Section 958 Stock Ownership Rules: 958(b)(4) Restoration and 951B

The Section 958 stock ownership rules determine who is treated as owning stock in a foreign corporation for controlled foreign corporation (CFC) testing. They count three things: stock you hold directly, stock you hold indirectly through foreign entities, and stock you’re deemed to own constructively through family members and affiliated entities. For tax years of foreign corporations beginning after December 31, 2025, the rules changed in two significant ways. The One Big Beautiful Bill Act restored Section 958(b)(4), which blocks downward attribution from foreign persons to U.S. persons, and it added a new Section 951B that taxes certain foreign-controlled structures through a parallel regime.

Direct and Indirect Ownership Under 958(a)

Section 958(a) covers two kinds of “real” ownership. Direct ownership means your name is on the stock. Indirect ownership runs through chains of foreign partnerships, trusts, estates, and corporations: if you hold an interest in a foreign entity that owns stock in a foreign corporation, you are treated as owning a proportionate slice of that stock.¹

The math multiplies through each layer. A 60% partner in a foreign partnership that owns 100 shares of a foreign corporation is treated as owning 60 shares. Stock treated as indirectly owned at one level is then treated as actually owned at the next, so the calculation flows down through every foreign entity in the chain until it reaches the underlying stock.

Only foreign entities count for 958(a) indirect ownership. Domestic entities don’t push stock up to their owners under this paragraph — they are handled through the constructive rules in 958(b).

Constructive Ownership Under 958(b)

Section 958(b) imports the constructive ownership rules of Section 318(a) with several modifications, and it applies them only when the result is to treat a U.S. person as a U.S. shareholder or to treat a foreign corporation as a CFC.¹ Constructive ownership means being treated as owning stock you’ve never touched because someone connected to you owns it.

Family Attribution

Under Section 318(a)(1), you are treated as owning stock held by your spouse, children, grandchildren, and parents.² A 15% stake held by your adult child is your 15% for CFC testing. A legally separated spouse under a divorce or separate maintenance decree is excluded.

Upward Attribution From Entities

Stock held by a partnership, estate, or trust flows up to partners and beneficiaries in proportion to their interests. For corporations, Section 318(a)(2)(C) normally requires 50% or more of the corporation’s value before stock flows upward to a shareholder. Section 958(b)(3) drops that threshold to 10%, which catches many more shareholders than the standard rule.¹

Section 958(b)(2) adds an all-or-nothing rule for voting power. When a partnership, estate, trust, or corporation owns more than 50% of a corporation’s total voting power, it is treated as owning all of the voting stock, not just its proportionate share.¹

Downward Attribution to Entities

Downward attribution runs the other way, from an owner to an entity it controls. Stock held by a partner is attributed to the partnership. Stock held by a beneficiary is attributed to the estate or trust. Stock held by a person who owns 50% or more of a corporation’s value is attributed to the corporation.²

The Nonresident Alien Block on Family Attribution

Section 958(b)(1) turns off one branch of family attribution: stock owned by a nonresident alien individual is not attributed to a U.S. citizen or resident alien under the family rules.¹ Without it, a foreign relative’s holdings could easily push a U.S. family member across the 10% U.S. shareholder threshold.

The 958(b)(4) Restoration for 2026

The most consequential recent change concerns paragraph (b)(4). In its original form, this rule blocked downward attribution from a foreign person to a U.S. person: a foreign parent’s stock in a foreign subsidiary could not be pushed down to the parent’s U.S. subsidiary for CFC testing. The Tax Cuts and Jobs Act of 2017 repealed the rule.

The repeal reshaped the CFC map. Many U.S. subsidiaries of foreign multinationals became constructive owners of foreign “brother-sister” companies they had no operational relationship with, because a shared foreign parent’s stock now flowed downward to them. Foreign corporations that had never been CFCs became CFCs without any change in actual ownership, and the U.S. subsidiaries picked up Subpart F and GILTI inclusion obligations along with the Form 5471 filing burden.

The One Big Beautiful Bill Act, signed on July 4, 2025, restored Section 958(b)(4) for tax years of foreign corporations beginning after December 31, 2025.¹ The restored text is the same as the original: the downward attribution rules of Section 318(a)(3) cannot be applied to treat a U.S. person as owning stock owned by a foreign person. For 2026 and later, U.S. subsidiaries of foreign multinationals are no longer automatically pulled into the CFC regime through their foreign parent’s holdings.

Section 951B: The Backstop That Comes With Restoration

Congress paired the restoration with a new provision. Section 951B creates two categories that didn’t exist before 2026, aimed at structures where foreign persons control both a U.S. entity and a foreign corporation and would otherwise escape taxation under the restored rule.³

A “foreign controlled United States shareholder” (FCUS) is a U.S. person who would be a U.S. shareholder if two adjustments were made: the ownership threshold is raised from 10% to more than 50%, and downward attribution from foreign persons is turned back on by disregarding 958(b)(4). Only U.S. persons with a substantial constructive stake through foreign control fall in.

A “foreign controlled foreign corporation” (FCFC) is a foreign corporation that is not a CFC under the regular Section 957 definition but would be one if tested using FCUSs and without the protection of 958(b)(4). These are the foreign corporations that lost CFC status through the 958(b)(4) restoration but that Congress still wants to reach.

Section 951B then applies the existing Subpart F and GILTI machinery by substituting FCUS and FCFC for “United States shareholder” and “controlled foreign corporation.” An FCUS includes its pro rata share of the FCFC’s Subpart F income and net CFC tested income in the same way a traditional U.S. shareholder would for a traditional CFC.³ Treasury has broad authority to extend the rules to other Code provisions, including reporting and coordination with the PFIC regime.

Why the Ownership Result Matters

The 958 rules exist to feed two other tests. A U.S. person is a “United States shareholder” when actual and constructive ownership together add up to 10% or more of a foreign corporation’s voting power or value.⁴ A foreign corporation is a CFC when U.S. shareholders collectively own more than 50% of its voting power or value on any day of its taxable year.⁵ A single day over the line is enough. A lower 25% shareholder threshold applies for certain insurance income under Section 953(a) when more than 75% of the corporation’s premium income comes from reinsurance or non-exempt insurance contracts.

Crossing those lines triggers current U.S. taxation on the CFC’s Subpart F income and GILTI in the year earned, regardless of distributions, and it triggers Form 5471 filing.⁴ The penalty for a missed Form 5471 starts at $10,000 per annual accounting period, with continuation penalties of $10,000 for each 30-day period after the 90-day IRS notice window, capped at a $50,000 continuation penalty — a total possible penalty of $60,000 per form per year.⁶ Foreign tax credits can also be reduced by an amount tied to the income of the unreported foreign corporation.

Because a fact pattern that is not a CFC under 958(b)(4) as restored can still produce an FCFC and FCUS obligation under Section 951B, working through both tests separately for each foreign corporation in a structure is now the ordinary 2026 exercise.

1
Office of the Law Revision Counsel. 26 USC 958 Rules for Determining Stock Ownership
2
Office of the Law Revision Counsel. 26 U.S. Code 318 – Constructive Ownership of Stock
3
OLRC Home. 26 USC 951B Amounts Included in Gross Income of Foreign Controlled United States Shareholders
4
Office of the Law Revision Counsel. 26 U.S. Code 951 – Amounts Included in Gross Income of United States Shareholders
5
Office of the Law Revision Counsel. 26 USC 957 Controlled Foreign Corporations – United States Persons
6
Office of the Law Revision Counsel. 26 USC 6038 Information Reporting With Respect to Certain Foreign Corporations and Partnerships