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Abstract
The Internal Revenue Service (IRS) and Treasury department recently announced that they intend to issue new regulations that will classify certain US partnerships as foreign partnerships for purposes of determining the US shareholders of a controlled foreign corporation (CFC) that are required to include in gross income the amounts described in section 951(a), in other words, subpart F income, with respect to the CFC. Notice 2010-41 states that the new regulations will address subpart F income partnership blocker transactions, which were previously identified as transactions of interest in Notice 2009-7. Under the new regulations, a US partnership will be treated as a foreign partnership if: 1. the US partnership is a US shareholder of a foreign corporation that is a CFC, and 2. if the US partnership were treated as a foreign partnership, the foreign corporation would continue to be treated as a CFC, and at least one US shareholder of the CFC would be treated under Section 958(a) as indirectly owning stock of the CFC owned by the US partnership and would be required to include in gross income the amounts described in Section 951(a) with respect to the CFC. The new regulations will also provide for similar results in the case of tiered-partnership structures.