The instructions explain how the subtractions are made and examples have been added for purposes of clarity. Report on these lines the largest aggregate outstanding accounts receivable and payable balances during the year with the related parties described in columns (b) through (f). The facts are the same as in Example 2, except that during Year 4, CFC1 distributes $36 to Domestic Corporation. See Regulations section 1.245A-5(e)(3)(i) for further guidance regarding the election to close the tax year. If the tax is attributable to a pass-through entity owned by a foreign corporation, the foreign tax year of the foreign corporation within which such pass-through entitys year ends should be reported on this line. Changes to separate Schedule M (Form 5471). See the instructions for Line 37, Current E&P limitation, later, for a discussion of the current-year E&P limitation. Subtract the sum of lines 14d and 14e from line 14c" field, "14g.Net foreign personal holding company income excluded under high-tax exception" field, "14h.Subtract line 14g from line 14f" field, "15.Adjusted net foreign base company sales income:", "15b.Expenses allocated and apportioned to the amount on line 3 under section 954(b)(5)" field, "15c.Net foreign base company sales income. In other words, is line 36 of Worksheet A greater than line 37c? Foreign income is reported in one of six categories with an appropriate code, 951A, RBT (income re-source by treaty), 901 (j) (income earned from a . Attach a statement that includes all of the information requested by Schedule Q delineating the amount on line 1e for each of the four groups reporting on line 1e. Proc. Do not report the exchange rate as the number of U.S. dollars that equal one unit of foreign currency. Any deductions that are apportioned or allocated to the nonexempt foreign trade income described above. The facts are the same as in Example 1, except that during Year 2 CFC2 invests $40 in U.S. property. If the shareholder acquired the stock in more than one transaction, use a separate line to report each transaction. QBAI is the average of the CFC's aggregate adjusted bases, as of the close of each quarter of its taxable year, in specified tangible property used in its trade or business in the production of tested income, and for which a deduction is allowable under section 167. If a U.S. corporation that owns stock in a foreign corporation is a member of a consolidated group, list the common parent as the U.S. person filing We have the Form 5471 as well as Schedules E and E-1 to the Form 5471, Schedule I-1, Schedule J, Schedule P. We also have attached Rev. Translate the amount on line 18 from functional currency to U.S. dollars at the year-end spot rate (as provided in section 989(b)). Enter the adjustment to foreign currency gains or losses. See section 245A for guidance on computing the amount of a dividend eligible for a deduction. Form 8886, Reportable Transaction Disclosure Statement, must be filed for each tax year indicated in Regulations section 1.6011-4(c)(3)(i)(G). Complete a separate Schedule J for each applicable separate category of income. Use Schedule Q to report the CFCs income, deductions, taxes, and assets by CFC income groups for purposes of sections 960(a) and (d). This may require an amended return. Proc. A person that is both a category 3 and category 5 filer because it is treated as a U.S. shareholder under section 953(c)(1)(A) with respect to the foreign corporation must complete Schedule B, Part 1 for U.S. persons that owned (on the last day of the foreign corporations taxable year), directly or indirectly through foreign entities, any of the foreign corporation's outstanding stock. During the tax year, did the CFC have excess foreign currency gains over foreign currency losses (as defined in section 988(b)) attributable to any section 988 transaction directly related to the business needs of the foreign corporation? See specific instructions for Item FAlternative Information Under Rev. As a result, these U.S. shareholders may also claim a foreign tax credit for foreign income taxes deemed paid with respect to such inclusions. As a result, the amount reported in column (ii) on line 1(a) is the sum of the amounts reported in column (ii) on line 1(a)(2) and 1(a)(3), which is equal to $175 ($100 + $75). See section 482. U.S. shareholder's pro rata share of the amount on line 3" field, "5. Foreign income taxes reclassified from section 959(c)(2) previously taxed E&P to section 959(c)(1) previously taxed E&P should be reported as negative numbers in columns (e)(vi) through (e)(x) and as positive numbers in columns (e)(i) through (e)(v). Do not include any adjustments required to be reported on line 1b or 12. See section 951A(c)(2)(A)(ii) and Regulations section 1.951A-2(c)(3). The total of all amounts entered in Schedule R (Form 5471), column (d) must equal the amount on line 9, column (f) of the Schedule J (Form 5471) that is filed with code TOTAL entered on line a of that Schedule J. A domestic corporation that is a U.S. shareholder with respect to a CFC must maintain a hybrid deduction account with respect to each share of stock of the CFC that the domestic corporation owns