SECTION 9. EXAMPLES

Example 1: Definition of unrelated section 958(a) U.S. shareholder and related constructive U.S. shareholder —(i) Facts . USI, a citizen of the United States, owns 10% of the single class of stock of FP, a foreign corporation. The remaining 90% of the stock of FP is owned by a foreign individual that is unrelated to USI. FP owns 100% of the single class of stock of FS1, a foreign corporation. FS1 owns 100% of the single class of stock of USS, a domestic corporation, and 100% of the single class of stock of FS2, a foreign corporation

(ii) Analysis —(a) USS as related constructive U.S. shareholder . Because FS1 owns 50% or more in value of the stock in USS, USS is considered to own, pursuant to section 958(b) and section 318(a) (3)(C), the 100% of the single class of stock of FS2 owned by FS1. Accordingly, USS is a U.S. shareholder with respect to FS2. Because USS does not own (within the meaning of section 958(a)) any stock of FS2, USS is not a section 958(a) U.S. shareholder with respect to FS2 within the meaning of section 3.09 of this revenue procedure. Accordingly, USS is a constructive U.S. shareholder with respect to FS2 within the meaning of section 3.02 of this revenue procedure. Because USS is a related person with respect to FS2 within the meaning of section 3.06 of this revenue procedure, USS is a related constructive U.S. shareholder with respect to FS2 within the meaning of section 3.05 of this revenue procedure.

(b) FS2 as a foreign-controlled CFC . Because more than 50% of the single class of stock of FS2 is considered owned under section 958(b) by USS, a U.S. shareholder with respect to FS2, FS2 is a CFC. If, however, section 318(a)(3)(C) did not apply to treat USS as owning the FS2 stock owned by FS1, FS2 would not be a CFC, because the only stock of FS2 owned (within the meaning of section 958(a)) or considered owned under section 958(b) by U.S. shareholders would be the 10% of the FS2 stock owned (within the meaning of section 958(a)) by USI. Accordingly, FS2 is a foreign-controlled CFC within the meaning of section 3.03 of this revenue procedure.

(c) USI as an unrelated section 958(a) U.S. shareholder . Because USI owns (within the meaning of section 958(a)) 10% of the stock of FS2, USI is a section 958(a) U.S. shareholder with respect to FS2 within the meaning of section 3.09 of this revenue procedure. Because USI is not a related person with respect to FS2 within the meaning of section 3.06 of this revenue procedure, USI is an unrelated section 958(a) U.S. shareholder with respect to FS2 within

the meaning of section 3.12 of this revenue procedure.

Example 2: Definition of related section 958(a) U.S. shareholder —(i) Facts . The facts are the same as in Example 1 of this section 9, except that USS owns 1% of the single class of stock of FS2 and FS1 owns 99%.

(ii) Analysis . The analysis is the same as in Ex- ample 1 of this section 9, except that because USS owns (within the meaning of section 958(a)) 1% of the single class of stock of FS2, it is a section 958(a) U.S. shareholder with respect to FS2 within the meaning of section 3.09 of this revenue procedure and not a constructive U.S. shareholder within the meaning of section 3.02 of this revenue procedure. Because USS is a related person with respect to FS2 within the meaning of section 3.06 of this revenue procedure, USS is a related section 958(a) U.S. shareholder with respect to FS2 within the meaning of section 3.07 of this revenue procedure.

Example 3: Definition of unrelated constructive U.S. shareholder —(i) Facts . In 2020, USP, a domestic corporation, and FP, a foreign corporation, invest in FJV, a newly formed foreign corporation. USP receives 10% of the single class of stock of FJV, and FP receives the remaining 90% of the stock of FJV. FP is not a related person with respect to USP. FP has no U.S. shareholders. FP owns 5% of the interests in a domestic partnership, DPS, the remainder of the interests in which are held by persons unrelated to USP and FP.

(ii) Analysis —(a) DPS as an unrelated construc- tive U.S. shareholder . Because FP is a partner in DPS, DPS is considered to own, pursuant to section 958(b) and section 318(a)(3)(A), the 90% of the single class of stock of FJV owned by FP. Accordingly, DPS is a U.S. shareholder with respect to FJV. Because DPS does not own (within the meaning of section 958(a)) any stock of FJV, DPS is not a section 958(a) U.S. shareholder with respect to FJV within the meaning of section 3.09 of this revenue procedure. Accordingly, DPS is a constructive U.S. shareholder with respect to FJV within the meaning of section 3.02 of this revenue procedure. Because DPS is not a related person with respect to FJV within the meaning of section 3.06 of this revenue procedure, relying on §1.954-1(f)(2)(iv), as proposed to be revised at 84 FR 22751, DPS is an unrelated constructive U.S. shareholder with respect to FJV within the meaning of section 3.11 of this revenue procedure.

(b) FJV as a foreign-controlled CFC . Because more than 50% of the single class of stock of FJV is considered owned under section 958(b) by DPS, a U.S. shareholder with respect to FJV, FJV is a CFC. If, however, section 318(a)(3)(A) did not apply to treat DPS as owning the FJV stock owned by FP, FJV would not be a CFC, because the only stock of FJV owned (within the meaning of section 958(a)) or considered owned under section 958(b) by U.S. shareholders would be the 10% of the FJV stock owned by USP. Accordingly, FJV is a foreign-controlled CFC within the meaning of section 3.03 of this revenue procedure.

(c) USP as an unrelated section 958(a) U.S. shareholder . Because USP owns (within the meaning of section 958(a)) 10% of the stock of FJV, USP is a section 958(a) U.S. shareholder with respect to FJV within the meaning of section 3.09 of this reve

nue procedure. Because USP is not a related person with respect to FJV within the meaning of section 3.06 of this revenue procedure, USP is an unrelated section 958(a) U.S. shareholder with respect to FJV within the meaning of section 3.12 of this revenue procedure.

Example 4: U.S. shareholder relies on section 4.02 to determine whether foreign corporation meets the section 957 ownership requirements —(i) Facts . The facts are the same as in Example 3 of this section 9. USP inquired of FJV whether FJV met the section 957 ownership requirements, and FJV did not report that it met the section 957 ownership requirements. There is no reliable publicly available information that would indicate that FJV is a CFC. USP has not received a statement indicating that FJV is a CFC. Furthermore, after making the inquiry of FJV, USP does not know that FJV is a CFC.

(ii) Analysis . Pursuant to section 4.02 of this revenue procedure, because FJV is not a U.S.-controlled CFC and FP is not a related person with respect to USP within the meaning of section 3.06 of this revenue procedure, for purposes of determining if FJV meets the section 957 ownership requirements, USP may rely on the safe harbor described in section 4.02 of this revenue procedure without inquiring of FP whether FP owns directly or indirectly (determined under the principles of section 958(a)(2)) or constructively owns (determined under the principles of section 958(b)) stock of, or an interest in, a domestic entity. Because there is no reliable publicly available information that would indicate that FJV is a CFC, USP has not received a statement indicating that FJV is a CFC, and, after making an inquiry of FJV, USP does not know that FJV is a CFC, USP may treat FJV as not meeting the section 957 ownership requirements.