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For a controlled foreign corporation, am I correct that an investment loss that otherwise would be considered subpart f income if it were income cannot be deducted ? In otherwords, you cannot deduct subpart f losses ?
Correct sub f losses on CFC if are investment in nature and the income in the corp is non investment you can not offset them . You are deemed to have a cap loss on your investment loss which you can carry forwrd. Thgis usually happens in a liquidation of teh FC under Treas Reg S 1.267(a)-1.
So as I understand it and to be clear...a subpart f loss is deemed a capital loss and can be used to offset future CFC gains ? Where do you put the prior year capital loss to offset current subpart f income on the 5471 ?
Do you just simply reduce the subpart f CFC capital gains for the current year by the loss carried forward from prior years and put the net on line 1b of Worksheet A ?
Basically you show it on Schedule D as a reduction of current years cap gain with carry forward of prior years long term cap loss, also do not forget to offsett up to $3000 of other income by this loss. See publication 550 on this topic.
Now I am confused again because I read this from "Controlled Foreign Corporation Tax Guide "
Although U.S. shareholders of a CFC may be subject to current tax on the
subpart F income of the CFC, losses are not passed through as deductions to
the shareholders.
This seems to contradict what is posted above. Any comments ?
In my previous response I stated clearly that on liquidation you can avail yourself of tehis option as per the regulation I had given you, so its on wind up only