directly or indirectly through a partnership, trust, or estate. schedules have been added to Form 5471: Schedule I-1, "Information for Global Intangible Low-Taxed Income"; Schedule P, "Previously Taxed Earnings and Profits of U.S. Shareholders of Certain Foreign Corporations"; Schedule Q, "CFC Income by CFC Income Groups"; and Schedule R, "Distributions From a Foreign Corporation." See Categories of Filers, earlier. These categories include a U.S. shareholder who owns stock in a foreign corporation that is a CFC at any time during any tax year of the foreign corporation, and who owned that stock on the last day in that year on which it was a CFC. Applicable earnings. Current-year tax on all other disregarded payments. Enter any income equivalent to interest, including income from commitment fees (or similar amounts) for loans actually made. If Yes is checked on line 8a, enter on line 8b the U.S. shareholders extraordinary disposition account balance at the beginning and end of the foreign corporations tax year. In other words, are any amounts excluded from line 3 of Worksheet A by reason of disregarding a branch or similar establishment (including a disregarded entity) of the CFC as separate from the CFC? This is the fifth of a series of articles designed to provide a basic overview of the Form 5471. If there is a difference between last years ending balance on Schedule P and the amount that should be last years ending balance, taking into account modifications in Schedule P, include the difference on line 1b and attach an explanation for the difference. Proc. For more information, see the Instructions for Form 8938, generally, and in particular, Duplicative Reporting and the specific instructions for Part IV, Excepted Specified Foreign Financial Assets. If the name of either the person filing the return or the corporation whose activities are being reported changed within the past 3 years, show the prior name(s) in parentheses after the current name. Any liability to which the property is subject immediately before, and immediately after, the distribution. 1167. Enter the net amount of any additional adjustments not included on lines 2a through 2h. Domestic Corporation is deemed to pay the $4 of withholding taxes deemed paid by CFC1 in Year 3 and paid by CFC2 in Year 2. The amount included is determined by multiplying the CFC's income (other than income included under section 951 and U.S. source effectively connected business income described in section 952(b)) by the international boycott factor. See Regulations section 1.367(b)-7. Column (a) of the attached statement should provide a description of the type of other amount paid during the annual accounting period. A foreign corporation may qualify as an expatriated foreign subsidiary under Regulations section 1.7874-12(a)(9) if such foreign corporation is a CFC with respect to which an expatriated entity, as defined in Regulations section 1.7874-12(a)(8) is a U.S. shareholder. See section 905(c), as amended by the Act. See Regulations section 1.9601(d)(2)(ii). To determine the appropriate code, see, If code 901j is entered on line a, enter on line b the country code for the sanctioned country using the two-letter codes (from the list at, If one of the RBT codes is entered on line a, enter on line c the country code for the treaty country using the two-letter codes (from the list at, Except for columns (a), (b), and (c), which are new this year, if the balance on line 18 of prior year Schedule E-1 was adjusted after the filing of the original prior year Form 5471, such adjustments should be reflected on line 1b. Foreign tax imposed by reason of a disregarded payment that is a remittance is assigned to the income groups based upon the assets of the payor. Otherwise, check No. Apply Regulations section 1.385-3(b)(3)(iii)(E) to determine when a debt instrument is treated as issued for purposes of Regulations section 1.385-3(b)(3)(iii). Reference ID number of foreign corporation. Proc. In other words, are any amounts that are derived in connection with property that does not satisfy section 954(d)(1)(B) excluded from line 3 of Worksheet A (that is, income excluded by reason of Regulations section 1.954-3(a)(3))? A Category 1 or 5 filer does not have to file Form 5471 if no U.S. shareholder (including such U.S. person) owns, within the meaning of section 958(a), stock in the foreign corporation on the last day in the year of the foreign corporation in which it was an SFC or CFC, and the foreign corporation is an SFC or CFC solely because one or more U.S. persons is considered to own the stock of the foreign corporation owned by a foreign person under section 318(a)(3). Is not related (using principles of section 954(d)(3)) to the foreign-controlled corporation. Except for columns (a), (b), and (c), which are new this year, this amount should equal the amount that was reported as the balance on line 18 of the prior year Schedule E-1. For a noncorporate U.S. shareholder, include the result as Other income on Schedule 1 (Form 1040), line 8z, or on the comparable line of other noncorporate tax returns. In addition, a copy of the election statement it filed to make the election to defer income