The Application of Subpart F Income to a Domestic Corporation Through a Voting Trust After Textron v. Commissioner
John Amory Glaccum
In Textron, Inc. v. Commissioner, the Tax Court addressed whether subpart F income of a controlled foreign corporation (CFC) could be taxed to a domestic corporation when the domestic corporation held all of the shares of the CFC in an involuntary voting trust. The court held that the CFC’s subpart F income was includable in the domestic corporation’s income pursuant to the combination of subpart E and subpart F. The court rejected the taxpayer’s argument that the domestic corporation should not be taxed because the domestic corporation had no voting control over the CFC. The court also rejected the Commissioner’s primary argument that the domestic corporation was the direct owner of the controlling shares by way of the grantor trust provisions.Part I of this note summarizes the background facts of Textron and the statutory framework of subpart F. Part II discusses the parties’ arguments. Part III explains the rationale of the court’s decision. Part IV concludes that although the ultimate disposition of the case was correct, the Tax Court’s rationale was arduous and indirect.