Controlled Foreign Corporation Rules
Anti-avoidance rules that can tax a domestic shareholder on a foreign company's income directly, even before that income is actually distributed to them.
Controlled Foreign Corporation (CFC) rules are anti-avoidance provisions that can tax a domestic shareholder directly on a foreign company's income — even income that hasn't actually been distributed to the shareholder yet — specifically to prevent individuals or businesses from indefinitely deferring domestic tax by holding income inside a foreign entity, including one based in a tax haven (see Kaavon's "Tax Haven" glossary definition).
CFC rules are most directly relevant to crypto businesses or investors who hold assets through a foreign corporate structure, rather than to individuals holding crypto directly in their own name.
Examples
- CFC rules can tax a domestic shareholder on a foreign holding company's crypto gains directly, even if those gains were never actually distributed out of the company.
- CFC rules exist specifically to prevent indefinitely deferring domestic tax by routing income through a foreign entity, including one in a low-tax jurisdiction.