Does my UK company become a CFC because my British wife owns most of the shares?

No, not because of the marriage. Section 958(b)(1) provides that stock owned by a nonresident alien individual is not treated as owned by a US citizen or resident alien under the family attribution rule in section 318(a)(1)(A), and that has been true throughout. The risk arises only where your spouse also owns a US entity, such as a US corporation or a partnership interest, because in years before 2026 her UK shares could be attributed down into that US entity.

Was section 958(b)(4) repealed, and is it back?

Both. The Tax Cuts and Jobs Act struck section 958(b)(4) with effect from the last taxable year of foreign corporations beginning before 1 January 2018, which allowed shares owned by foreign persons to be attributed downward to US entities. Section 70353 of the One Big Beautiful Bill Act, Public Law 119-21, restored it for taxable years of foreign corporations beginning after 31 December 2025. The restoration is prospective, so the 2018 to 2025 years remain governed by the repeal.

If I am only a constructive owner, do I pay US tax on the company's profits?

Generally no. Section 951(a)(1) requires an income inclusion only from a United States shareholder who owns stock within the meaning of section 958(a), meaning directly or through foreign entities. Constructive ownership under section 958(b) determines your status and your Form 5471 filing category, not your taxable income. A constructive shareholder can therefore face a $10,000 information return penalty while having no subpart F or tested income at all.

Does Rev. Proc. 2019-40 mean I do not have to file Form 5471?

Rarely, for a UK shareholder with real shares. The relief in Rev. Proc. 2019-40, at https://www.irs.gov/irb/2019-43_IRB, applies to foreign-controlled CFCs, meaning companies that would not be CFCs without downward attribution. Its section 4 safe harbour also fails where you have actual knowledge or reliable publicly available information about the ownership. The Notice 2018-13 exception ends entirely once any United States shareholder, including you, owns section 958(a) stock in the same company.

Are my brother's shares in our family UK company attributed to me?

No. Section 318(a)(1) attributes stock between a spouse, children, grandchildren and parents only. Siblings, grandparents and in-laws are outside the family group. Shares held by your US-citizen parents or your US-citizen children are attributed to you and can push you over the 10 percent United States shareholder threshold or the company over the more than 50 percent CFC threshold, but shares held by a brother or sister are not, unless an entity or an option brings them in another way.

Do the Companies House PSC filings decide whether my company is a CFC?

No. The people with significant control register at https://www.gov.uk/guidance/people-with-significant-control-pscs records holdings above 25 percent, above 50 percent and above 75 percent for UK company law purposes. Those bands are not the US thresholds of 10 percent and more than 50 percent, they ignore attribution entirely, and they measure control rather than value. We use PSC data as evidence of the starting position and then run the section 958(a) and section 958(b) analysis separately.

Section 958(b) Attribution: When a UK Company Is a CFC

Form 5471 section 958(b) attribution is the rule that decides whether your UK limited company is a controlled foreign corporation, and it does not care whose name sits on the share certificates. Section 958(b) imports the constructive ownership rules of section 318 into the only two tests that matter: the 10 percent test that makes you a United States shareholder under section 951(b), and the more than 50 percent test that makes the company a CFC under section 957(a). Because attribution can hand shares to you, or to a US entity connected to you, that nobody has actually transferred, a US citizen holding a quarter of a UK company can end up inside a CFC that no US person controls in any commercial sense. And the answer changed on 1 January 2026, when the One Big Beautiful Bill Act restored section 958(b)(4) and added a new section 951B.

In the returns we prepare for US citizens and green card holders running or backing UK companies, this is the single most misread provision in subpart F. It is misread in both directions. Some clients file nothing because they own only a minority. Others file in a panic because a spouse or a parent holds shares, when the statute expressly blocks that attribution. This article deals with section 958(b) itself, the repeal and restoration of section 958(b)(4), and the downward attribution problem in between. We cover the Form 5471 categories of filer and the family attribution rules for US families in separate guides, and only touch them here where the analysis requires it.

What section 958(b) decides, and what it does not

Section 958(b) confers status. It does not, on its own, confer taxable income. That is the distinction almost every failed analysis skips. Constructive ownership under section 958(b) determines whether you are a United States shareholder, whether the foreign corporation is a CFC, whether persons are related, and therefore which Form 5471 category applies. But section 951(a)(1) only requires an income inclusion from a United States shareholder who owns stock within the meaning of section 958(a). A US person who is a shareholder purely by constructive attribution has a reporting position, not a tax position.

The practical consequence is that two US persons connected to the same UK company can have completely different outcomes in the same year. One holds shares directly, so subpart F income and the tested income regime reach her. The other is dragged in only by attribution, so nothing enters his return, and yet he may still hold a filing obligation with a $10,000 starting penalty attached to it. The IRS sets out the mechanics in its concept unit on stock ownership at https://www.irs.gov/pub/fatca/int_practice_units/irc958-stock-ownership.pdf, and the filing consequences in the Form 5471 instructions at https://www.irs.gov/instructions/i5471.

Section 958(a) versus section 958(b): two different ownership systems

Section 958(a) is the plumbing. It counts stock you own directly, and it counts stock owned by a foreign corporation, foreign partnership, foreign trust or foreign estate as owned proportionately by that entity's shareholders, partners or beneficiaries. It looks up through foreign layers only. A UK holding company sitting above your UK trading company passes ownership up to you under section 958(a). A UK company held through a US LLC does not, because the intermediate entity is not foreign.

Section 958(b) is the label maker. It applies section 318(a) constructive ownership, but only to the extent the effect is to treat a US person as a United States shareholder, to treat a person as related, to treat domestic stock as owned by a United States shareholder, or to treat a foreign corporation as a CFC. It runs in one direction: towards CFC status. It cannot be used in reverse to argue a corporation out of CFC status. The distinction between the two systems is worth committing to memory:

Section 958(a) ownership drives income. Subpart F inclusions under section 951(a)(1), tested income inclusions, and the section 962 election all key off it.
Section 958(b) ownership drives status and filing. It decides United States shareholder status at 10 percent, CFC status above 50 percent, and relatedness.
You can hold section 958(b) ownership without a single share, and section 958(a) ownership without any attribution at all.
Both tests are measured on voting power or value, whichever gets you over the line first. A UK company with a separate class of non-voting founder shares can fail the value test while passing the voting test.
Section 957(a) applies the more than 50 percent test on any day during the foreign corporation's taxable year, so a mid-year share issue or buyback can create CFC status for a full accounting period.

The section 318 rules as section 958(b) modifies them

Section 318(a) has four attribution engines and a set of operating rules that stop them running in circles. Read them in this order, because the order changes the answer.

Family attribution under section 318(a)(1): an individual is treated as owning stock held by a spouse (unless legally separated under a decree of divorce or separate maintenance), children, grandchildren and parents. Siblings are not in the family group, and neither are grandparents or in-laws.
Attribution from entities under section 318(a)(2): stock held by a partnership or estate passes proportionately to partners and beneficiaries; stock held by a trust passes by actuarial interest; stock held by a corporation passes to a shareholder owning 50 percent or more in value, in proportion to that value.
Attribution to entities under section 318(a)(3), the downward rules: stock held by a partner or beneficiary is attributed up to the partnership or estate in full; stock held by a beneficiary is attributed to a trust unless the interest is a remote contingent interest of 5 percent or less; and stock held by a person owning 50 percent or more in value of a corporation is attributed to that corporation.
Option attribution under section 318(a)(4): a person holding an option to acquire stock is treated as owning that stock, including through successive options. Unexercised UK share options and convertible instruments therefore count in the 10 percent and 50 percent tests.
Operating rules under section 318(a)(5): stock attributed to an individual from a family member is not re-attributed onward to a second family member, and stock attributed to an entity under the downward rules is not pushed back out to that entity's other owners.

Section 958(b) then rewrites four things before those rules are applied for CFC purposes.

Section 958(b)(1): stock owned by a nonresident alien individual, other than a foreign trust or foreign estate, is not treated as owned by a US citizen or resident alien under the family rule in section 318(a)(1)(A). This is the provision that protects the mixed-nationality couple, and the Tax Cuts and Jobs Act never touched it.
Section 958(b)(2): where a partnership, estate, trust or corporation owns more than 50 percent of the total combined voting power, it is treated as owning all of the voting stock, not merely its proportionate slice.
Section 958(b)(3): in applying attribution from a corporation to its shareholders under section 318(a)(2)(C), 10 percent is substituted for 50 percent. A US person holding as little as 10 percent in value of a UK holding company therefore picks up a proportionate share of what that company owns.
Section 958(b)(4): the downward rules in section 318(a)(3)(A), (B) and (C) are not applied so as to treat a US person as owning stock owned by a person who is not a US person. This is the paragraph that was struck out in 2017 and put back in 2025.

Does a UK company become a CFC because a British spouse owns the shares?

Not by marriage alone, and not in any year. This is the correction we make most often, because several widely read summaries state that the 2017 repeal allowed a nonresident alien spouse's shares to be attributed to a US citizen. It did not. Section 958(b)(1) has blocked family attribution from a nonresident alien individual throughout, and section 318(a)(3) only ever attributes shares to partnerships, trusts, estates and corporations. It never attributes anything to a human being. A US citizen married to a British national who owns 100 percent of a UK company, where the US citizen owns nothing and no entity sits in the picture, is not a United States shareholder of it.

What the repeal actually did was let a foreign person's shares fall downward into a US entity connected to that foreign person. If the British spouse is a partner in a US partnership, or owns 50 percent or more in value of a US corporation, that US entity was treated between 2018 and 2025 as owning the spouse's UK shares. The US entity then became a United States shareholder in its own right, and its constructive holding counted towards the more than 50 percent test. The marriage was never the attribution route. The US entity was.

What the repeal of section 958(b)(4) did between 2018 and 2025

The Tax Cuts and Jobs Act struck section 958(b)(4) with effect from the last taxable year of foreign corporations beginning before 1 January 2018. The target was de-control planning by US multinationals. The collateral damage was every foreign corporation that happened to sit in a group alongside a US entity, including UK companies whose only connection to the United States was a dormant Delaware subsidiary or a US-incorporated sister company in the same foreign-owned group.

Treasury narrowed the fallout where it could without legislation. The final regulations in T.D. 9908, published on 22 September 2020, turned downward attribution off for a list of collateral provisions that referred to CFC status or to section 958(b) ownership, including rules under sections 267, 332, 367, 672, 706, 863, 904 and 6049. What those regulations could not do was change section 957 itself. The CFC definition, the United States shareholder definition, subpart F, the tested income regime and Form 5471 all remained fully exposed to downward attribution for those years.

What changed on 1 January 2026: restoration and new section 951B

Section 70353 of the One Big Beautiful Bill Act, Public Law 119-21, re-enacted section 958(b)(4) in its original terms. It applies to taxable years of foreign corporations beginning after 31 December 2025, and to the taxable years of US shareholders in which or with which those years end. For a UK company with a 31 December year end, the first restored year is the accounting period beginning 1 January 2026. For a UK company with a 31 March year end, downward attribution still applies to the period ending 31 March 2026, and stops for the period beginning 1 April 2026. Getting the accounting period right is the whole of the answer for a large number of clients this filing season.

