USA Tax Update: New CFC Pro-Rata Share Rules Change How US Shareholders Report Foreign Income , What International Sellers Must Know

by Ariful | Aug 28, 2026 | US Updates

TITLE: Proposed CFC Regulations Change How US Shareholders Calculate Income

On 26 August 2026, the US Treasury and IRS published proposed regulations that change how US shareholders calculate and report income from controlled foreign corporations (CFCs).

The proposal, REG-115646-25, was published in the Federal Register as 91 FR 55037. It implements One Big Beautiful Bill Act (OBBBA) changes to Sections 951(a) and 951A.

The key change is simple but important: ownership may now be measured by day, not just at the end of the CFC’s tax year.

This matters if you are a US citizen, green card holder, US shareholder, or owner of a US LLC with an interest in a UK Ltd, EU company, Canadian corporation, Australian entity, or another foreign trading business.

Understand the change: ownership days now drive income allocations

Under the legacy approach, a US shareholder generally needed to own CFC stock on the last relevant day of the CFC’s tax year to receive a Subpart F income inclusion.

The proposed regulations replace that approach for relevant CFC years with a daily proration method.

For Subpart F income, tested income, and tested loss, your allocation will generally reflect:

• The shares you owned.
• Your ownership percentage.
• The number of days you owned the shares.
• The days on which you were a US shareholder.
• The days on which the foreign corporation was a CFC.

For a CFC with one class of stock and a constant number of shares, the basic calculation is:

CFC income or loss × ownership percentage × qualifying ownership days ÷ days in the CFC year

The rules also introduce CFC year blocks. These are groups of shares owned for the same period during the CFC year.

This means a mid-year acquisition, disposal, share issue, or redemption can affect the calculation even if the business accounts are prepared annually.

Report the inclusion in the correct US tax year

The inclusion is generally reported in the US shareholder’s tax year that includes the last day on which the shareholder owned stock during the CFC year.

That timing point is essential.

For example, if you dispose of your foreign company shares on 30 June, the relevant inclusion may fall into the US tax year that includes 30 June. If another US shareholder acquires the shares on 1 July, that shareholder may report its own allocation in the tax year that includes the last day it owns the shares.

The proposed regulations clarify that the day of disposal is included in the seller’s holding period, while the day after the transfer begins the buyer’s holding period.

Prepare for mandatory CFC year closing after a status change

A foreign corporation’s tax year must close when it becomes or ceases to be a CFC.

The closing occurs at the end of the day on which the status change happens. It applies for all purposes of the Internal Revenue Code and affects all shareholders of the foreign corporation.

This rule can create a short CFC tax year.

You may need to calculate the foreign company’s Subpart F income, tested income, tested loss, earnings and profits, and relevant foreign taxes for the short period. Your bookkeeping and year-end records must support that calculation.

Do not assume that a transfer of shares only affects the seller. A CFC status change can affect the entire ownership structure and reporting process.

Use the 50-percentage-point election when ownership changes significantly

The proposed regulations also permit an election to close a CFC’s tax year when a significant ownership variance occurs.

Generally, this means that specified transfers under the same plan cause the aggregate ownership of one or more Section 958(a) US shareholders to decrease by more than 50 percentage points.

The election is not automatic.

The controlling Section 958(a) US shareholders must generally:

1. Identify the relevant ownership reduction.
2. Confirm that the transfer meets the proposed definition.
3. Obtain the required written, binding agreement where applicable.
4. File the required Elective Section 951 Year-Closing Statement.
5. Apply the election consistently to affected shareholders and relevant CFCs.

Related-party transfers and certain reorganisations may not produce the same result. The proposed regulations contain special rules to prevent artificial ownership changes from creating an elective closing.

See how daily proration affects an international seller

Example 1: A US person sells part of a UK Ltd ecommerce business

Assume a US person owns 100% of a UK Ltd that operates an online retail business. The company remains a CFC throughout 2026.

The shareholder sells 40% of the shares to an unrelated non-US buyer on 30 June. The US person retains 60%.

Assume:

• The UK Ltd has $100,000 of relevant Subpart F income for the year.
• The shareholder owns 100% for 181 days.
• The shareholder owns 60% for the remaining 184 days.
• The share count remains constant.
• The UK Ltd remains a CFC.

