Title 26 — Internal Revenue CodeRelease 119-73
§957 Controlled foreign corporations; United States persons
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter N— - Tax Based on Income From Sources Within or Without the United States › Part PART III— - INCOME FROM SOURCES WITHOUT THE UNITED STATES › Subpart Subpart F— - Controlled Foreign Corporations › § 957
Summary
Defines when a foreign company is a "controlled foreign corporation" for U.S. tax rules. A foreign company is a controlled foreign corporation when U.S. shareholders own more than 50% of either its voting power or the total value of its stock. For rules about insurance income, a company can also be treated as controlled if U.S. shareholders own more than 25% on any day of the year, but only if more than 75% of its premiums come from reinsurance or from issuing insurance or annuity contracts (excluding certain types). Says who counts as a "United States person" mostly follows the usual definition in section 7701(a)(30), with two special cases. A bona fide resident of Puerto Rico may not be treated as a U.S. person for these rules if dividends would be treated as Puerto Rico source income. Corporations organized in Guam, American Samoa, or the Northern Mariana Islands are treated specially when 80% or more of gross income for the 3-year period comes from that possession or business there, and 50% or more comes from active business in that possession.
Full Legal Text
Title 26, §957
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this title, the term “controlled foreign corporation” means any foreign corporation if more than 50 percent of—
(1)the total combined voting power of all classes of stock of such corporation entitled to vote, or
(2)the total value of the stock of such corporation,
(b)For purposes only of taking into account income described in section 953(a) (relating to insurance income), the term “controlled foreign corporation” includes not only a foreign corporation as defined by subsection (a) but also one of which more than 25 percent of the total combined voting power of all classes of stock (or more than 25 percent of the total value of stock) is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such corporation, if the gross amount of premiums or other consideration in respect of the reinsurance or the issuing of insurance or annuity contracts not described in section 953(e)(2) exceeds 75 percent of the gross amount of all premiums or other consideration in respect of all risks.
(c)For purposes of this subpart, the term “United States person” has the meaning assigned to it by section 7701(a)(30) except that—
(1)with respect to a corporation organized under the laws of the Commonwealth of Puerto Rico, such term does not include an individual who is a bona fide resident of Puerto Rico, if a dividend received by such individual during the taxable year from such corporation would, for purposes of section 933(1), be treated as income derived from sources within Puerto Rico, and
(2)with respect to a corporation organized under the laws of Guam, American Samoa, or the Northern Mariana Islands—
(A)80 percent or more of the gross income of which for the 3-year period ending at the close of the taxable year (or for such part of such period as such corporation or any predecessor has been in existence) was derived from sources within such a possession or was effectively connected with the conduct of a trade or business in such a possession, and
(B)50 percent or more of the gross income of which for such period (or part) was derived from the active conduct of a trade or business within such a possession,
Legislative History
Notes & Related Subsidiaries
Editorial Notes
Amendments
2018—Subsec. (b). Pub. L. 115–141 substituted “contracts not described in section 953(e)(2)” for “contracts described in section 953(a)(1)”. 2017—Subsec. (a). Pub. L. 115–97 substituted “title” for “subpart” in introductory provisions. 2004—Subsec. (c). Pub. L. 108–357, § 908(c)(5)(B), struck out “derived from sources within a possession, was effectively connected with the conduct of a trade or business within a possession, or” after “whether income was” in concluding provisions. Subsec. (c)(2)(B). Pub. L. 108–357, § 908(c)(5)(A), substituted “active conduct of a” for “conduct of an active”. 