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Lane
Lane, CFP, MBA, CRPS
Category: Tax
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Experience:  Providing Financial & Tax advice since 1986
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how does a controlled foreign corporation (CFC) get taxed to

Resolved Question:

how does a controlled foreign corporation (CFC) get taxed to the estate when the 100 % owner of the cfc dies
Submitted: 9 months ago.
Category: Tax
Expert:  Lane replied 9 months ago.

Lane :

As the estate tax is an asset based transfer tax it will be a part of the estate as any other asset would be (and will be valued at Fair Market Value as of the date of death, as any other asset, for purposes of the 706 form and determining whether that TOTAL taxable estate - plus lifetime taxable gifts - are over the lifetime exclusion amount, $5,250,000 for those dying in 2013

Lane :

The valuation should be reasonably close in value to the valuation reported on the Form 8938, (presuming that the asset is reportable)

Lane :

As our system in US is a worldwide system, this is really treated as any other asset

Customer:

thank you for the information lane, the big question is if the CFC is distributed after the owner dies to the beneficiaries will it be taxed as ordinary income and then estate tax ?

Lane :

No ... this would be exactly the same as the bequest or devise of any other stock or company ownership ... If the estate is large enough the TRANSFER tax (the estate tax) will apll, but this is not income and is specifically excluded ...

Lane :

See this:

Lane :
(a) General rule.--Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.


26 U.S.C.A. § 102 (West)

Lane :

Further they will receive a step-up in tax basis should they decide to see their interest ... BUT, of course, income FROM that ownership WILL be taxable as income, going forward

Lane :

sorry "Sell" their interest...

Customer:

exactly the information i was looking for . thank you so much . last question , what does "step up" in tax basis mean ?

Lane :

Sure -- For Capital gains purposes (that one IS an income tax) if an heir sells an inherited capital asset, their TAX basis for calculating that gain (sales price minus basis - for the decedent the basis would have been their investment plus improvements IN the capital asset) the HEIR's basis is the Fair market Value of the asset as of the date of death ... so they can feasible sell theit inherited asset for ZERO capital gains tax

Lane :

The logic, the policy, here is that the estate has already been (or may have been depending on size) reduced because of the estate tax

Customer:

got it ... thank you so much .. great specific information . i will contact you gain

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3718
Experience: Providing Financial & Tax advice since 1986
Lane and 5 other Tax Specialists are ready to help you

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