If there is a difference between last years ending balance on Schedule J and the amount that should be last years ending balance, taking into account modifications in Schedule J, include the difference on line 1b and attach an explanation for the difference. (b) During the tax year, did the CFC derive income (either directly or through a branch or similar establishment, for example, disregarded entity) in connection with the purchase or sale from, to, or on behalf of a related party (for example, purchase or sales commission income)? On page 1, Schedule E, Part I, Section 2, for purposes of clarification, the title of Section 2 has been amended as Taxes Deemed Paid by Foreign Corporation.. Report the direct shareholders of the foreign corporation. On line 15, report reductions for foreign income taxes attributable to the column (b) tested income group that are not deemed paid as a result of the inclusion percentage or the 80% limitation. IRS Form 5471 - Beginner Series Schedule E-1: Taxes Paid or Deemed Paid - IRS Form 5471 Jason D. Knott 7.74K subscribers Join Subscribe 17 Share 843 views 3 months ago Schedule E-1. Enter the amount of any dividend income received by the CFC from a related person as defined in section 954(d)(3). All passive income received during the tax year that is subject to no withholding tax but is subject to foreign tax other than a withholding tax must be treated as one item of income. During Year 2, CFC2 distributes $40 to CFC1. In this case, enter zero on line 10 and skip lines 11 through 19. The corporate U.S. shareholder should include the line 5b amount on Form 1120, Schedule C, line 14, column (a), or the comparable line of other corporate income tax returns. See section 952(c)(2). If a section 338 election is made with respect to a qualified stock purchase of a foreign target corporation for which a Form 5471 must be filed: A purchaser (or its U.S. shareholder) must attach a copy of Form 8883, Asset Allocation Statement Under Section 338, to the first Form 5471 for the new foreign target corporation (see the Instructions for Form 8883 for details); A seller (or its U.S. shareholder) must attach a copy of Form 8883 to the last Form 5471 for the old foreign target corporation; A U.S. shareholder that files a section 338 election on behalf of a foreign purchasing corporation that is a controlled foreign corporation pursuant to Regulations section 1.338-2(e)(3) must attach a copy of Form 8023, Elections Under Section 338 for Corporations Making Qualified Stock Purchases, to the Form 5471 filed with respect to the purchasing corporation for the taxable year that includes the acquisition date (see the Instructions for Form 8023 for details). Schedules Q and R have been added to its numerous schedules to accommodate recent legislative changes. Lines 13g, 14d, 15d, 16d, 18d, and 19d. For example, the Form 1040 page is at IRS.gov/Form1040; the Pub. Using the list of activities and codes below, determine from which activity the company derives the largest percentage of its total receipts. If the company purchases raw materials and supplies them to a subcontractor to produce the finished product, but retains title to the product, the company is considered a manufacturer and must use one of the manufacturing codes (311110-339900). Foreign Base Company Income and Insurance Income and Summary of U.S. In the case of section 988 losses, determine whether Form 8886 needs to be completed, as described in Additional Filing Requirements, earlier. The line items to be completed are: Please click here for the text description of the image. In general, this is E&P of the foreign corporation that has not been included in gross income of a U.S. person under section 951(a)(1) and section 951A. For more information, see Regulations section 1.6011-4. The total value of the stock of the corporation. The facts are the same as in Example 1, except that, in addition, CFC2 distributes $36 to CFC1 in Year 3. Domestic Corporation reports on CFC2s Form 5471, Schedule J, line 4, column (e)(x), as a positive number, the $40 PTEP distribution. However, in the case of Schedule E (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 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. The balance of foreign income taxes paid or accrued with respect to the three income groups that is entered on line 16 should equal zero after taking into account the reductions. See section 986(b). However, if Corporation A does not know Corporation Bs section 951A inclusion at the time Corporation A files its Form 5471, Corporation A will only be able to complete Schedule J, Part I, with respect to its PTEP of $20x on line 8, column (e)(viii). The term base erosion payment generally means any amount paid or accrued by the U.S. filer to a foreign corporation that is a related party to the U.S. filer within the meaning of section 59A(g) and with respect to which a U.S. deduction is allowed under chapter 1 of the Code. The reference ID number that is entered in Item 1b(2) must be alphanumeric (defined later) and no special characters or spaces are permitted. Line 13. Such tax is also reported as a negative number on line 10, column (e)(x), of Schedule E1 of CFC2s Form 5471. 