Simplify application of Subpart F. In general, 10-percent or greater U.S. shareholders of a controlled foreign corporation (CFC) are required to include in current income certain income of the CFC (referred to as "Subpart F" income). The Subpart F rules are an exception to the Code's general rule of deferral and were initially enacted to tax passive income or income that is readily moveable from one taxing jurisdiction to another, for example, to take advantage of low rates of tax. Since the Subpart F rules were enacted in 1962, they have been amended several times to capture more and more categories of active operating income. Nevertheless, income of a CFC may be excepted from taxation under the Subpart F provisions under various "same-country" exceptions. U.S.-based companies incur substantial administrative and transaction costs in navigating the maze of the Subpart F rules to minimize their tax liability.

The Subpart F rules were created almost four decades ago. They sorely need to be updated to deal with today's global environment in which companies are centralizing their services, distribution, and invoicing (and often manufacturing operations, as well). We recognize that the Treasury Department is preparing a study on the policy goals and administration of the Subpart F regime, which we eagerly await. Whatever effect this study may eventually have, substantial simplification can be achieved now through the following basic measures: