Andrew Mitchel LLC

International Tax Blog - New and Interesting International Tax Issues

Poor Grammar in Drafting of CFC Statutes


This morning I noticed a quirk in the drafting of the CFC statutes.  The following language is used in defining “United States Shareholder” in Code § 951(b):

. . . the total combined voting power of all classes of stock entitled to vote of such corporation. (Emphasis added)

In contrast, the following language is used in defining “Controlled Foreign Corporation” in Code § 957(a)(1):

. . . the total combined voting power of all classes of stock of such corporation entitled to vote . . . . (Emphasis added)

Notice the different position of the red text.  In the first definition, “entitled to vote” accurately modifies the noun “stock.”  This makes sense because you can have voting stock or non-voting stock.  The language “entitled to vote” specifies that this definition is only discussing voting stock.

In the second definition, “entitled to vote” appears to be modifying the noun “corporation.”  However, this would make no sense.  Corporations are not entitled to vote.  There is no such animal as a “voting corporation” or a “non-voting corporation.”  Thus, the only sensible reading of the statute is that “entitled to vote” modifies the noun “stock.”  The regulations under Code § 957 are consistent with this reading of the statute.  See Treas. Reg. § 1.957-1(b)(1).

It is just surprising that two related provisions that were enacted at the same time and use very similar language in defining two related provisions would use different language.

Tags: Other - Other