Congress did not simply hand back the pre-2017 position. The same legislation added section 951B, which builds a parallel regime out of the very attribution it just switched off. A foreign-controlled United States shareholder is a US person who would be a United States shareholder if more than 50 percent were substituted for 10 percent and section 958(b)(4) were disregarded. A foreign-controlled foreign corporation is a foreign corporation, other than a CFC, that would be a CFC if foreign-controlled United States shareholders were substituted for United States shareholders. Where those definitions are met, the foreign-controlled United States shareholder takes subpart F income and net CFC tested income into account as if the company were a CFC. The threshold is more than 50 percent rather than 10 percent, so section 951B is aimed at genuine de-control structures rather than at a US individual with a minority stake in a UK trading company. It nonetheless catches UK companies held under a foreign parent that also owns a substantial US subsidiary.

What Rev. Proc. 2019-40 and Notice 2018-13 relieve, and what they do not

Two pieces of IRS guidance sit on top of the 2018 to 2025 years and remain directly relevant to any open or amended return. Notice 2018-13, published in Internal Revenue Bulletin 2018-06 at https://www.irs.gov/irb/2018-06_IRB, announced at section 5.02 an exception from Category 5 filing for a United States shareholder where no United States shareholder, including that person, owns stock in the CFC within the meaning of section 958(a), and the corporation is a CFC solely because that US person is treated as owning stock owned by a foreign person under section 318(a)(3). Rev. Proc. 2019-40, published in Internal Revenue Bulletin 2019-43 at https://www.irs.gov/irb/2019-43_IRB, went further and built three safe harbours around the information problem.

Section 4 lets a US person treat a foreign corporation as not being a CFC where the person does not have actual knowledge, statements received, or reliable publicly available information sufficient to determine that the section 957 ownership requirements are met. It does not apply to a US-controlled CFC, defined as any CFC other than a foreign-controlled CFC.
Section 5 lets an unrelated section 958(a) United States shareholder of a foreign-controlled CFC use alternative information for subpart F and tested income where the information required by the ordinary rules is not readily available, working down a ranked list from audited US GAAP accounts, to audited IFRS accounts, to audited local-country GAAP accounts, to their unaudited equivalents, and finally to separate-entity tax records or internal control records.
Section 6 applies the same alternative information hierarchy to section 965 amounts.
Section 7 provides that penalties under sections 6038 and 6662 will not apply to the extent attributable to using those safe harbours. Section 6046 is not on that list.
The revenue procedure applies from the last taxable year of a foreign corporation beginning before 1 January 2018 and each subsequent year, and for the US shareholder years in which or with which those years end.

Now read what is not there, because this is where UK-resident US citizens get caught. A foreign-controlled CFC is defined as a foreign corporation that is a CFC but would not be a CFC without applying subparagraphs (A), (B) and (C) of section 318(a)(3). If your UK company would be a CFC anyway on the section 958(a) numbers, none of the relief is available. The Notice 2018-13 exception collapses the moment any United States shareholder, including you, owns section 958(a) stock in the company, which is precisely the position of a US citizen holding real shares. The section 4 safe harbour disappears once you have actual knowledge of the structure, and if you sit on the board or hold a shareholders agreement, you have actual knowledge. And none of the guidance removes Category 3 or Category 4 filing, nor the section 6046 penalty that attaches to them.

A worked UK example: one company, three answers

The following is an illustration, not a client file. Priya is a US citizen resident in London. She owns 30 percent of Camden Analytics Ltd, a UK trading company. Her husband Tom is a British citizen and not a US person, and owns 45 percent. An unrelated UK national owns the remaining 25 percent. Tom also owns 100 percent of a Delaware corporation that runs a small US sales operation. Assume the company makes taxable profit of £400,000 in each year discussed.