The approximate allocation is:

• $100,000 × 100% × 181/365 = $49,589.
• $100,000 × 60% × 184/365 = $30,247.
• Total approximate inclusion: $79,836.

The result is not based only on the shareholder’s ownership on 31 December. It reflects ownership over the relevant days.

Your exact calculation may differ because of share classes, tested income, tested loss, foreign exchange, CFC status, earnings and profits, and other statutory rules.

Example 2: A US person transfers an EU ecommerce entity and the company ceases to be a CFC

Assume a US person owns all the shares in an EU ecommerce company. On 30 June, the US person transfers all shares to a non-US individual. After the transfer, the company is no longer a CFC.

Under the proposed rules:

• The company’s CFC tax year closes at the end of 30 June.
• The US person’s ownership period runs through 30 June.
• The company must calculate relevant income and loss for the short CFC year.
• The US person reports the inclusion in the US tax year that includes 30 June.
• The company’s post-transfer period is outside that CFC year.

You should preserve the transfer agreement, completion statement, share register, board minutes, and financial records through the closing date. These documents support the short-period calculation and the ownership timeline.

Example 3: A US LLC has a significant ownership decrease

Assume a US LLC is treated as a corporation for US federal income tax purposes. It owns 80% of a foreign subsidiary and is a Section 958(a) US shareholder.

The LLC sells 60% of the subsidiary to an unrelated buyer under one transaction plan. Its ownership decreases from 80% to 20%, a reduction of 60 percentage points.

That may meet the proposed significant ownership variance test.

The LLC may be able to elect to close the CFC’s tax year at the end of the transfer date, subject to the proposed regulations’ documentation, agreement, filing, and consistency requirements.

If the US LLC is instead taxed as a partnership or disregarded entity, the analysis may focus on its members or owners. Confirm the entity classification before calculating the result.

Follow this transition checklist before your next filing

Start preparing now. This will reduce corrections and make the proposed rules easier to apply.

1. Map every foreign entity.
   Record whether you own a UK Ltd, EU entity, Canadian corporation, or other foreign business.
2. Identify your US shareholder status.
   Confirm whether you are a Section 958(a) shareholder under the proposed definition.
3. Track ownership days.
   Document the exact dates of any acquisition, sale, or transfer of shares during the CFC year.
4. Review CFC status changes.
   Determine whether any foreign corporation became or ceased to be a CFC during the year.
5. Calculate short-period income.
   Prepare earnings and profits, tested income, tested loss, and Subpart F figures for any closing period.
6. Assess the 50-percentage-point election.
   If ownership dropped by more than 50 percentage points, evaluate whether the election applies.
7. Gather documentation.
   Keep share registers, transfer agreements, board minutes, and financial records ready for the short-period and allocation calculations.
8. Consult a tax advisor.
   The proposed regulations contain special rules for related-party transfers, reorganisations, and entity classifications that may affect your result.

USA Tax Update: IRS Retires FIRE System and Launches Foreign Filer TCC Registration : What International Sellers Must Know

by Ariful | Aug 27, 2026 | US Updates

TITLE: Preparing for the IRS FIRE System Retirement: Your Guide to IRIS and the Foreign Filer TCC Registration System

The IRS is retiring the FIRE system in 2026. From 1 January 2027, IRIS will become the sole electronic filing system for information returns, including current-year forms, prior-year forms and corrections.

This change matters if your UK, EU or other international business files US information returns. It is especially important if you issue Forms 1099 to US contractors or file Form 1042-S for US-source income paid to foreign persons.

The IRS has also introduced a Foreign Filer TCC Registration System. This gives eligible overseas filers a route to obtain the credentials needed to transmit returns electronically through the International Data Exchange System (IDES).

The key message: prepare before the FIRE deadlines

Do not wait until the 2027 filing season. Your filing system, user access and supporting data should be ready during 2026.

The important dates are:

The IRS has also stopped accepting new FIRE applications for Transmitter Control Codes. Existing FIRE applications can only be updated until the relevant 2026 deadline.

You can review the current requirements on the IRS FIRE system retirement page.

