On September 29, 2025, the U.S. District Court for the Eastern District of Virginia held that Altria Group, Inc. (Altria) was not entitled to a refund in connection with the share of Subpart F income Altria took into income as a result of its minority interest in Anheuser-Busch InBev SA/NV (ABI). Altria Group, Inc. v. United States, No. 3:23-cv-00293, slip op. at 41 (E.D. Va. Sept. 29, 2025). Following the 2017 Tax Cuts and Jobs Act's (TCJA) repeal of section 958(b)(4), which limited downward attribution of stock ownership under the subpart F rules, Altria reported on its 2017 federal income tax return additional Subpart F income resulting from its 10.2 percent ownership interest in ABI and paid $38 million in taxes. Altria then filed a refund claim and, after six months, filed suit seeking a refund of the tax it paid on its additional Subpart F income. On the government's motion for judgment on the pleadings, the court adopted the Internal Revenue Service's (IRS) mechanical approach to applying the statute, rejecting Altria's arguments that Subpart F included an implicit "control" requirement, that the IRS's application of Subpart F created an absurd result, and that the attribution of Subpart F income to a minority shareholder that cannot (together with other U.S. shareholders) exert control over the controlled foreign corporation (CFC) violates the Fifth Amendment Due Process Clause.

Under the Subpart F rules, a foreign corporation of which one or more U.S. shareholders own more than 50 percent of its vote or value is a U.S. CFC. A U.S. shareholder is a U.S. person owning 10 percent or more of the vote or value of a foreign corporation. "Ownership," for purposes of determining U.S. shareholder or CFC status, includes direct, indirect, and constructive ownership, as set forth in section 958. Constructive ownership under section 958 includes both upward and downward attribution of stock ownership to corporate shareholders and subsidiaries, respectively. Prior to the enactment of the TCJA, section 958(b)(4) provided that a U.S. corporation would not be treated under section 958 as a constructive owner of stock owned by its non-U.S. shareholder. Congress repealed the limitation on downward attribution to U.S. corporations in the TCJA, resulting in a proliferation of "accidental" CFCs in foreign-parented groups such as ABI. 

Altria acquired a 10.2 percent stake in ABI in 2016 and held that 10.2 percent interest in ABI throughout 2017. During 2017, ABI had wholly owned U.S. and foreign subsidiaries. Prior to the enactment of the TCJA, section 958(b)(4) prevented ABI's U.S. subsidiaries from being treated as the constructive owner of ABI's interest in its foreign subsidiaries and, in turn, prevented ABI's foreign subsidiaries from being treated as CFCs. After the repeal of section 958(b)(4), however, ABI's foreign subsidiaries could be CFCs to the extent they were treated as 100 percent constructively owned by the U.S. subsidiaries of ABI. To the extent ABI's foreign subsidiaries were CFCs, Altria would be considered a U.S. shareholder with respect to those CFCs as a result of its 10.2 percent indirect interest through ABI, triggering an inclusion of Subpart F income. 

Altria argued that it is inappropriate to classify foreign corporations as CFCs where no U.S. shareholder (or group of U.S. shareholders) have actual control over the foreign corporations. First, it argued that Subpart F includes a longstanding control requirement and that this control requirement remains effective, even after the repeal of section 958(b)(4). Second, Altria argued that a purely mechanical application of section 958 is inappropriate because it would produce an absurd result. In particular, Altria argued that it is absurd to impose substantial tax liability on a minority shareholder that has no corporate relationship with or control over ABI or its subsidiaries, either alone or together with other U.S. shareholders. 

The court rejected Altria's arguments. It held that the text of section 958 is plain and unambiguous and the court declined to "import an additional control requirement that is wholly absent from the statutory text itself." Slip op. at 24. The court rejected Altria's absurdity argument because it held that Altria's inclusion of its share of the CFC's Subpart F income did not "shock" common sense and was, in the court's view, aligned with the purpose of Subpart F generally. Accordingly, the court held that ABI's foreign subsidiaries were CFCs, that Altria was a U.S. shareholder with respect to those CFCs, and that it owed tax on its share of the Subpart F income from the ABI CFCs.

Finally, the court rejected Altria's argument that taxing Altria on its share of the CFC's income was a violation of the Fifth Amendment Due Process Clause because the change wrought by TCJA was a reasonable policy choice that was not unconstitutionally arbitrary. In doing so, the court treated Moore v. United States, 602 U.S. 572 (2024), as "highly persuasive guidance," even though Moore did not address accidental CFCs in which no U.S. shareholder, or group of U.S. shareholders, had control. Slip. op. at 9.

Notably, Congress recently reinstated section 958(b)(4) in the One Big Beautiful Bill Act (OBBBA), passed in July. While this is a welcome development, it leaves an eight-year intervening period in which taxpayers like Altria are vulnerable to harsh and unintended outcomes from strictly mechanical applications of the CFC downward attribution rules, both under the subpart F rules and the rules of section 951A (the former global intangible low-taxed income rules, now net CFC tested income rules) that reference section 958.

For more information, please contact:

Rocco V. Femia, rfemia@milchev.com, 202-626-5823

Samuel A. Lapin, slapin@milchev.com, 202-626-5807

Katherine Lewis, klewis@milchev.com, 202-626-5894

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