For the accounting period beginning in 2024, section 958(b)(4) is repealed. Priya owns 30 percent under section 958(a), so she is a United States shareholder. Tom's 45 percent is not attributed to her, because section 958(b)(1) blocks family attribution from a nonresident alien. But Tom owns 100 percent in value of the Delaware corporation, so section 318(a)(3)(C) attributes his 45 percent down into it, and the Delaware corporation becomes a United States shareholder holding 45 percent constructively. Priya's 30 percent plus the Delaware corporation's 45 percent is 75 percent, comfortably above the section 957(a) threshold. Camden Analytics is a CFC. Priya has subpart F and tested income exposure on her 30 percent and a Category 5 filing obligation. The Delaware corporation, holding no section 958(a) stock, has no inclusion, but it cannot use the Notice 2018-13 exception either, because Priya owns section 958(a) stock in the same company.

For the accounting period beginning 1 January 2026, section 958(b)(4) is restored. The Delaware corporation is no longer treated as owning Tom's shares. The only United States shareholder is Priya at 30 percent, which is not more than 50 percent, so Camden Analytics is not a CFC. Section 951B does not rescue the result for the IRS either: the Delaware corporation would hold only 45 percent even with downward attribution switched back on, which is not more than 50 percent, so it is not a foreign-controlled United States shareholder and the company is not a foreign-controlled foreign corporation. Priya is a United States shareholder of a company that is not a CFC. Her Category 5 exposure ends, but she should be tested for passive foreign investment company treatment instead, and for Category 2 and Category 3 events on any share movements.

Change one number and the 2026 answer flips. If Tom holds 60 percent rather than 45 percent, the Delaware corporation would hold more than 50 percent with downward attribution applied, so it is a foreign-controlled United States shareholder and Camden Analytics is a foreign-controlled foreign corporation. The Delaware corporation, not Priya, takes the subpart F and tested income into account under section 951B. Priya still holds 30 percent of a company that is not a CFC. Two US taxpayers, one company, opposite outcomes, and the only moving part is a fifteen point shift on the UK share register.

Three UK fact patterns that trigger Form 5471 section 958(b) attribution

The mixed-nationality couple with a US entity. The British spouse holds the UK shares and also holds a US LLC taxed as a corporation, a Delaware C corporation, or a partnership interest in a US LLP. In pre-2026 years the UK shares fall into the US entity and can tip the company into CFC status for the US citizen spouse who holds a genuine minority.
The US-citizen family holding. Parents, children and grandchildren holding shares in the same UK company are aggregated under section 318(a)(1) where they are US persons. Four US-citizen family members at 15 percent each are each a 60 percent United States shareholder by attribution and the company is a CFC, even though none of them controls it. Siblings are not attributed to each other, which is why sibling-owned UK companies frequently sit just outside the net while parent-and-child companies do not.
The UK company under a foreign parent. A UK subsidiary of a foreign group that also owns a US subsidiary was a CFC in 2018 to 2025 by downward attribution into the US sister company. From 2026 that pathway closes under section 958(b)(4), but section 951B reopens it where the US sister company crosses the more than 50 percent constructive threshold. US employees holding 10 percent or more of the UK entity through options or growth shares are dragged in alongside it.

Which Form 5471 category the attribution lands you in

The categories built around the repeal are still in the Form 5471 instructions and still matter for open years. Category 5a is an ordinary United States shareholder of a CFC. Category 5b is an unrelated section 958(a) United States shareholder of a foreign-controlled CFC, and Category 5c is a related constructive United States shareholder of one. Categories 1b and 1c mirror those definitions for section 965 specified foreign corporations. Category 4 applies to a US person with control, meaning more than 50 percent of voting power or value, during the annual accounting period, and Categories 2 and 3 attach to acquisitions, dispositions and officer or director status rather than to CFC status at all. The reduced-schedule treatment of Category 5b and 5c is relief from paperwork, not from filing: the form still goes in. The full definitions are at https://www.irs.gov/instructions/i5471 and the current revision is linked from https://www.irs.gov/forms-pubs/about-form-5471.