1986—Subsec. (a). Pub. L. 99–514, § 1222(a)(1), amended subsec. (a) generally. Prior to amendment, subsec. (a) read as follows: “For purposes of this subpart, the term ‘controlled foreign corporation’ means any foreign corporation of which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned (within the meaning of section 958(a)), or is considered as owned by applying the rules of ownership of section 958(b), by United States shareholders on any day during the taxable year of such foreign corporation.” Subsec. (b). Pub. L. 99–514, § 1222(a)(2), inserted “(or more than 25 percent of the total value of stock)”. Pub. L. 99–514, § 1221(b)(3)(C), substituted “insurance income” for “income derived from insurance of United States risks”. Subsec. (c). Pub. L. 99–514, § 1273(a), added par. (2) and concluding provisions and struck out former pars. (2) and (3) which read as follows: “(2) with respect to a corporation organized under the laws of the Virgin Islands, such term does not include an individual who is a bona fide resident of the Virgin Islands and whose income tax obligation under this subtitle for the taxable year is satisfied pursuant to section 28(a) of the Revised Organic Act of the Virgin Islands, approved July 22, 1954 (48 U.S.C. 1642), by paying tax on income derived from all sources both within and outside the Virgin Islands into the treasury of the Virgin Islands, and “(3) with respect to a corporation organized under the laws of any other possession of the United States, such term does not include an individual who is a bona fide resident of any such other possession and whose income derived from sources within possessions of the United States is not, by reason of section 931(a), includible in gross income under this subtitle for the taxable year.” Pub. L. 99–514, § 1224(a), redesignated subsec. (d) as (c) and struck out former subsec. (c) which provided circumstances under which for purposes of this subpart, the term “controlled foreign corporation” would not include certain corporations created or organized in Puerto Rico or a possession of the United States or under the laws of Puerto Rico or a possession of the United States. Subsec. (d). Pub. L. 99–514, § 1224(a), redesignated subsec. (d) as (c). 1976—Subsec. (c) Pub. L. 94–455 struck out “or his delegate” after “Secretary”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2017 AmendmentAmendment by Pub. L. 115–97 applicable to distributions made after Dec. 31, 2017, see section 14101(f) of Pub. L. 115–97, set out as an
Effective Date
note under section 245A of this title.
Effective Date
of 2004 AmendmentAmendment by Pub. L. 108–357 applicable to taxable years ending after Oct. 22, 2004, see section 908(d)(1) of Pub. L. 108–357, set out as an
Effective Date
note under section 937 of this title.
Effective Date
of 1986 AmendmentAmendment by section 1221(b)(3)(C) of Pub. L. 99–514 applicable to taxable years of foreign corporations beginning after Dec. 31, 1986, except as otherwise provided, see section 1221(g) of Pub. L. 99–514, set out as a note under section 954 of this title. Pub. L. 99–514, title XII, § 1222(c), Oct. 22, 1986, 100 Stat. 2557, provided that: “(1) In general.—The
Amendments
made by this section [amending this section and section 552 of this title] shall apply to taxable years of foreign corporations beginning after December 31, 1986; except that for purposes of applying section 951(a)(1)(B) and 956 of the Internal Revenue Code of 1986, such
Amendments
shall take effect on August 16, 1986. “(2) Transitional rule.—In the case of any corporation treated as a controlled foreign corporation by reason of the
Amendments
made by this section, property acquired before
August 16, 1986, shall not be taken into account under section 956(b) of the Internal Revenue Code of 1986. “(3) Special rule for beneficiary of trust.—In the case of an individual—“(A) who is a beneficiary of a trust which was established on
December 7, 1979, under the laws of a foreign jurisdiction, and “(B) who was not a citizen or resident of the United States on the date the trust was established, amounts which are included in the gross income of such beneficiary under section 951(a) of the Internal Revenue Code of 1986 with respect to stock held by the trust (and treated as distributed to the trust) shall be treated as the first amounts which are distributed by the trust to such beneficiary and as amounts to which section 959(a) of such Code applies.” Pub. L. 99–514, title XII, § 1224(b), Oct. 22, 1986, 100 Stat. 2558, provided that: “(1) In general.—The amendment made by subsection (a) [amending this section] shall apply to taxable years of foreign corporations beginning after
December 31, 1986; except that for purposes of applying section 951(a)(1)(B) and 956 of the Internal Revenue Code of 1986, such
Amendments
shall take effect on
August 16, 1986. “(2) Transitional rule.—In the case of any corporation treated as a controlled foreign corporation by reason of the amendment made by subsection (a), property acquired before
August 16, 1986, shall not be taken into account under section 956(b) of the Internal Revenue Code of 1986.” Amendment by section 1273(a) of Pub. L. 99–514 applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, see section 1277 of Pub. L. 99–514, set out as a note under section 931 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 957
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73