Specific Instructions

Important.

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. Instead, complete all entry spaces in the section and attach the remaining information on additional sheets. The additional sheets must conform with the IRS version of that section.

Identifying Information

Annual Accounting Period

Enter, in the space provided below the title of Form 5471, the annual accounting period of the foreign corporation for which you are furnishing information. Except for information contained on Schedule O, report information for the tax year of the foreign corporation that ends with or within your tax year. When filing Schedule O, report acquisitions, dispositions, and organizations or reorganizations that occurred during your tax year.

Specified foreign corporation.   The annual accounting period of a specified foreign corporation is generally required to be the tax year of the corporation's majority U.S. shareholder. 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.

  A specified foreign corporation is any foreign corporation:
  1. That is treated as a CFC under subpart F and

  2. In which more than 50% of the total voting power or value of all classes of stock of the corporation is treated as owned by a U.S. shareholder.

  For more information, see section 898 and Rev. Procs. 2002-37, 2002-22 I.R.B. 1030, and 2002-39, 2002-22 I.R.B. 1046, as modified by Notice 2002-72, 2002-46 I.R.B. 843.

Name Change

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.

Address

Include the suite, room, or other unit number after the street address. If the post office does not deliver mail to the street address and the U.S. person has a P.O. box, show the box number instead.

Foreign address.   Enter the information in the following order: city, province or state, and country. Follow the country's practice for entering the postal code, if any. Do not abbreviate the country name.

Item A—Identifying Number

The identifying number of an individual is his or her social security number (SSN). The identifying number of all others is their employer identification number (EIN). 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.

Item B—Category of Filer

Complete Item B to indicate the category or categories that describe the person filing this return. If more than one category applies, check all boxes that apply.

Item C—Percentage of Voting Stock Owned

Enter the total percentage of the foreign corporation's voting stock you owned directly, indirectly, or constructively at the end of the corporation's annual accounting period.

Item D—Person(s) on Whose Behalf This Information Return Is Filed

The person that files the required information on behalf of other persons must complete Item D. See Multiple filers of same information, earlier. Identify only the direct owners in Item D who are also members of the consolidated group; constructive owners who are also members of the consolidated group are not required to be listed. In addition, a separate Schedule I must be filed for each person described in Category 4 or 5.

Except for members of the filer's consolidated return group, all persons identified in Item D must attach a statement to their tax returns that includes the following information:

  • A statement that their filing requirements have been or will be satisfied;

  • The name, address, and identifying number of the return with which the information was or will be filed; and

  • The IRS Service Center where the return was or will be filed. If the return was or will be filed electronically, enter “e-file.

Item 1b(2)—Reference ID Number

A reference ID number (defined below) is required on line 1b(2) only in cases where no EIN was entered on line 1b(1) for the foreign corporation. However, filers are permitted to enter both an EIN on line 1b(1) and a reference ID number on line 1b(2). If applicable, enter the reference ID number you have assigned to the foreign corporation identified on line 1a.

A "reference ID number" is a number established by or on behalf of the U.S. person identified at the top of page 1 of the form that is assigned to a foreign corporation with respect to which Form 5471 reporting is required. These numbers are used to uniquely identify the foreign corporation in order to keep track of the corporation from tax year to tax year.

The reference ID number must meet the requirements set forth below.

Note.

Because reference ID numbers are established by or on behalf of the U.S. person filing Form 5471, there is no need to apply to the IRS to request a reference ID number or for permission to use these numbers.

Note.

The reference ID number assigned to a foreign corporation on Form 5471 generally has relevance only on Form 5471, its schedules, and any other form that is attached to or associated with Form 5471, and should generally not be used with respect to that foreign corporation on any other IRS forms. However, the foreign corporation’s reference ID number should also be entered on Form 8858 if the foreign corporation is listed as a tax owner of a foreign disregarded entity (FDE) on Form 8858. See the instructions for Form 8858, line 3c(2) for more information.

Requirements.   The reference ID number that is entered in item 1b(2) must be alphanumeric (defined later) and no special characters or spaces are permitted. The length of a given reference ID number is limited to 50 characters.

  The same reference ID number must be used consistently from tax year to tax year with respect to a given foreign corporation. If for any reason a reference ID number falls out of use (for example, the foreign corporation no longer exists due to disposition or liquidation), the reference ID number used for that foreign corporation cannot be used again for another foreign corporation for purposes of Form 5471 reporting.

