SECTION 3. BACKGROUND

Section 951(a) provides that if a foreign corporation is a CFC for an uninterrupted

period of 30 days or more during any taxable year, then each United States shareholder (as defined in § 951(b)) of such corporation that owns, within the meaning of § 958(a), stock in the corporation on the last day in such year on which it is a CFC must include in gross income its pro rata share of the corporation’s subpart F income (as defined in § 952) as well as any amount determined under § 956 with respect to such shareholder. See also § 951(a)(1)(A)(ii) and (iii) for other required inclusions.

Section 951(b) defines a United States shareholder, with respect to any foreign corporation, as a United States person (as defined in § 957(c)) that owns (within the meaning of § 958(a)) or is considered as owning under § 958(b), 10 percent or more of the total combined voting power of all classes of stock entitled to vote of the foreign corporation.

With certain modifications, § 957(c) defines a United States person by reference to § 7701(a)(30). Section 7701(a)(30)(B) defines a United States person to include a domestic partnership. Section 7701(a)(5) defines the term foreign when applied to a corporation or partnership as a corporation or partnership that is not domestic. Section 7701(a)(4) provides that the term domestic when applied to a corporation or partnership means created or organized in the United States or under the law of the United States or of any State unless, in the case of a partnership, the Secretary provides otherwise by regulations. However, § 7701(a) provides that any general definition included therein does not apply where such definition is manifestly incompatible with the intent of the relevant Code provision.