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. For more information, see section 898 and Rev. from investment in U.S. property and to translate the amount from functional currency to U.S. dollars. See section 7 of Rev. If the foreign corporation applied more than one RAB share during the tax year in determining its share of intangible development costs (IDCs), enter the RAB share that was applied to IDCs incurred at the end of the year. What information must be provided? Exempt insurance income under section 953(e) and certain investment income of a qualifying insurance company or a qualifying insurance branch (sections 953(a)(2) and 954(i)). If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. Report on line 9 the sum of tiered hybrid dividends received by the foreign corporation during its tax year. The taxes added or deducted on line 2g of Schedule H include both foreign income taxes reported in Part I of Schedule E as well as the taxes reported in Part III of Schedule E that are not creditable foreign income taxes. Rev. The corporate U.S. shareholder should include the line 5a amount on Form 1120, Schedule C, line 13, column (a), or the comparable line of other corporate income tax returns. Form 5471 is used by certain U.S. persons who are officers, directors, or shareholders in certain foreign corporations. A separate Schedule Q is required for foreign oil and gas extraction income (FOGEI) and foreign oil related income (FORI). Adjusted net related person insurance income. Base erosion payments also include amounts received or accrued by the foreign corporation in connection with the acquisition of depreciable or amortizable property (section 59A(d)(2)), reinsurance payments (section 59A(d)(3)), and certain payments relating to expatriated entities (section 59A(d)(4)). On page 1, Schedule E, Part I, Section 1, new column (c) (unsuspended taxes) requires taxpayers to check the box in that column in cases where taxes were previously suspended under section 909 and the related income is now being taken into account in the current year. However, these filers may be required to file Form 5471 if they are subject to the subpart F rules with respect to certain types of FSC income (see above). The transferor and transferee in certain section 351 transactions may make a joint election under section 362(e)(2)(C) to limit the transferor's basis in the stock received instead of the transferee's basis in the transferred property. For example, if U.S. GAAP income reported on Schedule C contains items related to PTEP, include the necessary adjustments on line 2i of Schedule H for the appropriate category of income (general or passive) and attach a statement that itemizes and explains those adjustments. Use Part III to report taxes for which foreign tax credits are not allowed. For example, when translating amounts to be reported on Schedule E, you must generally use the average exchange rate as defined in section 986(a). Deductions of the CFC, including for current-year taxes, are allocated and apportioned to the income groups to determine net income (or loss) in each income group and to identify the current year foreign income taxes that relate to the income in each income group for section 960 purposes. On lines 1j through 1l, enter international boycott income described in section 952(a)(3), illegal bribes, kickbacks, and other payments described in section 952(a)(4), and income included in a section 901(j) separate category described in section 952(a)(5). Specifically, in the case of an SFC, other than either a foreign-controlled CFC with respect to which there is no related section 958(a) U.S. shareholder or a U.S. controlled CFC, if information satisfying the requirements of section 964 and the regulations thereunder is not readily available to an unrelated section 958(a) U.S. shareholder or an unrelated constructive U.S. shareholder with respect to the SFC, an amount reported on a Form 5471 may be determined by the unrelated section 958(a) U.S. shareholder or the unrelated constructive U.S. shareholder, as applicable, on the basis of alternative information (without adjustments other than those described in sections 3.01(b) and 3.10 of the revenue procedure) with respect to the SFC. For example, an individual U.S. shareholder who receives a distribution of PTEP originally attributable to inclusions under section 965(a) may only claim a credit for a portion of the foreign taxes attributable to a distribution of such PTEP. in