  For these purposes, the term “alphanumeric” means the entry can be alphabetical, numeric, or any combination of the two.

  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. For example:
  • In the case of a merger or acquisition, a Form 5471 filer must use a reference ID number which correlates the previous reference ID number with the new reference ID number assigned to the foreign corporation.

  • In the case of an entity classification election that is made on behalf of a foreign corporation on Form 8832, Regulations section 301.6109-1(b)(2)(v) requires the foreign corporation to have an EIN for this election. 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). In subsequent years, the Form 5471 filer may continue to enter both the EIN on line 1b(1) and the reference ID number on line 1b(2), but must enter at least the EIN on line 1b(1).

  You must correlate the reference ID numbers as follows: New reference ID number [space] Old reference ID number. If there is more than one old reference ID number, you must enter a space between each such number. As indicated above, the length of a given reference ID number is limited to 50 characters and each number must be alphanumeric and no special characters are permitted.

   Note. This correlation requirement applies only to the first year the new reference ID number is used.

Items 1f and 1g—Principal Business Activity

Enter the principal business activity code number and the description of the activity from the list beginning on page 16.

Item 1h—Functional Currency

Enter the foreign corporation's functional currency. Regulations sections 1.6038-2(h) and 1.6046-1(g) require that certain amounts be reported in U.S. dollars and/or in the foreign corporation's functional currency. The specific instructions for the affected schedules state these requirements.

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. See the instructions for Schedule C and Schedule H.

Schedule B

Category 3 and 4 filers must complete Schedule B for U.S. persons that owned (at any time during the annual accounting period), directly or indirectly through foreign entities, 10% or more in value or voting power of any class of the corporation's outstanding stock.

Column (e).   Enter each shareholder's allocable percentage of the foreign corporation's subpart F income.

Schedule C

If the foreign corporation uses the U.S. dollar approximate separate transactions method of accounting (DASTM) under Regulations section 1.985-3, the functional currency column should reflect local hyperinflationary currency amounts computed in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The U.S. dollar column should reflect such amounts translated into dollars under U.S. GAAP translation rules. Differences between this U.S. dollar GAAP column and the U.S. dollar income or loss figured for tax purposes under Regulations section 1.985-3(c) should be accounted for on Schedule H. See Schedule H, Special rules for DASTM, below.

Line 19.   The terms “extraordinary items” and “prior period adjustments” have the same meaning given to them by U.S. GAAP (see Opinion No. 30 of the Accounting Principles Board and Statement No. 16 of the Financial Accounting Standards Board).

Line 20.   Enter the income, war profits, and excess profits taxes deducted in accordance with U.S. GAAP.

Important.

Differences between this functional currency amount and the amount of taxes that reduce U.S. earnings and profits (E&P) should be accounted for on line 2g of Schedule H.

Schedule E

List income, war profits, and excess profits taxes paid or accrued to the United States and to any foreign country or U.S. possession for the annual accounting period. Report these amounts in column (b) in the local currency in which the taxes are payable. Translate these amounts into U.S. dollars at the average exchange rate for the tax year to which the tax relates unless one of the exceptions below applies. See section 986(a).

Exceptions.

If one of the following exceptions applies, use the exchange rate in effect on the date you paid the tax.

  1. The tax is paid before the beginning of the year to which the tax relates.

  2. For tax years beginning after December 31, 2004, there is an election in effect under section 986(a)(1)(D) to translate foreign taxes attributable to the CFC using the exchange rate in effect on the date of payment.

Enter the exchange rate used in column (c). Report the exchange rate using the “divide-by convention” specified under Reporting Exchange Rates on Form 5471, earlier. Enter the translated dollar amount in column (d).

Schedule F

If the foreign corporation uses DASTM, the tax balance sheet on Schedule F should be prepared and translated into U.S. dollars according to Regulations section 1.985-3(d), rather than U.S. GAAP.

Schedule G

Question 1

If the foreign corporation owned at least a 10% interest, directly or indirectly, in any foreign partnership, attach a statement listing the following information for each foreign partnership:

  1. Name and EIN (if any) of the foreign partnership;

  2. Identify which, if any, of the following forms the foreign partnership filed for its tax year ending with or within the corporation's tax year: Form 1042, 1065 or 1065-B, or 8804;

  3. Name of the tax matters partner (if any); and

  4. Beginning and ending dates of the foreign partnership's tax year.

Question 3

Check the “Yes” box if the foreign corporation is the tax owner of a foreign disregarded entity (FDE) . The “tax owner” of an FDE is the person that is treated as owning the assets and liabilities of the FDE for purposes of U.S. income tax law.