must be filed annually (also in the manner specified in the Caution below). Enter the foreign corporation's RAB share of the total present value of all platform contributions made by the U.S. taxpayer during the tax year with respect to the foreign corporation on line 5b. Certain filers may be able to use alternative information (as defined in section 3.01 of Rev. For the latest information about developments related to Form 5471, its schedules, and its instructions, such as legislation enacted after they were published, go to IRS.gov/Form5471. Corporation B has a section 951A inclusion of $50x. Part I To Be Completed by U.S. Officers and Directors. On Schedule P of the Form 5471 with respect to CFC1 filed by Corporation B, Corporation B will report on line 7, column (h), $50x of PTEP as a result of its section 951A inclusion with respect to CFC1. No 7004 Extension Required Some forms require the taxpayer to file a Form 7004 in order to request an extension. In addition, F is 90% owned by foreign corporation W. Mr. Lyons does not own any of the stock of corporation W. Mr. Lyons completes and files Form 5471 and Schedule O for the corporations in which he is a 10% or more shareholder. In addition to the separate category codes referred to above, if you have more than one of the categories of income referred to above, you must complete and file a separate Schedule E (including Schedule E-1) using code "TOTAL" that aggregates all amounts listed for each line and column of all other Schedules E and E-1. During Year 1, Domestic Corporation reports an inclusion under section 951(a)(1) of $100 and deemed paid taxes of $20 under section 960(a) as a result of subpart F income of CFC3. Section 951(a)(1)(A) inclusions are taken into account for the tax year before actual distributions and section 951(a)(1)(B) inclusions. An actual distribution is first out of PTEP, if any, and then out of the section 959(c)(3) balance. The foreign tax is denominated in an inflationary currency. See section 989(b). For example, the schedule is used to report the foreign corporations intangible development costs, and reasonably anticipated benefits share, and the U.S. participants platform contributions for the tax year. Audited separate-entity financial statements of the foreign corporation that are prepared on the basis of international financial reporting standards (IFRS). Distributions made by the C.F.C. Enter the sum of the amounts reported on lines 4(1), 4(2), etc., plus the sum of amounts excluded from subpart F income under the subpart F high-tax exception and tested income under the GILTI high-tax exclusion, in the appropriate column on line 4. While not allowed as a credit, such taxes are taken into account in determining the foreign corporations E&P. Enter each shareholder's allocable percentage of the foreign corporation's subpart F income. See Unrelated section 958(a) U.S. shareholder, later, for instructions pertaining to when Form 5471 may be completed as a Category 1b filer. See section 245A(e)(2) and Regulations section 1.245A(e)-1(c) for additional information about tiered hybrid dividends. Based on comparisons of this form and the corporation's returns, they will determine when to initiate an audit. Reportable transactions by material advisors. The identifying number of all others is their employer identification number (EIN). With respect to line a at the top of page 1 of Schedule E, there is a new code TOTAL that is required for Schedule E and Schedule E-1 filers in certain circumstances. The top margin of the summary return must be labeled Filed Pursuant to Rev. However, see the Exception below. See section 3 of Rev. 2019-40) to determine certain amounts in this schedule. See section 1272(a)(4) and Regulations section 1.1275-1(b)(1). The amounts reclassified are reported as negative numbers in columns (e)(vi) through (e)(x) and positive numbers in columns (e)(i) through (e)(v), as applicable. Lines 24, 27, 30, and 33. https://www.andrewmitchel.com - Hundreds of additional chartshttps://www.tax-charts.com - Tax flowchartshttps://www.intltax.typepad.com - Discussions of new . Foreign base company shipping income as defined in former section 954(f). Form 5471 (Schedule I-1) Global Intangible Low-Taxed Income (GILTI) 2018 Form 5471 (Schedule H) Current Earnings and Profits 2018 Form 5471 (Schedule E) Income, War Profits, and Excess Profits Taxes Paid or Accrued 2018 Inst 5471: Instructions for Form 5471, Information Return of U.S. The E&P of the foreign corporation, as reflected on Schedule H, must not be reduced by all or any part of such E&P that could not have been distributed by the foreign corporation due to currency or other restrictions or limitations imposed under the laws of any foreign country. No changes have been made to this schedule. Therefore, it is important that the U.S. shareholder track the PTEP groups to follow the different rules for each group. Do not include any adjustments required to be reported on line 7 or 12. The line items to be completed are: Use Worksheet B to determine a U.S. shareholder's pro rata share of earnings of a CFC invested in U.S. property that is subject to tax. On page 5 of Form 5471, five questions