all necessary locations. Proc. PTEP attributable to subpart F income inclusions (not described in any other column) and reclassified as investments in U.S. property. If a U.S. shareholder wholly owns the CFC, Schedule P should include the same information reported on Schedule J, Part I, column (e). A separate Schedule I must be filed for each person described in Category 4, 5a, or 5b. Form 8886, Reportable Transaction Disclosure Statement, must be filed for each tax year indicated in Regulations section 1.6011-4(c)(3)(i)(G). The election is made by a statement as provided in Regulations section 1.362-4(d)(3). In general, in the case of a domestic corporation that is a U.S. shareholder with respect to a CFC, a dividend received by the domestic corporation from the CFC is a hybrid dividend to the extent of the sum of the U.S. shareholders hybrid deduction accounts with respect to shares of stock of the CFC. In this example, we assume that CFC1 is wholly owned by a domestic corporation and all the foreign taxes mentioned here are not withholding taxes. Add lines 14h, 15e, 16e, 17c, and 18e", "20.Adjusted net insurance income (other than related person insurance income):", "20a.Enter amount from line 7 (other than related person insurance income)" field, "20b.Expenses allocated and apportioned to the amount from line 7 under section 953" field, "20c.Net insurance income. Report asset values for each QBU or tested unit as well as the aggregate amount of assets in each group. Amounts reported on line 9 should be negative numbers. (e) Date of additional 10% acquisition. These balances should equal the amounts reported as the ending balances in the prior year Schedule J. In 1999, Mr. Jackson, a U.S. citizen, purchased 10,000 shares of common stock of foreign corporation X. A U.S. person has acquired stock in a foreign corporation when that person has an unqualified right to receive the stock, even though the stock is not actually issued. See Item 1b(2)Reference ID Number for more information about reference ID numbers. See Regulations section 1.861-20(d)(3)(v)(C)(1). Category 1a, 3, and 5a filers should list all direct owners of the SFC or CFC through which such filer indirectly owns the SFC or CFC as described in section 958(a)(2). Instructions for Form 5471, Information Return of U.S. If the foreign surviving corporation had a deficit in E&P prior to a transaction described in section 381, such deficit is recharacterized as a hovering deficit after such nonrecognition transaction. See section 1272(a)(4) and Regulations section 1.1275-1(b)(1). Comparison to income tax expense reported on Schedule H (Form 5471). For these purposes, section 898(b) defines an SFC as any foreign corporation: That is treated as a CFC under subpart F, and. 2019-40) to determine certain amounts in this schedule. From the Congressional Record, Volume 168 (2022) H.R. 851, available at, Enter foreign currency transaction gain or loss reported on the income statement. See Regulations section 1.9601(d)(2). Subtract line 48 from line 47. A separate Schedule J should not be completed for the section 951A category. "field, "47.Shareholders pro rata share of line 41. It may also reflect uncertain tax positions (ASC 740-10) and would not include taxes paid in respect of uncertain tax positions recorded in prior years. Subtract line 45 from line 44. See section 986(a). Check the Yes box on line 17a if there was an extraordinary reduction with respect to any controlling section 245A shareholder of the foreign corporation, as defined in Regulations section 1.245A-5(i)(2), during the tax year of the foreign corporation. 1983. The attached statement must include a totals line that ties into the amounts reported in each column of line 14. Any person who fails to file or report all of the information requested by section 6046 is subject to a $10,000 penalty for each such failure for each reportable transaction. The amounts reported on line 5c include both foreign source and U.S. source income. DASTM gain or (loss), reflecting unrealized exchange gain or loss, should be entered on line 5b only for foreign corporations that use DASTM. If the information required in a given section exceeds the space provided within that section, do not write See attached in the section and then attach all of the information on additional sheets. If the CFC has tested income on line 6, enter the Qualified Business Asset Investment (QBAI) (defined below). Average amount of U.S. property held (directly or indirectly) by the C.F.C. All passive income received during the tax year that is subject to a withholding tax of 15% or greater must be treated as one item of income. Special rules apply for foreign corporations that use the U.S. dollar approximate separate transactions method of accounting (DASTM) under Regulations section 1.985-3. The U.S. shareholder has previously taxed E&P related to section 965 that is reportable on Schedule P (Form 5471). Amounts reported on line 10 should be negative numbers. The form and schedules satisfy the reporting requirements of sections 6038 and 6046 and the related regulations. As of the date these instructions were revised, section 901(j) applied to Iran, North Korea, Sudan, and Syria. These columns now request information pertaining to subpart F income, tested income, and residual income, respectively. 