If the foreign corporation is the tax owner of an FDE and you are a Category 4 or 5 filer of Form 5471, you are required to attach Form 8858 to Form 5471.

If the foreign corporation is the tax owner of an FDE and you are not a Category 4 or 5 filer of Form 5471, you must attach the statement described below in lieu of Form 8858.

Statement in lieu of Form 8858.   This statement must list the name of the FDE, country under whose laws the FDE was organized, and EIN (if any) of the FDE.

Schedule H

Use Schedule H to report the foreign corporation's current earnings and profits (E&P) for U.S. tax purposes. Enter the amounts on lines 1 through 5c in functional currency.

Special rules for DASTM.   If the foreign corporation uses DASTM, enter on line 1 the dollar GAAP income or (loss) from line 21 of Schedule C. Enter on lines 2a through 4 the adjustments made in figuring current E&P for U.S. tax purposes. Report these amounts in U.S. dollars. Enter on line 5b the DASTM gain or loss figured under Regulations section 1.985-3(d).

Lines 2a through 2h.   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. These adjustments may include both positive and negative adjustments to conform the foreign book income to U.S. GAAP and to U.S. tax accounting principles. If the foreign corporation's books are maintained in functional currency in accordance with U.S. GAAP, enter on line 1 the functional currency GAAP income or (loss) from line 21 of Schedule C, rather than starting with foreign book income, and show GAAP-to-tax adjustments on lines 2a through 2h.

Lines 2b and 2c.   Generally, depreciation, depletion, and amortization allowances must be based on the historical cost of the underlying asset, and depreciation must be figured according to section 167. However, if 20% or more of the foreign corporation's gross income is from U.S. sources, depreciation must be figured on a straight line basis according to Regulations section 1.312-15.

Line 2f.   Inventories must be taken into account according to the rules of  
sections 471 (incorporating the provisions of section 263A) and 472 and the related regulations.

Line 2g.   See the instructions for Schedule C, line 20, above.

Line 2h.   Enter the net amount of any additional adjustments not included on lines 2a through 2g. List these additional adjustments on a separate statement. Attach this statement to Form 5471.

Line 5b.   DASTM gain or (loss), reflecting unrealized exchange gain or loss, should be entered on line 5b only for foreign corporations that use DASTM.

Line 5d.   Enter the line 5c functional currency amount translated into U.S. dollars at the average exchange rate for the foreign corporation's tax year. See section 989(b). Report the exchange rate using the “divide-by convention” specified under Reporting Exchange Rates on Form 5471, earlier. If the foreign corporation uses DASTM, enter on line 5d the same amount entered on line 5c.

Blocked income.   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.

Schedule I

Use Schedule I to report in U.S. dollars the U.S. shareholder's pro rata share of income from the foreign corporation reportable under subpart F and other income realized from a corporate distribution.

Note.

A separate Schedule I must be filed by each Category 4 or 5 U.S. shareholder for whom reporting is furnished on this Form 5471.

Line 1

Subpart F income.   Generally, the income of a foreign corporation with U.S. shareholders is not taxed to those U.S. shareholders until the income is repatriated to the United States (e.g., through the payment of dividends to the U.S. shareholders or in the form of gain on the disposition of the U.S. shareholders' stock in the foreign corporation). However, this deferral of U.S. tax is not available to U.S. shareholders of CFCs with certain types of income, including subpart F income. For more information, see sections 951 and 952.

  Use Worksheet A (which begins on page 8) to compute the U.S. shareholder's pro rata share of subpart F income of the CFC. Subpart F income includes the following:
  • Adjusted net foreign base company income (lines 1 through 19);

  • Adjusted net insurance income (line 20);

  • Adjusted net related person insurance income (line 21);

  • International boycott income (line 22);

  • Illegal bribes, kickbacks, and other payments (line 23); and

  • Income from a country described in section 952(a)(5) (line 24).

Important.

