the July 2025 legislation rewriting §951(a) in full, restoring §958(b)(4), adding §951B, and renaming §951A while striking its qualified business asset investment offset. Those changes take effect for taxable years beginning after December 31, 2025, but the measuring year is not the same for all of them: the §951 rewrite, the §958 restoration and §951B are each measured by the foreign corporation's taxable year, while the §951A renaming and restructuring are measured by the taxpayer's own. A 2025 return and a 2026 return are therefore prepared under different classification rules, and which text applies is itself a fact to record.

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Scope

Jurisdiction: United States — federal

Tax periods: Years beginning after 2025, Prior regime: years beginning in 2025, Statutory text checked 2026-09-15

Assumptions

Exclusions

1. Separate the four questions before running any test

United States shareholder status, controlled foreign corporation status, the applicable inclusion regime, and the Form 5471 filing category are four tests with four different thresholds and four different measuring conventions. A person can be a United States shareholder of a foreign corporation that is not a CFC. A corporation can be a CFC for a single day. A filing obligation can exist without any inclusion. Answering in the wrong order produces a file that cannot be checked.

Record the ownership chain first, as of specific dates rather than as of year-end, because two of the four tests are day-sensitive and the third turns on the period of the year the conditions held.

2. Question one: United States shareholder under §951(b)

Section 951(b) defines a United States shareholder, with respect to any foreign corporation, as a United States person as defined in §957(c) who owns, within the meaning of §958(a), or is considered as owning by applying the ownership rules of §958(b), 10 percent or more of the total combined voting power of all classes of stock entitled to vote of the foreign corporation, or 10 percent or more of the total value of shares of all classes of its stock. Both a vote test and a value test appear, and either can be met.

Two definitional pointers matter. United States person for this purpose comes from §957(c), which takes §7701(a)(30) and then carves out certain bona fide residents of Puerto Rico, Guam, American Samoa and the Northern Mariana Islands who meet stated income-source conditions. And the 10 percent is measured after §958(a) and §958(b) are applied, so a person holding nothing directly can still be a United States shareholder.

3. Question two: controlled foreign corporation under §957(a)

Section 957(a) defines a controlled foreign corporation as any foreign corporation if more than 50 percent of either the total combined voting power of all classes of stock entitled to vote, or the total value of the stock, is owned by United States shareholders on any day during the taxable year of the foreign corporation, applying the ownership rules of §958(a) and §958(b).

Read the measuring convention carefully: any day during the taxable year, not the last day, and not a majority of days. A structure that was a CFC for part of a year was a CFC. Note also the special lower threshold in §957(b): for purposes only of taking into account insurance income under §953(a), the test drops to more than 25 percent of vote or value, but only where the gross amount of premiums or other consideration for the reinsurance or the issuing of insurance or annuity contracts not described in §953(e)(2) exceeds 75 percent of the gross amount of all premiums or other consideration in respect of all risks. An insurance business in the chain changes which threshold is being tested.

4. Attribution is the rule that moved twice

Section 958(a) supplies direct and indirect ownership, including the rule in §958(a)(2) that stock owned by a foreign corporation, partnership, trust or estate is considered owned proportionately by its shareholders, partners or beneficiaries. Section 958(b) then applies the constructive ownership rules of §318(a), but only for the purposes named in its opening words, which are §951(b), §954(d)(3), §956(c)(2) and §957, and with modifications: §958(b)(1) blocks attribution of a nonresident alien individual's stock to a citizen or resident alien; §958(b)(2) treats an entity owning more than 50 percent of voting power as owning all the voting stock; and §958(b)(3) substitutes 10 percent for 50 percent in §318(a)(2)(C).

The paragraph that has moved twice is §958(b)(4), which provides that subparagraphs (A), (B) and (C) of §318(a)(3) are not applied so as to consider a United States person as owning stock owned by a person who is not a United States person. The amendment notes record that it was struck by §14213(a)(1) of the 2017 legislation and added back by §70353(a)(1) of the 2025 legislation, which also restored the concluding flush sentence to read that paragraphs (1) and (4) do not apply for purposes of §956(c)(2) to treat stock of a domestic corporation as not owned by a United States shareholder. The restoration applies to taxable years of foreign corporations beginning after December 31, 2025.