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). For purposes of Category 1 and Category 5 filers, a foreign-controlled corporation is a foreign corporation that is either: A section 965 SFC that would not be a section 965 SFC if the determination were made without applying subparagraphs (A), (B), and (C) of section 318(a)(3) so as to consider a U.S. person as owning stock that is owned by a foreign person (for purposes of Category 1 filers); or. In the following year, Corporation A and Corporation B should each report the other corporations PTEP on Schedule J, Part I, line 1b, column (e)(viii), and the corresponding reduction to CFC1s E&P described in section 959(c)(3) on Schedule J, Part I, line 1b, column (a). A foreign corporation may have PTEP in a PTEP group within any of the separate categories of income, with the exception of foreign branch category income. 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 person filing the return and enter its EIN in Item A. Every U.S. citizen or resident described in Category 2 must complete Part I. When completing Item H with respect to members of a consolidated group, identify only the direct owners in Item H (constructive owners are not required to be listed). During the tax year, did the subpart F income of the CFC exceed the earnings and profits of such corporation? E&P described in section 959(c)(3) is generally E&P of the foreign corporation that has not been included in gross income of a U.S. shareholder under section 951(a)(1) or section 951A. Enter the appropriate code on line a (at the top of page 1 of Schedule J). The description should include whether the distribution was cash or non-cash and taxable or nontaxable to shareholders. If the return was or will be filed electronically, enter e-file.. Mr. Lyons would prepare a list showing the corporations as follows. "field, "51.Shareholders pro rata share of export trade income that applies to line 50 amount. For purposes of these rules, a 25% shareholder is a CFC that owns directly 25% or more of the capital or profits interest in a partnership. Line 21. The only foreign taxes of the distributing foreign corporation that may be treated as deemed paid under section 960(b) are foreign taxes paid, accrued, or deemed paid by the distributing foreign corporation with respect to the receipt of a PTEP distribution from another lower-tier foreign corporation below the distributing foreign corporation. Attach a statement that includes an explanation and the dollar amount of each such adjustment, along with a total that equals the amount entered on line 1b. Use code sections to properly identify the taxable or nontaxable consequences of the distribution. Use line 3 to report tested income in the tested income group of the CFC (a tested income group). An estate or trust that is not a foreign estate or trust as defined in section 7701(a)(31). 2439 User Road Hamilton, NJ 08690-3303 (609) 570-1000 Fax (609) 570-1050 Toll Free (877) 269-0090 www.mdlab.com Enter the current year E&P (or deficit in E&P) amount from the applicable line 5c of Schedule H (Form 5471). Instead, complete all entry spaces in the section and attach the remaining information on additional sheets. 369. 12-2022) DRAFT AS OF Page 3 Enter amounts in functional currency of the foreign corporation (unless otherwise noted). Certain adjustments (required by Regulations sections 1.964-1(b) and (c)) must be made to the foreign corporation's line 1 net book income or (loss) to determine its current E&P. For the foreign corporations annual accounting period with respect to which reporting is being made on this Form 5471, if the foreign corporation is required to file a U.S. income tax return (for example, Form 1120F), check the Yes box if the foreign corporation has interest expense disallowed under section 163(j). Dividends, interest, rent, or royalty income from related corporate payors described in section 954(c)(3) or (6). For purposes of Category 5 filers, a U.S. shareholder is a U.S. person who: Owns (directly, indirectly, or constructively, within the meaning of sections 958(a) and (b)) 10% or more of the total combined voting power of all classes of voting stock of a CFC or, in the case of a tax year of a foreign corporation beginning after December 31, 2017, 10% or more of the total combined voting power or value of shares of all