Frost Law
A U.S. person with investments in a controlled foreign corporation (CFC) faces a daunting compliance process. The number of schedules and parts that accompany Form 5471 has grown exponentially over the years. This is, in large part, due to the increasing complexity of the substantive rules applicable to CFCs, especially the post-tax reform act of 2017 known as TCJA (Tax Cuts and Jobs Act). It is also partly due to the fact that the IRS wants taxpayers to reflect on the forms themselves, rather than on some worksheets, the calculations and details of the various inclusions, creditable taxes, and other tax attributes of a CFC. It is interesting to note that in 1983, the Instructions for Form 5471 were only 12 pages long, and the entire version of the form contained only four pages.
With increasing complexities for international tax information reporting, taxpayers face a serious challenge in completing the forms. One fundamental challenge in completing the form is the fact that the form and its schedules are not laid out in a logical, comprehensive manner that readily facilitates the reporting purposes for which it now serves. It used to be merely an information return, with only limited data (i.e., inclusions under subpart F) used in calculating the U.S. owner's tax liability. Currently, the form and its schedules have become very complicated, especially with the addition of GILTI (Global Intangible Low-Taxed Income) as a subset of the anti-deferral rules.
A separate Form 5471 and all applicable schedules are required for each applicable foreign corporation. The schedules are completed by category of filer and may vary from one category to another. The addition of new schedules added to the complexity of navigating the reporting process. Schedules such as E-1, G-1, I-1, P, Q, and R were specifically added in order to track the tax attributes brought about by the new GILTI regime.
While new schedules serve a particular purpose, the old schedules remain important. One example is Schedule J. New columns have been added to this schedule to properly reflect and classify Earnings and Profits (E&P) from Post-2017 (TCJA), Post-1986, Pre-1987 and properly identify the previously taxed E&P (PTEP) that were subjected to the one-time Section 965 (a.k.a. Transition Tax) tax, GILTI and the Section 245A (Participation Exemption on Dividend Repatriation). This is one schedule that needs to be completed properly and monitored closely every year since information in this schedule is important when a distribution is later on made by the CFC.
Stay tuned for a discussion of other schedules in the next part of this series. And if you need any assistance you can contact our team at (410) 497-5947 or schedule a confidential consulation.
A U.S. person with investments in a controlled foreign corporation (CFC) faces a daunting compliance process. The number of schedules and parts that accompany Form 5471 has grown exponentially over the years. This is, in large part, due to the increasing complexity of the substantive rules applicable to CFCs, especially the post-tax reform act of 2017 known as TCJA (Tax Cuts and Jobs Act). It is also partly due to the fact that the IRS wants taxpayers to reflect on the forms themselves, rather than on some worksheets, the calculations and details of the various inclusions, creditable taxes, and other tax attributes of a CFC. It is interesting to note that in 1983, the Instructions for Form 5471 were only 12 pages long, and the entire version of the form contained only four pages.
With increasing complexities for international tax information reporting, taxpayers face a serious challenge in completing the forms. One fundamental challenge in completing the form is the fact that the form and its schedules are not laid out in a logical, comprehensive manner that readily facilitates the reporting purposes for which it now serves. It used to be merely an information return, with only limited data (i.e., inclusions under subpart F) used in calculating the U.S. owner's tax liability. Currently, the form and its schedules have become very complicated, especially with the addition of GILTI (Global Intangible Low-Taxed Income) as a subset of the anti-deferral rules.
A separate Form 5471 and all applicable schedules are required for each applicable foreign corporation. The schedules are completed by category of filer and may vary from one category to another. The addition of new schedules added to the complexity of navigating the reporting process. Schedules such as E-1, G-1, I-1, P, Q, and R were specifically added in order to track the tax attributes brought about by the new GILTI regime.
While new schedules serve a particular purpose, the old schedules remain important. One example is Schedule J. New columns have been added to this schedule to properly reflect and classify Earnings and Profits (E&P) from Post-2017 (TCJA), Post-1986, Pre-1987 and properly identify the previously taxed E&P (PTEP) that were subjected to the one-time Section 965 (a.k.a. Transition Tax) tax, GILTI and the Section 245A (Participation Exemption on Dividend Repatriation). This is one schedule that needs to be completed properly and monitored closely every year since information in this schedule is important when a distribution is later on made by the CFC.
Stay tuned for a discussion of other schedules in the next part of this series. And if you need any assistance you can contact our team at (410) 497-5947 or schedule a confidential consulation.
