C.1. Subpart F Controlled Foreign Corporations - Section 965 Regulations Touch on…

(1) An inclusion under Section 951(a)(1) (inclusion of subpart F income from a

controlled foreign corporation), including a Section 965(a) inclusion, generally is included in the calculation of gross investment income of a private foundation for purposes of determining the excise tax imposed under Section 4940. Gross investment income under Section 4940 doesn’t include an inclusion under Section 951(a)(1), including a Section 965(a) inclusion, to the extent the amount is included in computing the unrelated business income tax imposed by Section 511. See Section 4940(c)(2). Section 4940(c)(3) allows as a deduction all the ordinary and necessary expenses paid or incurred for the production or collection of gross investment income or for the management, conservation, or maintenance of property held to produce income.

(2) Under final regulations issued February 5, 2019, a Section 965(c) deduction is not

treated as an ordinary and necessary expense paid or incurred for the production or collection of gross investment income for purposes of section 4940(c)(3)(A). See Treas. Reg. 1.965-3(f)(4).