Understand what IRIS replaces

The Information Returns Intake System, or IRIS, is the IRS platform replacing FIRE for electronic information return filing.

IRIS supports:

• Forms 1099 and other information returns.
• Form 1042-S.
• Current-year filings.
• Prior-year filings.
• Corrections.
• Automatic extension requests.
• Manual entry or CSV uploads through the taxpayer portal.
• Application-to-application filing through approved software.

From 1 January 2027, you cannot continue using FIRE for electronic submissions. A FIRE Transmitter Control Code is also not an IRIS credential. You must apply for a separate IRIS TCC if your authorised user has a US tax identification number.

The IRS states that electronic filing is mandatory when you have 10 or more information returns. This threshold applies from tax year 2023 and is generally calculated by aggregating covered information returns rather than counting each form type separately.

For example, you may reach the threshold by combining:

• Six Forms 1099-NEC for US contractors.
• Two Forms 1099-MISC.
• Two other applicable information returns.

That total may require electronic filing even if you have fewer than 10 forms of any single type.

Review the IRS IRIS electronic filing guidance before deciding which filing route applies to your business.

Check whether your business can use IRIS directly

IRIS requires authorised users to complete IRS identity verification. The normal process requires the user to hold a US taxpayer identification number, such as:

• A Social Security number (SSN).
• An Individual Taxpayer Identification Number (ITIN).

This created a practical barrier for many overseas businesses. A responsible officer or employee of a UK or EU company may have no SSN or ITIN, even when the business has a US EIN and reporting obligations.

If your authorised user has an SSN or ITIN, use the standard IRIS application process. Do not use the Foreign Filer TCC Registration System in that situation.

If your authorised users do not have an SSN or ITIN, the new foreign filer route may apply.

Use the Foreign Filer TCC Registration System if eligible

The IRS announced the Foreign Filer TCC Registration System in IRS Bulletin No. 2026-06, issued on 4 May 2026.

The system is designed for foreign filers whose authorised users lack an SSN or ITIN and therefore cannot obtain or maintain an IRIS TCC directly.

An approved foreign filer registration provides the credentials needed to transmit eligible information returns through IDES, including:

• Forms 1042-S.
• Applicable Forms 1099.
• Other information returns supported by the process.

The Foreign Filer TCC is separate from both FIRE and IRIS credentials. You cannot use a FIRE TCC or IRIS TCC to transmit returns through IDES.

Read the IRS Foreign Filer TCC Registration guidance and its official FAQs before registering.

Gather the information required for registration

Prepare your registration details before starting. The process requires several connected accounts and identifiers.

You will generally need:

1. An EIN for the foreign business.
   The legal name entered during registration must match the legal name used when the EIN was issued. Matching the records correctly will reduce avoidable delays.

2. A Login.gov or ID.me account.
   This provides secure access to the Foreign Filer TCC Registration System.

3. A responsible officer or authorised point of contact.
   The responsible officer completes the registration and acts as the primary contact.

4. A TCC GIIN.
   The TCC Global Intermediary Identification Number supports the TCC request and IDES enrolment.

5. A Foreign Filer TCC.
   This is a system-specific five-character identifier used for IDES submissions.

6. IDES enrolment.
   You must enrol with the International Data Exchange System to transmit the relevant returns.

The responsible officer must also serve as the IDES account administrator. Keep the Foreign Filer ID and all registration credentials in a secure internal record. Losing access can disrupt your filing process at a critical deadline.

See how the change affects international ecommerce sellers

Example 1: A UK seller paying US contractors

Suppose your London-based ecommerce company uses US-based designers, customer support contractors or marketing specialists.

You should review:

• Whether each payee is a US person or foreign person.
• Whether you collected the correct Form W-9 or Form W-8 series documentation.
• Whether the payments require a Form 1099, such as Form 1099-NEC.
• Whether your total information returns reach the 10-return electronic filing threshold.
• Which authorised user will manage the IRS filing account.

If the authorised user has no SSN or ITIN, the Foreign Filer TCC route may be necessary. Do not assume that your UK company’s EIN alone gives you access to IRIS.

Example 2: A UK or EU business paying foreign persons from US-source income

Form 1042-S is used to re