If the subpart F income of any CFC for any tax year was reduced because of the current E&P limitation (see the instructions for line 29 of Worksheet A, later), any excess of the E&P of the CFC for any subsequent tax year over the subpart F income of the CFC for the tax year must be recharacterized as subpart F income.

Lines 2 Through 4

Other amounts not eligible for deferral that are reported on Schedule I include:

  • Earnings invested in U.S. property (Worksheet B);

  • Amounts withdrawn from qualified investments in less developed countries and amounts withdrawn from qualified investments in foreign base company shipping operations (Worksheet C); and

  • Amounts withdrawn from investment in export trade assets (Worksheet D).

Line 5

Enter the factoring income (as defined in section 864(d)(1)) if no subpart F income is reported on line 1a, Worksheet A, because of the operation of the de minimis rule (see lines 1a, 9, and 11 of Worksheet A and the related instructions).

Line 6

Add lines 1 through 5. Enter the result here and on your tax return. For a corporate U.S. shareholder, enter the result on Form 1120, Schedule C, line 14, or on the comparable line of other corporate tax returns. For a noncorporate U.S. shareholder, enter the result on Form 1040, line 21 (Other Income), or on the comparable line of other noncorporate tax returns.

Line 7

Enter the dividends you received from the foreign corporation that were not previously taxed under subpart F in the current year or in any prior year.

Line 8

If previously taxed E&P described in section 959(a) or (b) was distributed, enter the amount of foreign currency gain or (loss) on the distribution, computed under section 986(c). See Notice 88-71, 1988-2 C.B. 374, for rules for computing section 986(c) gain or (loss).

For a corporate U.S. shareholder, include the gain or (loss) as “other income” on line 10 of Form 1120, or on the comparable line of other corporate tax returns. For a noncorporate U.S. shareholder, include the result as “other income” on line 21 of Form 1040, or on the comparable line of other noncorporate tax returns.

Certain current year deficits of a member of the same chain of corporations may be considered in determining subpart F income. See section 952(c)(1)(C).

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Worksheet A

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Worksheet A (continued)

Worksheet A

Foreign base company income.   Foreign base company income generally does not include:
  • Foreign base company shipping income as defined in former section 954(f).

  • Foreign personal holding company income derived in the active conduct of a CFC of a banking, finance, or similar business (section 954(h)).

  • Certain investment income derived by a qualifying insurance company and by certain qualifying insurance branches (sections 953(a)(2) and 954(i)).

  • Exempt insurance income under section 953(e) or that is not treated as foreign personal holding company income under the active conduct of an insurance business exception (section 954(i)); the active conduct of a banking, financing, or similar business exception (section 954(h)); or the securities dealer exception (section 954(c)(2)(C)(ii)).

Line 1a.    Do not include the following:
  • Interest from conducting a banking business that is “export financing interest” (section 904(d)(2)(G));

  • Rents and royalties from actively conducting a trade or business received from a person other than a “related person” (as defined in section 954(d)(3)); and

  • Dividends, interest, rent or royalty income from related corporate payors described in section 954(c)(3). However, see section 964(e) for an exception.

  Interest income includes factoring income arising when a person acquires a trade or service receivable (directly or indirectly) from a related person. The income is treated as interest on a loan to the obligor under section 864(d)(1) and is generally not eligible for the de minimis, export financing, and related party exceptions to the inclusion of subpart F income. Also, a trade or service receivable acquired or treated as acquired by a CFC from a related U.S. person is considered an investment in U.S. property for purposes of section 956 (Worksheet B) if the obligor is a U.S. person.

Line 1b.   Enter the excess of gains over losses from the sale or exchange of:
  • Property that produces the type of income reportable on line 1a.

  • An interest in a trust, partnership, or REMIC. However, see the instructions for line 1i for an exception that provides for look-through treatment for certain sales of partnership interests.

  • Property that does not produce any income.

   Do not include:
  • Income, gain, deduction, or loss from any transaction (including a hedging transaction) and transactions involving physical settlement of a regular dealer in property, forward contracts, option contracts, and similar financial instruments (section 954(c)(2)(C)).

  • Gains and losses from the sale or exchange of any property that, in the hands of the CFC, is property described in section 1221(a)(1).

Line 1c.   Enter the excess of gains over losses from transactions (including futures, forward, and similar transactions) in any commodities. See section 954(c)(1)(C) for exceptions. See section 954(c)(5) for a definition and special rules relating to commodity transactions.

