Subpart F of the Internal Revenue Code is a body of anti-abuse provisions designed to prevent U.S. shareholders from avoiding tax on the earnings (Subpart F income) generated by foreign corporations they control. Overall, its provisions lack the tax principle of horizontal equity based on tax neutrality. This article will expose the lack of horizontal equity, as applied to individual (not corporate) U.S, shareholders by being both over-inclusive and under-inclusive. It is over-inclusive in imposing punitive tax consequences when tax avoidance is unachievable including the taxation of GILTI, a new type of Subpart F income. It is underinclusive because tax avoidance is achievable by taking advantage of certain loopholes in Subpart F. Using I.R.C. {section sign} 469 (that successfully eliminated tax shelters) as a model, this article recommends revisions to relevant Subpart F provisions that will eliminate tax avoidance without punitive tax consequences and also foreclose potential tax avoidance opportunities.

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