Question

Boomerang Corporation, a New Zealand corporation, is owned by the following unrelated persons: 40 percent by a U.S. corporation, 15 percent by a U.S. individual, and 45 percent by an Australian corporation. During the year, Boomerang earned $6,400,000 of subpart F income. Which of the following statements is true about the application of subpart F to the income earned by Boomerang?
O Boomerang is a CFC and the U.S. corporation and U.S. individual will have a deemed dividend of $2,560,000 and $960,000, respectively.

O Boomerang is a CFC and only the U.S. corporation will have a deemed dividend of $2,560,000.

O Boomerang is a CFC and the U.S. corporation, U.S. individual, and Australian corporation will have a deemed Odividend of $2,560,000, $960,000, and $2,880,000, respectively.

Boomerang is not a CFC and none of the shareholders will have a deemed dividend under subpart F.

Answer 1

Answer:

Statement 1 is the correct answer.

Explanation:

A corporate entity that is registered and conducts business in a different province or country than the residency of the controlling owners is known as a controlled foreign corporation (CFC).

In the U.S., the control of a foreign company is defined according to the percentage of shares owned by U.S. citizens.

Since the U.S. shareholders (the U.S. corporation and U.S. individual in this scenario) own more than 50 percent of the corporation's stock, then Boomerang is a CFC. The U.S. corporation and U.S. individual will have a deemed dividend equal to their pro-rata share of the corporation's subpart F income.

Therefore, statement 1 is the correct answer.