Line 1d.   Enter the excess of foreign currency gains over foreign currency losses from section 988 transactions. An exception applies to transactions directly related to the business needs of a CFC.

Line 1e.   Enter any income equivalent to interest, including income from commitment fees (or similar amounts) for loans actually made.

Line 1f.   Include net income from notional principal contracts (except a contract entered into to hedge inventory property).

Line 1g.   Include payments in lieu of dividends that are made as required under section 1058.

Line 1h.   Enter amounts received:
  • Under a contract under which the corporation is to furnish personal services if (a) some person other than the corporation has a right to designate (by name or by description) the individual who is to perform the services or (b) the individual who is to perform the services is designated (by name or by description) in the contract, and

  • From the sale or other disposition of such a contract.

Note.

The above rules apply with respect to amounts received for services under a particular contract only if at some time during the tax year 25% or more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has performed, is to perform, or may be designated (by name or by description) as the one to perform, such services.

Line 1i.   For tax years beginning after December 31, 2004, in the case of any sale by a CFC of an interest in a partnership with respect to which the CFC is a 25% owner (defined below), such CFC is treated for purposes of computing its foreign personal holding company income as selling the proportionate share of the assets of the partnership attributable to such interest. Thus, the sale of a partnership interest by a CFC that meets the ownership threshold constitutes subpart F income only to the extent that a proportionate sale of the underlying partnership assets attributable to the partnership interest would constitute subpart F income. Do not report these amounts on line 1b. Instead, report them on new line 1i.

25% owner.   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. For purposes of the preceding sentence, if a CFC is a shareholder or partner of a corporation or partnership, the CFC is treated as owning directly its proportionate share of any such capital or profits interest held directly or indirectly by such corporation or partnership. If a CFC is treated as owning a capital or profits interest in a partnership under constructive ownership rules similar to the rules of section 958(b), the CFC shall be treated as owning such interest directly or indirectly for purposes of this definition.

Line 11. De minimis rule.   If the sum of foreign base company income (determined without regard to section 954(b)(5)) and gross insurance income (as defined in section 954(b)(3)(C)) for the tax year is less than the smaller of 5% of gross income for income tax purposes, or $1 million, then no portion of the gross income for the tax year is treated as foreign base company income or insurance income. In this case, enter zero on line 11 and skip lines 12  
through 21. Otherwise, go to line 12.

Line 12. Full inclusion rule.   If the sum of foreign base company income (determined without regard to section 954(b)(5)) and gross insurance income for the tax year exceeds 70% of gross income for income tax purposes, the entire gross income for the tax year must (subject to the high tax exception described below, the section 952(b) exclusion, and the deductions to be taken into account under section 954(b)(5)) be treated as foreign base company income or insurance income, whichever is appropriate. In this case, enter total gross income (for income tax purposes) on line 12. Otherwise, enter zero.

Lines 14g, 15d, 16d, 18d, 20d, and 21d. Exception for certain income subject to high foreign taxes.   Foreign base company income and insurance income does not include any item of income received by a CFC if the taxpayer establishes that such income was subject to an effective rate of income tax imposed by a foreign country that is greater than 90% of the maximum rate of tax specified in section 11. This rule does not apply to foreign base company oil-related income. For more information, see section 954(b)(4) and Regulations section 1.954-1(d)(1).

Line 20. Adjusted net insurance income.   In determining a shareholder's pro rata share of the subpart F income of a CFC, insurance income is any income:
  • That is attributable to the issuing (or reinsuring) of any insurance or annuity contract:

    1. For property in, liability from an activity in, or for the lives or health of residents of a country other than the country under the laws of which the CFC is created or organized or

    2. For risks not described in 1 above, resulting from any arrangement in which another corporation receives a substantially equal amount of premiums or other consideration for issuing (or reinsuring) a contract described in 1 above.

  • That would, subject to the modifications provided in sections 953(b)(1) and 953(b)(2), be taxed under subchapter L (insurance company tax) if such income were income of a domestic insurance company.

Line 21. Adjusted net related person insurance income.   In determining a shareholder's pro rata share of the subpart F income of a CFC, related person insurance income is any insurance income (within the meaning of section 953(a)) attributable to a policy of insurance or reinsurance for which the person insured (directly or indirectly) is a U.S. shareholder (as defined in section 953(c)(1)(A)) in a CFC, or a related person (as defined in section 953(c)(6)) to such a shareholder. In such case, the pro rata share referred to above is to be determined under the rules of section 953(c)(5).

