How Much Subpart F Income Must Each Shareholder Recognize For 2015?

1517 Words Sep 21st, 2016 7 Pages
Linh Le
Research Paper
The research paper reviews the situation of the two Brazilian companies Gaucho, S.A (“Gaucho”) and Vaqueiro, S.A. (“Vaqueiro”.) The paper addresses three questions:
1. Is either of Gaucho or Vaqueiro a controlled foreign corporation? Or both?
2. Are any of the shareholders U.S. shareholders with respect to either corporation?
3. How much subpart F income must each shareholder recognize for 2015?
I. Facts:
The Brazilian companies, Gaucho and Vaqueiro, are treated as corporations for U.S federal income tax purposes. Each of companies has earned $1 million in interest income from Brazilian money market accounts during 2015. Below are the companies’ ownership structure:
GAUCHO
Owner Percentage of ownership Citizenship
Alan 20% U.S Citizen
Brian 29% U.S Citizen
Minority Owners 51% This block is owned in equal parts by 6 U.S. citizens

VAQUEIRO
Owner Percentage of ownership Citizenship
Alan 20% U.S Citizen
Brian 9% U.S Citizen (Brian is Carie’s Grandfather)
Carie 8% U.S Citizen
David 8% U.S Citizen (David is married to Evelyn)
Evelyn 7% U.S Citizen
Federick 48% German citizen residing in San Paulo, Brazil

II. Question: Is either of Gaucho or Vaqueiro a controlled foreign corporation? Or both?
The IRS defines controlled foreign corporation as “A controlled foreign corporation is any foreign corporation in which more than 50 % of the total combined voting power of all classes of stock entitled to vote is owned directly, indirectly, or constructively by U.S.…
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