Controlled Foreign Corporation Practice Test 2026 | Exam Pre

A U.S. shareholder is considering establishing a foreign subsidiary in a low-tax jurisdiction. The subsidiary will generate significant passive income. Under the proposed 2026 CFC regulations, what is the primary threshold for the foreign corporation to be classified as a Controlled Foreign Corporation (CFC)?

A U.S. corporation (USP) owns 60% of the stock of a foreign corporation (FC). FC's sole business activity is licensing intellectual property (IP) to unrelated third parties. All of the IP was developed by FC and has no U.S. source component. If FC's income is solely derived from these IP licenses, what is the most likely characterization of this income for Subpart F purposes under the 2026 CFC regulations?

Consider a U.S. shareholder (USP) holding 70% of the stock of a foreign corporation (FC) that is a CFC. FC has $1 million in net income for the year, of which $800,000 is FPHCI and $200,000 is from the active conduct of a trade or business. Assuming no tested income exceptions apply, what is the amount of income that USP will be required to include in its U.S. taxable income under Section 951A (Global Intangible Low-Taxed Income - GILTI) and Section 951 (Subpart F)?