Exceptions.   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 determined without regard to the provisions of section 953(a)(1) that limit insurance income to income from countries other than the country in which the corporation was created or organized; or

  • The corporation:

    1. Elects to treat its related person insurance income for the tax year as income effectively connected with the conduct of a trade or business in the United States;

    2. Elects to waive all treaty benefits (other than from section 884) for related person insurance income; and

    3. Meets any requirement the IRS may prescribe to ensure that any tax on such income is paid.

  This election will not be effective if the corporation was a disqualified corporation (as defined in section 953(c)(3)(E)) for the tax year for which the election was made or for any prior tax year beginning after 1986. See section 953(c)(3)(D) for special rules for this election.

Mutual life insurance companies.   The related person insurance income rules also apply to mutual life insurance companies under regulations prescribed by the Secretary. For these purposes, policyholders must be treated as shareholders.

Line 22. International boycott income.   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. 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. This factor is a fraction determined on Schedule A (Form 5713).

Special rule.   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. See Schedule B (Form 5713).

Line 23. Illegal bribes, kickbacks, and other payments.   Enter the total of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by or on behalf of the corporation, directly or indirectly, to an official, employee, or agent of a government.

Line 24. Income described in section 952(a)(5).   The income of a CFC derived from any foreign country during any period during which section 901(j) applies to such foreign country will be deemed to be income to the U.S. shareholders of such CFC. As of the date these instructions were revised, section 901(j) applied to: Cuba, Iran, North Korea, Sudan, and Syria.

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Worksheet B

Line 26. Exclusion of U.S. income.   Subpart F income does not include any U.S. source income (which, for these purposes, includes all carrying charges and all interest, dividends, royalties, and other investment income received or accrued by a FSC) that is effectively connected with a CFC's conduct of a trade or business in the United States unless that item is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation of the United States or the Code.

Line 29. Current E&P.   A CFC's subpart F income is limited to its current year E&P, computed under the special rule of section 952(c)(3). The amount included in the gross income of a U.S. shareholder of a CFC under section 951(a)(1)(A)(i) 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)).

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Worksheets C

Worksheet B

Use Worksheet B (on page 12) 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. Only earnings of a CFC not distributed or otherwise previously taxed are subject to these rules. Thus, the amount of previously untaxed earnings limits the section 956 inclusion. A CFC's investment in U.S. property in excess of this limit will not be included in the taxable income of the CFC's U.S. shareholders.

Further, U.S. shareholders are only taxed on earnings invested in U.S. property to the extent the investments exceed the CFC's previously taxed earnings. The balances in the previously taxed accounts of prior section 956 inclusions (see section 959(c)(1)(A)) and current or prior subpart F inclusions (see section 959(c)(2)) reduce what would otherwise be the current section 956 inclusion.

Note.

The previously taxed accounts should be adjusted to reflect any reclassification of subpart F inclusions that reduced prior section 956 or 956A inclusions (see section 959(a)(2) and Schedule J).

Distributions are also taken into account before the section 956 inclusion is determined. Distributions generally are treated as coming first from (and thus reducing the balances of) the previously taxed accounts. Thus, the U.S. shareholders must:

  1. Compute the current subpart F inclusion (potentially increasing that previously taxed account);

  2. Take into account current distributions (potentially reducing the previously taxed and untaxed accounts); and

  3. Compute the current section 956 inclusion (potentially increasing or reclassifying the previously taxed accounts).

U.S. property is measured on a quarterly average basis. For purposes of Worksheet B, the amount taken into account with respect to U.S. property is its adjusted basis for earnings and profits purposes, reduced by any liability the property is subject to. See sections 956(c) and (d) for the definition of U.S. property. The amount of U.S. property held (directly or indirectly) by the CFC does not include any item that was acquired by the foreign corporation before it became a CFC, except for the property acquired before the foreign corporation became a CFC that exceeds the applicable earnings (as defined in section 956(b)) accumulated during periods before it became a CFC.

