Under the controlled foreign corporation (CFC) rules of the tax code, taxpayers may be subject to adverse tax consequences, including "phantom income" inclusions, if they are 10% United States shareholders in a CFC. Very generally, a CFC is any foreign corporation more than 50% of whose voting power or value is directly, indirectly, or constructively owned by 10% United States shareholders.

The Tax Cuts and Jobs Act expanded constructive ownership to include downward attribution, so that a subsidiary now is deemed to own all of the stock owned by any 50% shareholder. As a result of this expansion, if (for example) a foreign parent owns a U.S. subsidiary and a foreign subsidiary, the U.S. subsidiary is deemed to own all of the stock of the foreign subsidiary, so that the foreign subsidiary is treated as a CFC, which could have adverse tax consequences for any 10% United States shareholders of the parent.

On October 1, 2019, Treasury and the IRS issued a revenue procedure and proposed regulations that would address the expansion of constructive ownership. Despite legislative history suggesting that this expansion was intended to have a more limited effect than what the tax code now literally provides, the new guidance provides relief only from certain reporting requirements and does not protect 10% United States shareholders from phantom income inclusions.