Two notes printed with the section matter as much as the text. The effective-date note measures the year by the foreign corporation's taxable year, not the shareholder's, so a domestic shareholder with a calendar year and a foreign corporation with a non-calendar year can sit on opposite sides of the boundary. And a construction note provides that the amendment is not to be construed to create any inference about the proper application of any provision for taxable years before those to which it applies, which is a direct instruction not to read the restoration backwards into open years.

The same legislation added §951B, headed amounts included in gross income of foreign controlled United States shareholders, and it is the reason the restoration of §958(b)(4) does not simply undo the post-2017 position. Section 951B(b) defines a foreign controlled United States shareholder as a United States person that would be a United States shareholder if §951(b) were applied by substituting more than 50 percent for 10 percent or more, and if §958(b) were applied without regard to paragraph (4). Section 951B(c) defines a foreign controlled foreign corporation as a foreign corporation, other than a controlled foreign corporation, that would be one if §957(a) were applied by substituting foreign controlled United States shareholders for United States shareholders and §958(b) other than paragraph (4) for §958(b).

Section 951B(a)(1) then applies subpart F, other than §951A, §951(b) and §957, to such a shareholder separately from and in addition to the ordinary application, substituting the two new terms; §951B(a)(2) applies §951A by treating its references to United States shareholder and controlled foreign corporation as including the new terms. Section 951B(d) directs the Secretary to prescribe guidance, including guidance treating these persons as United States shareholders or controlled foreign corporations for provisions outside subpart F, expressly including reporting requirements, and guidance on foreign controlled foreign corporations that are passive foreign investment companies. Read §958(b)(4) and §951B together or the conclusion will be wrong in both directions.

5. Question three: which inclusion regime, under which year's text

Section 951(a) was rewritten in full by the 2025 legislation, and the amendment note says so: subsection (a) was amended generally, where it had previously consisted of paragraphs (1) and (2). The current text builds on a defined CFC year. If a foreign corporation is a controlled foreign corporation at any time during a taxable year of the foreign corporation, then under §951(a)(1)(A) each United States shareholder owning stock within §958(a) on any day during that CFC year includes its pro rata share of subpart F income, while under §951(a)(1)(B) the §956 amount falls on each United States shareholder owning stock on the last day in the CFC year on which the corporation is a controlled foreign corporation.

Two new paragraphs change workpaper mechanics. Section 951(a)(3) fixes the year of inclusion as the shareholder's taxable year that includes the last day on which the shareholder owns stock in the corporation during the CFC year, which matters for a mid-year disposition. Section 951(a)(4) directs the Secretary to prescribe guidance, including guidance allowing taxpayers to elect, or requiring them, to close a controlled foreign corporation's taxable year on a direct or indirect disposition of its stock. Section 951(a)(2) restates the pro rata share as the portion of subpart F income attributable to the stock owned and to any period of the CFC year during which the shareholder owned the stock, was a United States shareholder, and the corporation was a controlled foreign corporation.

A correction worth making explicitly, because it is easy to misattribute: the move away from requiring CFC status for an uninterrupted period of 30 days or more was made in 2017, not 2025. The amendment note to §951(a)(1) records that the 2017 legislation substituted at any time for for an uninterrupted period of 30 days or more. The 2025 change is the structural rewrite described above, and its effective-date note applies it to taxable years of foreign corporations beginning after December 31, 2025, together with a transition rule for certain dividends paid or deemed paid on or before June 28, 2025 and for certain dividends paid after that date and before the corporation's first taxable year beginning after December 31, 2025.

Section 951A is the separate branch, and its current heading is net CFC tested income included in gross income of United States shareholders. Section 951A(a) requires each person who is a United States shareholder of any controlled foreign corporation to include in gross income that shareholder's net CFC tested income, and §951A(b)(1) computes it as the excess of the aggregate pro rata shares of tested income over the aggregate pro rata shares of tested loss, with tested income and tested loss defined in §951A(b)(2).

The change a reviewer must catch is structural, not cosmetic. The amendment notes record that the 2025 legislation substituted net CFC tested income for global intangible low-taxed income wherever it appeared, struck the former subsection (b), which had defined global intangible low-taxed income and net deemed tangible income return, struck the former subsection (d), which related to qualified business asset investment, and moved each surviving subsection up: the former (c) became (b), the former (e) became (c), and the former (f) became (d). The section now runs only to subsection (d), and no deemed tangible income return offset remains in it. A related change substituted any day in such taxable year for a last-day test in §951A(c)(2). A tested-income workpaper built on a routine return on tangible assets is describing the prior regime, and one built on the old subsection lettering will cite paragraphs that have moved.

