Attribution rules have always been relevant for tax planning purposes, but ever since the passage of the 2017 Tax Cuts and Jobs Act (the "2017 Tax Act"), a particular set of attribution rules has received a renewed amount of attention. The increased attention, at least from the U.S. international tax community, is mostly due to the implications that these rules now have for common investment structures utilized by non-U.S. clients investing in South Florida and elsewhere in the U.S. This article briefly summarizes the attribution rules applicable to partnerships and corporations under Section 318 and provides some practical tips for dealing with the rules. 
The upward attribution rules (i.e., attribution from an entity up to its owners) are found in Section 318(a)(2). In the case of a partnership, stock owned by the partnership is deemed to be owned proportionately by its partners. In the case of a corporation, stock owned by the corporation is deemed to be owned proportionately by the shareholders of the corporation, but only if such shareholder owns at least 50% of the value of the corporation (a "50% Shareholder").
The downward attribution rules (i.e., attribution from an owner down to an entity) are found in Section 318(a)(3). In the case of a partner, the partnership is deemed to own any stock owned by its partners. In the case of a 50% Shareholder, the corporation is deemed to own any stock owned by that shareholder.
A few practical points are worth noting here:
- When dealing with attribution between partnerships and partners, there is no minimum ownership threshold that triggers the upward or downward attribution rules (like in the case of a corporation, which generally requires 50% ownership by a shareholder in order for there to be attribution).
- Furthermore, when dealing with downward attribution to partnerships, the partnership is deemed to own all of the stock owned by its partners, even if that partner's interest in the partnership is as little as 1%.
- There are generally no limits to the number of times the attribution rules can be re-applied in succession in the case of tiered ownership structures (e.g., stock constructively owned by an entity under downward attribution is treated as actually owned by that entity for purposes of re-applying the downward attribution rules). As an exception to the general rule, however, stock treated as constructively owned by an entity as a result of downward attribution is not then reattributed to the other owners of that entity under the upward attribution rules.
- When applying the attribution rules, an individual is treated as owning any stock owned by a member of that individual's family, which for Section 318 purposes includes spouses, children, grandchildren, and parents. Note that Section 318 family members are narrower than Section 267 family members, which also includes siblings in the class of family members from whom stock ownership can be attributed, as well as more remote ancestors and descendants. 
So what exactly is it about these rules and the passage of the 2017 Tax Act that has caused so much consternation? In short, these rules jeopardize the availability of the portfolio interest exemption in holding structures commonly used for non-U.S. clients. To keep things very brief, the portfolio interest exemption is a very powerful tool in cross-border tax planning. Simply put, interest payments that qualify for the exemption are U.S. income tax-free to foreign lenders. The exemption is not available, however, in the case of a controlled foreign corporation (or "CFC") that receives interest payments from a related person. Prior to the passage of the 2017 Tax Act, in determining whether a foreign corporation is a CFC, stock owned by a foreign person was not attributed to a U.S. person when applying the downward attribution rules.  The 2017 Tax Act repealed this rule, which has led to more foreign corporations being classified as CFCs. Accordingly, the availability of the portfolio interest exemption has been called into question in many common planning structures.
There is no easy way to deal with the attribution rules given their broad application to numerous fact patterns. Practitioners and advisors would be well-advised to thoroughly work their way through each of the rules in situations where they might apply, even if, upon first glance, it seems like there should not be any issues. With careful planning, however, or given the right set of facts, traditional holding structures can still provide their intended benefits for non-U.S. clients investing in the U.S.
 All section references are to the Internal Revenue Code of 1986, as amended.
 A discussion of the constructive ownership rules under Section 267 is beyond the scope of this article.
 Section 958(b)(4).
Using real-life, pragmatic examples and their vast experience in trust and estate planning, Hal J. Webb, Jennifer Wioncek, and Paul D'Alessandro, Jr. provided a comprehensive look at U.S. federal tax and succession planning for non-U.S. persons investing in U.S....