In this video, I explain how earnings of controlled foreign corporation (CPC) invested in U.S property is taxed.
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The earnings invested in U.S. property rule applies to U.S. shareholders of Controlled Foreign Corporations (CFCs), requiring them to include in their taxable income their share of two main types of earnings:

Subpart F income, which generally includes passive income and certain types of active income that are easily moved from one jurisdiction to another, and
Earnings invested in U.S. property, which aims to prevent U.S. taxpayers from avoiding taxes by bringing non-Subpart F earnings back into the U.S. in forms other than dividends, such as loans or other investments.
The essence of this rule is to tax U.S. shareholders on their proportional share of any increase in the CFC's earnings that are reinvested in U.S. property during the tax year. This is designed to discourage the tax-free repatriation of earnings through indirect means.

"U.S. property" is broadly defined to include:

Tangible assets located in the U.S. (like real estate or equipment),
Shares in U.S. companies,
Debts owed by U.S. individuals or entities,
Rights to use intellectual property like patents or copyrights within the U.S.
The tax calculation involves comparing the average value (adjusted basis) of such U.S. property during the tax year against its value at the end of the previous year. This comparison is made using the values at the end of each quarter to determine the average for the year, helping to identify any increase in the investment in U.S. property, which is then subject to taxation for the U.S. shareholders.





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