The Impact of TCJA’s Repeal of the §958(b)(4) ‘Downward Attribution Rule’

The TCJA repealed §958(b)(4) which stated that the ‘downward attribution’ rule of 318(a)(3) was not to be applied so as to consider a US person as owning stock owned by a person who is not a US person, i.e., a foreign person. This had the impact of turning US persons into US shareholders and a foreign corporation into a CFC.



Rev. Proc. 2019-40

The final regulations do not reverse the repeal of §958(b)(4), rather, they provide relief in certain unintended situations as a result of the repeal. Rev. Proc. 2019-40 provides guidance related to the repeal of §958(b)(4).


The Treasury Department and the IRS are aware that, in certain circumstances, taxpayers are required to include in gross income amounts under sections 951 (“subpart F inclusion amounts”) and 951A (“GILTI inclusion amounts”) attributable to, and report amounts with respect to, foreign corporations that are CFCs solely because of the repeal of section 958(b)(4), even though those taxpayers may have limited ability to determine whether such foreign corporations are CFCs and to obtain the information necessary to accurately determine these amounts.


The changes to the 2020 Form 5471, 'Information Return of U.S. Persons With Respect to Certain Foreign Corporations', lay out different categories of filers with different filing requirement as a result of the repeal.