If the foreign corporation ceases to be a CFC during the tax year:

  • The determination of the U.S. shareholder's pro rata share will be made based upon the stock owned (within the meaning of section 958(a)) by the U.S. shareholder on the last day during the tax year in which the foreign corporation was a CFC;

  • The CFC's U.S. property for the taxable year will be determined only by taking into account quarters ending on or before such last day (and investments in U.S. property as of the close of subsequent quarters should be recorded as zero on line 1); and

  • In determining applicable earnings, current earnings and profits will include only earnings and profits that are allocable (on a pro rata basis) to the part of the year during which the foreign corporation was a CFC.

Schedule J

Use Schedule J to report accumulated E&P, in functional currency, computed under sections 964(a) and 986(b).

Reference ID number.   Use the reference ID number shown on Form 5471, line 1b(2).

Column (a)

Use column (a) to report the opening balance, current year additions and subtractions, and the closing balance in the foreign corporation's post-1986 undistributed earnings pool.

Note.

Line 3 (E&P as of the close of the tax year, before actual or deemed distributions during the year) is the denominator of the deemed-paid credit fraction under section 902(c)(1) used for foreign tax credit purposes.

Column (b)

Use column (b) to report the aggregate amount of the foreign corporation's pre-1987 section 964(a) E&P accumulated since 1962 and not previously distributed or deemed distributed. These amounts are figured in U.S. dollars using the rules of Regulations sections 1.964-1(a) through (e), translated into the foreign corporation's functional currency according to Notice 88-70, 1988-2 C.B. 369.

Column (c)

Use column (c) to report the running balance of the foreign corporation's previously taxed earnings and profits (PTI), or section 964(a) E&P accumulated since 1962 that have resulted in deemed inclusions under subpart F. Pre-1987 U.S. dollar PTI should be translated into the foreign corporation's functional currency using the rules of Notice 88-70 and added to post-1986 amounts in the appropriate PTI category.

  • Include in column (c)(i) PTI attributable to, or reclassified as, investments in U.S. property (section 959(c)(1)(A) amounts).

  • Include in column (c)(ii) PTI attributable to, or reclassified as, earnings invested in excess passive assets (section 959(c)(1)(B) amounts) accumulated in tax years of foreign corporations beginning after September 30, 1993, and before January 1, 1997.

  • Include in column (c)(iii) PTI attributable to subpart F income net of any reclassifications (section 959(c)(2) amounts).

Column (d)

Use column (d) to report the opening and closing balance of the foreign corporation's accumulated E&P. This amount is the sum of post-1986 undistributed earnings, pre-1987 section 964(a) E&P not previously taxed, and PTI.

Line 1.   Enter the balances for each column at the beginning of the tax year. If there is a difference between last year's ending balance on Schedule J, line 7, and this year's beginning balance on Schedule J, line 1, attach an explanation.

Schedule M

Every U.S. person described in Category 4 must file Schedule M to report the transactions that occurred during the foreign corporation's annual accounting period ending with or within the U.S. person's tax year.

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  
Schedule M.

Important.

In translating the amounts from functional currency to U.S. dollars, use the average exchange rate for the foreign corporation's tax year. See section 989(b). Report the exchange rate in the entry space provided at the top of Schedule M using the “divide-by convention” specified under Reporting Exchange Rates on Form 5471, earlier.

Reference ID number.

Use the reference ID number shown on Form 5471, line 1b(2).

Lines 4 and 16.   Report on these lines platform contribution transaction payments received and paid by the foreign corporation (without giving effect to any netting of payments due and owed). See Regulations section 1.482-7(b)(1)(ii). The corporation is required to complete both lines only if the corporation provides a platform contribution to other controlled participants and is required to make platform contribution transaction payments to other controlled participants that provide a platform contribution to other controlled cost sharing arrangement participants.

Note.

The term “platform contribution transaction” is not limited to transactions that occurred on or after January 5, 2009, or transactions that occur pursuant to a cost sharing arrangement that was not in effect before January 5, 2009. See Regulations sections 1.482-7(m)(1) and (2)(i).

Lines 5 and 17.   Report on these lines cost sharing transaction payments received and paid by the foreign corporation (without giving effect to any netting of payments due and owed). See Regulations section 1.482-7(1)(i). The corporation is required to complete line 5 only if the corporation itself incurred intangible development costs. If the corporation does not itself incur intangible development costs, then it should only report cost sharing transaction payments made on line 17.

Note.