on Schedule G pertaining to cost sharing arrangements have been moved to new separate Schedule G-1 and all subsequent questions have been renumbered accordingly. The amounts reported on line 1(a)(1) would not be included in the total for line 1(a), but the amount reported on line 1(a)(2) would be included in the total reported on line 1(a). The functional currency of Domestic Corporation, CFC1, CFC2, and CFC3 is the U.S. dollar. In item 1g, enter a brief description of the company's business activity. Proc. For line 1(a)(2), $75 of gross income is reported in column (ii), $5 of foreign tax is reported in each of columns (x) and (xii), and the checkbox in column (xiv) is not checked. Proc. A reference ID number is required only in cases in which no EIN was entered for the lower-tier foreign corporation. All passive income received during the tax year that is subject to a withholding tax of less than 15% (but greater than zero) must be treated as one item of income. Amounts reported on Schedule E may include taxes paid or accrued by the foreign corporation or a pass-through entity (for example, partnership or disregarded entity) owned by the foreign corporation. Certain penalties under sections 6038 and 6662 may be waived for certain persons under Rev. Such amounts are reported as negative numbers. Inst 5471. All persons identified in Item F must attach a statement to their income tax return that includes the information described in the instructions for Item F. Shareholders are not required to file the information checked in the chart, later, for a foreign insurance company that has elected (under section 953(d)) to be treated as a domestic corporation and has filed a U.S. income tax return for its tax year under that provision. If a CFC or a member of a controlled group (within the meaning of section 993(a)(3)) that includes the CFC has operations in, or related to, a country (or with the government, a company, or a national of a country) that requires participation in or cooperation with an international boycott as a condition of doing business within such country or with the government, company, or national of that country, a portion of the CFC's income is included in subpart F income. More importantly, Schedule J tracks the corporations various balances of Previou. See section 960(d). See section 7 of Rev. Instructions for Form 5471, Information Return of U.S. New lines 13 and 28 were added for reporting loan guarantee fees received (line 13) and loan guarantee fees paid (line 28). These headings must comport to those used on the Schedule M (Form 5471) to which this statement is attached. Enter the method of disposition (for example, sale, bequest, gift, trade). If there is more than one majority shareholder, the required tax year will be the tax year that results in the least aggregate deferral of income to all U.S. shareholders of the foreign corporation. Report asset values for each QBU or tested unit as well as the aggregate amount of assets in each group. See sections 6662(j) and 6664(c) for additional information. If the shareholder of a CFC can clearly demonstrate that the income earned for the tax year is from specific operations, then, instead of applying the international boycott factor, the addition to subpart F income is the amount specifically from the operations in which there was participation in or cooperation with an international boycott. Domestic Corporation reports on CFC1s Form 5471, Schedule H, on line 2g, a positive adjustment for the $4 of tax on the PTEP distribution. Domestic Corporation reports on line 6, column (e)(x), as a negative number, the $4 of tax on the PTEP distribution. field, "30.Enter the portion of line 15e that is U.S. source income effectively connected with a U.S. trade or business (section 952(b))" field, "31.Exclusions under section 959(b) that apply to line 15e amount" field, "32.Section 954(e) subpart F Foreign Base Company Services Income. "field, "54.Shareholders pro rata share of export trade income that applies to line 53 amount. Enter the appropriate code on line a (at the top of page 1 of Schedule P). Proc. Accordingly, $4 of foreign income taxes related to section 959(c)(2) previously taxed E&P is reclassified to section 959(c)(1) previously taxed E&P on line 11, column (e)(iii). The amount of gross income entered on line 1 will generally be a positive amount. Do not include any income includible on Form 5471, Schedule I, lines 1a through 1d, or any income includible under section 951A (Schedule I-1 is used to provide information relating to section 951A). Include filer information such as name and address, Items A through C, and tax year. During the tax year, was the CFC an eligible CFC (as defined in section 954(h)(2)) that derived qualified banking or financing income (as defined in section 954(h)(3))? The purchase represented 10% ownership of the foreign corporation. "field, "55.Other subpart F income subtotal. If the filer is described in more than one filing category, do not duplicate information. Attach a statement explaining why such taxes were not deemed paid under section 960. Enter the tax paid or accrued in the local currency in which tax is payable and not the