I have a client situation in which the husband and wife sold their active interests in a CFC that they materially participated in. Their active interests in the CFC were held under a domestic US partnership, with their grantor trusts (2 dynasty trusts and 2 living trusts) owning 100% of the interest in the partnership.
Would the capital gain from the complete disposition of their active interests in the CFC be subject to NIIT? The individual taxpayers materially participated in the operations of the CFC leading up to the sale but their ownership were through the flow through of a US partnership and the grantor trusts.
Yes, I believe it the capital gain would be subject to NIIT. The NIIT includes income attributable to investments in foreign corporations, including CFCs. Please review Treas. Regs. section 1.1411-10 to be sure your situation applies. You may have other relevant factors not mentioned in your question.