The term “cost sharing transaction” is not limited to transactions that occurred on or after January 5, 2009, or transactions that occur pursuant to a cost sharing arrangement that was not in effect before January 5, 2009. See Regulations sections 1.482-7(m)(1) and (2)(i).

Lines 9 and 21.   Report on these lines dividends received and paid by the foreign corporation not previously taxed under subpart F in the current year or in any prior year.

Lines 25 and 26.   Report on these lines the largest outstanding balances during the year of gross amounts borrowed from, and gross amounts loaned to, the related parties described in columns (b) through (f). Do not enter aggregate cash flows, year-end loan balances, average balances, or net balances. Do not include open account balances resulting from sales and purchases reported under other items listed on Schedule M that arise and are collected in full in the ordinary course of business.

Accrued payments and receipts.    A corporation that uses an accrual method of accounting must use accrued payments and accrued receipts for purposes of computing the total amount to enter on each line of Schedule M.

Schedule O

Schedule O is used to report the organization or reorganization of a foreign corporation and the acquisition or disposition of its stock.

Every U.S. citizen or resident described in Category 2 must complete Part I. Every U.S. person described in Category 3 must complete Part II.

See Regulations section 1.6046-1(i) for rules on determining when U.S. persons constructively own stock of a foreign corporation and therefore are subject to the section 6046 filing requirements.

Reference ID number.   Use the reference ID number shown on Form 5471, line 1b(2).

Part I

Column (d).   Enter the date the shareholder first acquired 10% or more (in value or voting power) of the outstanding stock of the foreign corporation.

Column (e).   Enter the date the shareholder acquired (whether in one or more transactions) an additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation.

Part II

Section A—General Shareholder Information

If the shareholder's latest tax return was filed electronically, enter “e-filed” in column (b)(3) instead of a service center.

Section C—Acquisition of Stock

Section C is completed by shareholders who are completing Schedule O because they have acquired sufficient stock in a foreign corporation. If the shareholder acquired the stock in more than one transaction, use a separate line to report each transaction.

Column (d).   Enter the method of acquisition (e.g., purchase, gift, bequest, trade).

Column (e)(2).   Enter the number of shares acquired indirectly (within the meaning of section 958(a)(2)) by the shareholder listed in column (a).

Column (e)(3).   Enter the number of shares constructively owned (within the meaning of section 958(b)) by the shareholder listed in column (a).

Section D—Disposition of Stock

Section D must be completed by shareholders who dispose of their interest (in whole or in part) in a foreign corporation.

Column (d).   Enter the method of disposition (e.g., sale, bequest, gift, trade).

Example.   In 1995, Mr. Jackson, a U.S. citizen, purchased 10,000 shares of common stock of foreign corporation X. The purchase represented 10% ownership of the foreign corporation.

  On July 1, 2013, Mr. Jackson made a gift of 5,000 shares of foreign corporation X to his son, John. Because Mr. Jackson has reduced his holding in the foreign corporation, he is required to complete Form 5471 and Schedule O. To show the required information about the disposition, Mr. Jackson completes Section D as follows:
  • Enters his name in column (a).

  • Enters “common” in column (b).

  • Enters “July 1, 2013” in column (c).

  • Enters “gift” in column (d).

  • Enters “5,000” in column (e)(1).

  • Enters “-0-” in column (f) because the disposition was by gift.

  • Enters the name and address of his son, John, in column (g).

Section F—Additional Information

Item (b).   List the date of any reorganization of the foreign corporation that occurred during the last 4 years while any U.S. person held 10% or more in value or vote (directly or indirectly) of the corporation's stock. If there is more than one such date, use the most recent date. However, do not enter a date for which information was reported in Schedule E. Instead, enter the date (if any) of any reorganization prior to that date (if it is within the last 4 years).

Example for Item (c).   Mr. Lyons, a U.S. person, acquires a 10% ownership in foreign corporation F. F is the 100% owner of two foreign corporations, FI and FJ. F is also a 50% owner of foreign corporation FK. 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. Mr. Lyons is also required to submit a chart if the foreign corporation is a member of a chain of corporations, and to indicate if he is a 10% or more shareholder in any of those corporations.

  Mr. Lyons would prepare a list showing the corporations as follows:
  • Corporation W

  • Corporation F

  • Corporation FI

  • Corporation FJ

  • Corporation FK

Then Mr. Lyons is required to indicate that he is a 10% or more shareholder in corporations F, FI, and FJ.


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