The UK side of the same company

None of this changes anything for the company in the United Kingdom. HMRC does not recognise CFC status in a US sense, and the company simply pays UK corporation tax on its profits. The main rate is 25 percent on profits over £250,000 and the small profits rate is 19 percent where profits are £50,000 or less, with marginal relief between the two, as set out at https://www.gov.uk/corporation-tax-rates. Those thresholds are reduced proportionately for short accounting periods and divided by the number of associated companies, which matters when a UK company sits in the same group as the US entity that caused the attribution problem in the first place. The mismatch is one of timing and of person: the UK taxes the company when it earns, while the US taxes the shareholder when the CFC rules bite, which is why a section 962 election and careful foreign tax credit positioning usually do more for the client than any restructuring.

The UK also supplies the evidence. The people with significant control register and the confirmation statement filed at Companies House record anyone holding more than 25 percent of the shares or voting rights, or who can appoint or remove a majority of the directors, with banded disclosure at over 25 percent, more than 50 percent and 75 percent or more. The guidance is at https://www.gov.uk/guidance/people-with-significant-control-pscs. Those bands are not the US thresholds and must never be used as a substitute for them, but a PSC entry showing a non-US person above 50 percent is the fastest way to find the downward attribution risk in a file, and a PSC statement that has been left stale is the fastest way to lose the section 4 safe harbour argument in Rev. Proc. 2019-40.

How we run the section 958(b) analysis in practice

Map the section 958(a) chain first, direct holdings and foreign entities only, and get a percentage for the client before any attribution is applied.
List every US person and every US entity touching the structure, including dormant US LLCs, a US sister company in a foreign group, and any US partnership interest held by a non-US shareholder.
Apply section 318(a)(1) family attribution among US persons only, remembering that siblings are outside the group and that section 958(b)(1) blocks attribution from a nonresident alien.
Apply the downward rules in section 318(a)(3) for accounting periods beginning before 1 January 2026, and switch them off for periods beginning after 31 December 2025, then test section 951B separately at the more than 50 percent level.
Count options, warrants, convertible loan notes and growth shares under section 318(a)(4), and test both voting power and value, not just one of them.
Fix the accounting period, not the calendar year. The restoration is keyed to the foreign corporation's taxable year, so a March or September year end changes the first clean year.
Document the conclusion contemporaneously with the Companies House filings and the shareholders agreement, because the safe harbours turn on what the client knew and could reasonably obtain.

Penalties and cleaning up prior years

The Form 5471 instructions set out a section 6038 penalty of $10,000 for each annual accounting period of each foreign corporation where the required information is not furnished, an additional $10,000 for each 30-day period beginning 90 days after the IRS mails notice of the failure, with the additional penalty limited to $50,000, and a reduction of foreign tax credits that increases the longer the failure continues. Section 6046 carries a matching $10,000 penalty for each failure for each reportable transaction, with the same continuation structure and cap. Those penalties apply per company and per year, so a five-year gap on two UK companies is a six-figure exposure before any tax is even computed.

The restoration of section 958(b)(4) is prospective. It does not erase 2018 to 2025. If downward attribution made a UK company a CFC in those years and no Form 5471 went in, the exposure is still live, and it does not cure itself when the company stops being a CFC in 2026. Where the failure was non-wilful and the taxpayer qualifies, the Streamlined Filing Compliance Procedures at https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures remain the ordinary route, with the delinquent Forms 5471 attached to the amended or delinquent returns. Where the safe harbours in Rev. Proc. 2019-40 are genuinely met, they are claimed on the return rather than negotiated afterwards. What does not work is treating 2026 as a fresh start and hoping the earlier years are closed, because a missing information return is exactly the thing that keeps them open.

Section 958(b) rewards precision and punishes assumption. The share register is the starting point of the analysis, never the end of it. If you hold a minority stake in a UK limited company and there is a US entity, a US-citizen relative or a foreign parent anywhere in the picture, the position needs to be worked through for each accounting period on its own facts, and it needs to be worked through for the years behind you as well as the year in front.