Financing International Operations: FX Gains and Losses on Related Party CFC Loans - Subpart F and Foreign Tax Credit Basketing Issues

One of the most basic methods of redeploying excess cash and financing the operations of foreign members of a multinational group is lending between related controlled foreign corporations. It is important as a planning matter to attempt to minimize the new foreign currency exposures within controlled foreign corporations because of subpart F's asymmetrical treatment of foreign currency gains and losses. Despite the simplicity and importance of related party CFC loans as a financing technique, the Treasury regulations dealing with the subpart F and foreign tax credit basketing of foreign currency gains and losses on such loans are in some cases ambiguous.