The IRS Makes Significant Changes to Schedule H of Form 5471

The IRS Makes Significant Changes to Schedule H of Form 5471

Tax Law
By Anthony Diosdi Recently, the Internal Revenue Service (“IRS”) issued a draft of a new Schedule H for Form 5471. Schedule H is used to report a controlled foreign corporation’s (“CFCs”) current earnings and profits (“E&P”). Category 4 and Category 5 filers are required to attach a Schedule H to their Form 5471. A Category 4 filer is a U.S. person who had “control” of a CFC for an uninterrupted period of at least 30 days during the foreign corporation’s annual accounting period. Control for purposes of Category 4 is defined as more than 50 percent of voting power or value utilizing the attribution rules of Section 958. A Category 5 filer is a U.S. person who is a ten percent or greater shareholder in a corporation that was a…
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Demystifying the Form 5471 Part 12. Schedule H Calculating the E&P of a Controlled Foreign Corporation

Demystifying the Form 5471 Part 12. Schedule H Calculating the E&P of a Controlled Foreign Corporation

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with a foreign corporation’s current earnings and profits (“E&P”) for US tax purposes, each year certain US person with interests in foreign corporations must attach a Schedule H to IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the 12th of a series of articles designed to provide a basic overview of Form 5471. This article is designed to supplement the IRS instructions to the Form 5471.Who Must Complete Schedule HForm 5471 and its schedules must be completed (to the extent required by each schedule) and filed by the following categories of persons:Category 1- US persons who are officers, directors or ten percent or greater shareholders in a…
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Demystifying the Form 5471 Part 11. Schedule E-1 Calculating a CFC’s E&P for Purposes of Reporting Foreign Tax Credits

Demystifying the Form 5471 Part 11. Schedule E-1 Calculating a CFC’s E&P for Purposes of Reporting Foreign Tax Credits

Tax Law
By Anthony Diosdi IntroductionJust about all Controlled Foreign Corporations (“CFCs”) generate subpart F income and/or Global Intangible Low-Taxed Income (“GILTI”). In most cases, subpart F and GILTI income become reclassified as Previously Tax Earnings and Profits (“PTEP”). Each PTEP then needs to be placed into a separate Section 904(d) category basket. In addition, each PTEP is subject to a certain set of ordering rules that clarifies how distributions of such a PTEP is treated to each CFC shareholder.The classification of PTEPs and the ordering rules are important to calculate foreign tax credits and to determine the creditability of foreign taxes allocable to each Section 904(d) basket. It is also important to determine any Section 904(a) limitation with respect to each specific basket. For example, any foreign taxes paid or accrued…
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Schedule J of Form 5471- Preparing the Schedule Before and After International Tax Reform

Schedule J of Form 5471- Preparing the Schedule Before and After International Tax Reform

Tax Law
By Anthony Diosdi In 2017, Congress enacted the 2017 Tax Cuts and Jobs Act. The 2017 Tax Cuts and Jobs Act dramatically changed the way cross-border transactions are taxed and reported to the Internal Revenue Service (“IRS”). Nowhere is this more true than with Schedule J of Form 5471. Schedule J is used to report accumulated earnings and profits (“E&P”) of controlled foreign corporations. This article will compare the pre-2017 Tax Cuts and Jobs Act Schedule J with the post-2017 Tax Cuts and Jobs Act Schedule J. I. Pre-2017 Tax Cuts and Jobs Act Schedule J Introduction Prior to 2018, Category 4 and 5 filers of a “controlled foreign corporation” (“CFC”) had to attach a Schedule J to their Form 5471. Section 957(a) defined a CFC as a foreign corporation…
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Demystifying the IRS Form 5471 Part 5. Schedule I-1

Demystifying the IRS Form 5471 Part 5. Schedule I-1

Tax Law
By Anthony Diosdi Each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the fifth of a series of articles designed to provide a basic overview of the Form 5471. This article will focus on Schedule I-1, and is designed to supplement the IRS instructions to Schedule I-1.Who Must Complete the Form 5471 Schedule JSchedule I-1 is used to report information determined at the CFC level with respect to amounts used in the determination of GILTI inclusions by U.S. shareholders. The information from Schedule I-1 is used by U.S. shareholder(s) of a CFC to file Form 8992, U.S. Shareholder Calculation of GILTI, and may assist in the completion…
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Demystifying the IRS Form 5471 Part 4. Schedule J

Demystifying the IRS Form 5471 Part 4. Schedule J

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the fourth of a series of articles designed to provide a basic overview of the Form 5471. This article will focus on Schedule J. Schedule J tracks the earnings and profits of a controlled foreign corporation (“CFC”). This article is designed to supplement the IRS instructions to Schedule J. Schedule J has dramatically changed for the 2018 tax season. Schedule J now includes Part 1 entitled “Accumulated…
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Demystifying the IRS Form 5471 Part 3. Schedule E

Demystifying the IRS Form 5471 Part 3. Schedule E

Tax Law
In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the third of a series of articles designed to provide a basic overview of the new Schedule E of the Form 5471. A controlled foreign corporation (“CFC”) paying a foreign tax and/or claiming a foreign credit must complete Schedule E of the Form 5471. This article is heavily based on the instructions to Schedule E of the Form 5471.Who Must Complete the Form 5471 Schedule EIndividuals with interests in CFCs…
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Demystifying the IRS Form 5471 Part 2. Schedule C

Demystifying the IRS Form 5471 Part 2. Schedule C

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income (“GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the second of a series of articles designed to provide a basic overview of the new Schedule C of the Form 5471. Who Must Complete the Form 5471 Schedule C Schedule C of a Form 5471 is an income statement of a controlled foreign corporation (“CFC”). The Schedule C is designed to disclose a CFC’s functional currency and transactions in foreign currency. Because foreign currencies are treated…
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Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Demystifying the IRS Form 5471 Part 1. Selecting the Proper Category of Filer and Preparing Schedule B

Tax Law
By Anthony Diosdi In order to provide the Internal Revenue Service (“IRS”) with the information necessary to ensure compliance with the subpart F rules and global intangible low-taxed income ( “GILTI”) provisions, each year certain U.S. persons with interests in foreign corporations must file an IRS Form 5471 otherwise known as “Information Return of U.S. Persons With Respect to Certain Foreign Corporations.” This is the first of a series of articles  designed to provide a basic overview of the Form 5471 and the tax law anyone completing a Form should understand. The Form 5471 begins with a question on Page 1 Box B by asking you to select one or more categories of being a filer. The classification selected will determine the appropriate schedules of the Form 5471 that needs…
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