The effective-date notes for §951A are not uniform, which is worth recording rather than averaging. The renaming and restructuring changes apply to taxable years beginning after December 31, 2025; a conforming change to a §904(h) cross-reference applies to taxable years beginning after December 31, 2025; and the change made alongside the §951 rewrite applies to taxable years of foreign corporations beginning after December 31, 2025. State which measuring year your conclusion used.

6. Question four: the reporting category is its own test

Filing follows different rules from inclusion. The IRS states that certain US citizens and residents who are officers, directors, or shareholders in certain foreign corporations file Form 5471 and schedules to satisfy the reporting requirements of §6038 and §6046 and the related regulations. Officer and director status can create an obligation for someone with no inclusion at all, and the schedules named on the form page cover items ranging from income taxes and reorganizations to shareholder and related-party transactions.

The filing categories themselves, and the schedule matrix that follows from them, live in the instructions to the form rather than on the form page, and they were not verified here. Determine the category from the current instructions for the year being filed, and record both the category and the schedule set in the file, because the category drives which schedules are required and therefore what the return actually discloses.

7. What to write down, and a next step

For each foreign corporation record: the ownership chain with dates, the §958(a) and §958(b) steps applied and which version of §958(b) was used, the vote and value percentages under §951(b) and §957(a), the days on which CFC status held, which inclusion branch applies, whether §951B is in play, and the Form 5471 category with its schedules. Then state the tax year and the statutory text relied on. In a year straddling the boundary, state both.

The statutory text used here was the preliminary United States Code on the House site, carrying the release line that it contains those laws in effect on September 14, 2026; that release reflects the July 2025 legislation, and the Amendments and Effective Date notes printed with each section are the record of what changed and when. Section 957 carries no 2025 amendment note, so the controlled-foreign-corporation definition itself is unchanged. No regulation under §951, §951A, §957 or §958 was read for this page, and regulations lag statutory amendments.

This page classifies a structure. The companion page titled Foreign tax credit: creditability, baskets and limitation workpaper outline starts from an inclusion this page identifies and takes it into the §904 limitation, and the sibling page titled US-source vs. foreign-source income: a sourcing fact checklist by income type covers the special rule that sources such inclusions. Ask Taxterity for a Federal Tax Memo on the classification question for one structure, or use IRC Section History to compare the pre-2026 and post-2025 text of §951A and §958 side by side, then verify each amendment note against the statute.

Related research

Official sources

  1. 26 U.S.C. 951 - Amounts included in gross income of United States shareholders — Sec. 951(a)(1)(A)-(B) CFC year construct; (a)(2) pro rata share; (a)(3) taxable year of inclusion; (a)(4) regulatory authority; (b) United States shareholder definition, 10 percent vote or value
  2. 26 U.S.C. 951 - Amendment and effective date notes — Amendments: 2025 note that subsec. (a) was amended generally; 2017 note substituting 'at any time' for 'for an uninterrupted period of 30 days or more'; Effective Date of 2025 Amendment, including the June 28, 2025 dividend transition rule
  3. 26 U.S.C. 957 - Controlled foreign corporations; United States persons — Sec. 957(a) more than 50 percent of vote or value on any day during the taxable year; 957(b) 25 percent insurance threshold where premiums not described in section 953(e)(2) exceed 75 percent; 957(c); no 2025 amendment note
  4. 26 U.S.C. 958 - Rules for determining stock ownership — Sec. 958(a)(1)-(2); 958(b) opening purposes and paragraphs (1)-(3); 958(b)(4) text and concluding flush sentence; Amendments notes recording the 2017 strike and the 2025 addition; Construction note on no inference for earlier years
  5. 26 U.S.C. 951A - Net CFC tested income included in gross income of US shareholders — Section heading; 951A(a); (b)(1)-(2); (c)(2); Amendments notes: former (b) and (d) struck, (c) redesignated (b), (e) as (c), (f) as (d); three 2025 effective-date notes with different measuring years
  6. 26 U.S.C. 951B - Foreign controlled United States shareholders — Sec. 951B(a)(1)-(2); (b) more than 50 percent substitution and section 958(b) without paragraph (4); (c) foreign controlled foreign corporation; (d) regulations including reporting and PFIC guidance; Effective Date note
  7. IRS: About Form 5471 — Purpose statement: officers, directors or shareholders in certain foreign corporations reporting under sections 6038 and 6046; listed schedules; page last reviewed or updated 20-Jul-2026

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