H.R. 2186 — To amend the Internal Revenue Code of 1986 to restore the limitation on downward attribution of stock ownership in applying constructive ownership rules.

This section amends IRC §958(b) by inserting new paragraph (4) to limit constructive ownership rules so that subparagraphs (A), (B), and (C) of §318(a)(3) do not attribute stock owned by non-U.S. persons to U.S. persons. (As background, such attribution previously expanded the scope of controlled foreign corporations (CFCs), whose U.S. shareholders (generally owning 10% or more) must currently include Subpart F income—typically passive or base company income—and global intangible low-taxed income (GILTI) under §951A in U.S. gross income.) The section further inserts new §951B in Subpart F to apply modified Subpart F rules (excluding §§951A, 951(b), and 957) and §951A to any foreign controlled U.S. shareholder of a foreign controlled foreign corporation, as follows: (1) a *foreign controlled U.S. shareholder* is any U.S. person that would be a U.S. shareholder of a foreign corporation if the §951(b) ownership threshold were *more than 50%* (from *10% or more*) and §958(b) disregarded new paragraph (4); (2) a *foreign controlled foreign corporation* is any non-CFC foreign corporation that would qualify as a CFC under §957(a) if determined using foreign controlled U.S. shareholders and §958(b) without paragraph (4). (Thus, the provision effectively imposes Subpart F and GILTI inclusions on U.S. shareholders of certain foreign-parented corporations with substantial aggregate U.S. ownership.) The section directs the Secretary to issue regulations to implement these rules (including treating such shareholders or corporations as U.S. shareholders or CFCs for other Code purposes and preventing avoidance), makes a conforming amendment to the Subpart F table of sections, and applies the changes to the last taxable year of foreign corporations beginning before January 1, 2025, and all subsequent taxable years of such corporations (and corresponding U.S. persons' taxable years), without inferring application to prior years.