NIIT on capital gain from the sale of CFC - Spidell

NIIT on capital gain from the sale of CFC

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Message Board NIIT on capital gain from the sale of CFC

This topic contains 2 replies, has 2 voices, and was last updated by Wayne Lai 2 weeks ago.

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  • #184018
    Wayne Lai
    Participant

    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.

    Any comment is greatly appreciated.

  • #184024
    Mike Giangrande
    Participant

    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.

  • #184028
    Wayne Lai
    Participant

    Is material participation not a factor in this situation in recharacterizing the capital gain as nonpassive for NIIT purposes?