classes of stock of a CFC; or. The U.S. person through which the shareholder constructively owns an interest in the foreign corporation files Form 5471 to report all of the required information. Line 2g has been modified to update the references to Schedule E, due to changes made to that schedule. For example, one U.S. shareholder might not know the amount of the other U.S. shareholders section 951A inclusion that is allocated to the CFC because the first U.S. shareholder does not have information with respect to the second U.S. shareholders net CFC tested income or pro rata share of QBAI. If you have other foreign financial assets, you may be required to file Form 8938, Statement of Specified Foreign Financial Assets. "field, "57.Divide the number of days in the tax year that the corporation was a CFC by the number of days in the tax year and multiply the result by line 56. Enter earnings carried over to a foreign surviving corporation after an acquisition by a foreign corporation of the assets of another foreign corporation in a transaction described in section 381. In general, see Regulations section 1.951A4(b)(1) to determine how to compute the CFCs tested interest expense. Such tax should also be reflected as a negative amount in column (d). Employee benefit plan determinations The other Schedule Q can come into play when a company or organization is setting up or making changes to a pension or retirement savings plan, such as a 401 (k), or some other employee benefit plan. Reportable transaction disclosure statement. With respect to direct credits, this reduction applies regardless of whether such individual made an election under section 962. Complete lines 19a and 19b only if the filer is a domestic corporation. A foreign corporation may need to report E&P with respect to all categories of income listed in the Instructions for Form 1118, with the exception of foreign branch category income. Furthermore, a Category 1 or 5 filer does not have to file Form 5471 if all of the following conditions are met. Check the Yes box if during the tax year the reporting corporation had any loans to or from the related party to which the safe haven rate rules of Regulations section 1.482-2(a)(2)(iii)(B) are applicable, and for which the reporting corporation used a rate of interest within the safe-haven range of Regulations section 1.482-2(a)(2)(iii)(B)(1) (100% to 130% of the AFR for the relevant term). This total also should be reported on Schedule E-1, line 4. New line c has been added at the top of Schedule E to accommodate reporting of treaty countries in cases where a resource by treaty code is entered on line a. CFC1 has a December 31 tax year end for both foreign and U.S. tax purposes. See the instructions for Form 8858, line 3c(2), for more information. On line 4(1), both columns (xii) and (xiv) should be blank in all cases. The foreign corporation divides 30,255,400 Yen by 108.8593 to determine the U.S. dollar amount to enter in column (l) of Schedule E, Part I, Section 1, line 1. Part IAccumulated E&P of Controlled Foreign Corporation, Specific Instructions Related to Lines 1 Through 13, Section AGeneral Shareholder Information, Reference ID Number of Foreign Corporation, Instructions for Form 5471 - Additional Material, Agriculture, Forestry, Fishing and Hunting, Support Activities for Agriculture and Forestry, Beverage and Tobacco Product Manufacturing, Petroleum and Coal Products Manufacturing, Plastics and Rubber Products Manufacturing, Nonmetallic Mineral Product Manufacturing, Computer and Electronic Product Manufacturing, Electrical Equipment, Appliance, and Component Manufacturing, Furniture and Related Product Manufacturing, Wholesale Electronic Markets and Agents and Brokers, Building Material and Garden Equipment and Supplies Dealers, Sporting Goods, Hobby, Book, and Music Stores, Transit and Ground Passenger Transportation, Motion Picture and Sound Recording Industries, Activities Related to Credit Intermediation, Securities, Commodity Contracts, and Other Financial Investments and Related Activities, Insurance Carriers and Related Activities, Funds, Trusts, and Other Financial Vehicles, Professional, Scientific, and Technical Services, Accounting, Tax Preparation, Bookkeeping, and Payroll Services, Architectural, Engineering, and Related Services, Computer Systems Design and Related Services, Other Professional, Scientific, and Technical Services, Management of Companies (Holding Companies), Administrative and Support and Waste Management and Remediation Services, Waste Management and Remediation Services, Performing Arts, Spectator Sports, and Related Industries, Museums, Historical Sites, and Similar Institutions, Amusement, Gambling, and Recreation Industries, Religious, Grantmaking, Civic, Professional, and Similar Organizations, Unrelated section 958(a) U.S. shareholder.