functional currency of the payor or foreign corporation. Similarly, the amounts reported on line 3(1) would not be included in the total reported on line 3, but the amounts reported on line 3(2) would be reported in the total reported on line 3. Proc. "field, "63.Translate the amount on line 62 from functional currency to U.S. dollars at the average exchange rate. See Regulations section 1.9601(d)(2). See Schedule H, line 2g. With respect to a CFC, Regulations section 1.954-1(c)(1)(iii)(A)(2) identifies as a single item of income all foreign base company income (other than foreign personal holding company income) that falls within both a single separate category (typically, general category income) and a single category of foreign base company income described in each of Regulations sections 1.954-1(c)(1)(iii)(A)(2)(i) through (v). Check the box if taxes were paid on U.S. source income. These instructions clarify that this relief is extended to similarly situated Category 1 filers. CFC1, in turn, wholly owns the only class of stock of CFC2, a foreign corporation. On line 9, report reductions for the portion of such taxes that are deemed paid by a U.S. shareholder with respect to an inclusion under section 951(a) or 951A. Report the total of the amounts listed in column (l) on this line 5. 5471 A bill to amend the Occupational Safety and Health Act of 1970 to prohibit the Secretary of Labor from issuing a temporary standard with respect to COVID-19 vaccination or testing, and for other purposes; to the Committee on Education and Labor. Attach a statement detailing the nature and amount of any adjustments in E&P not accounted for on lines 8 through 11. There are some situations that warrant correlation of a new reference ID number with a previous reference ID number when assigning a new reference ID number to a foreign corporation. Category 2 and Category 3 filers who are shareholders, officers, and directors of an FSC (as defined in section 922, as in effect before its repeal) must file Form 5471 and a separate Schedule O to report changes in the ownership of the FSC. A separate Schedule I must be filed for each person described in Category 4, 5a, or 5b. For these purposes, policyholders must be treated as shareholders. However, in the case of Schedule Q (Form 5471) filers, if a foreign corporation has more than one of those categories of income, the filer must also complete and file a separate Schedule Q using code TOTAL that aggregates all amounts listed for each line and column of all other Schedules Q. Answer: One potential check would be to make sure that Tested income (loss) on Line 6 of Schedule I-1 ties to Column (xiii) Net Income of Line 3 Tested Income Group on Schedule Q. For the first year that Form 5471 is filed after an entity classification election is made on behalf of the foreign corporation on Form 8832, the new EIN must be entered on line 1b(1) of Form 5471 and the old reference ID number must be entered on line 1b(2). However, see Certain Category 1 and Category 5 Filers, later, which may apply. See the instructions for lines 1 and 4. Form 5471 filers generally use the same category of filer codes used on Form 1118. The amount included in the gross income of a U.S. shareholder of a CFC under section 951(a)(1)(A) for any tax year and attributable to a qualified activity must be reduced by the shareholder's pro rata share of any qualified deficit (see section 952(c)(1)(B)). Also, line 9 has been shaded with respect to all columns other than columns (a) and (b). This should be the foreign taxable income base for determining the tax reported in column (i). Enter on lines 5c(i), 5c(ii), 5c(iii)(A), 5c(iii)(B), 5c(iii)(C), and 5c(iii)(D), as applicable, the portion of the line 5c current year E&P amount with respect to each applicable category of income. Check the box for either foreign source income or U.S. source income, as applicable. Use column (d) to report taxes suspended under section 909. January 2022) (Use with the December 2021 revision of Form 5471 and separate Schedules E, G-1, H, I-1, and M; the December 2020 revision of separate Schedules J, P, Q, and R; and the December 2012 revision of separate Schedule O.) In general, a CFC is a foreign corporation that has U.S. shareholders that own (directly, indirectly, or constructively, within the meaning of sections 958(a) and (b)) on any day of the tax year of the foreign corporation, more than 50% of: The total combined voting power of all classes of its voting stock, or. The above definition does not apply to any foreign corporation if: At all times during the foreign corporation's tax year, less than 20% of the total combined voting power of all classes of stock of the corporation entitled to vote, and less than 20% of the total value of the corporation, is owned (directly or indirectly under the principles of section 883(c)(4)) by persons who are (directly or indirectly) insured under any policy of insurance or reinsurance issued by the corporation or who are related persons to any such person; The related person insurance income (determined on a gross basis) of the corporation for the tax year is less than 20% of its insurance income for the tax year, or.