International Information Reporting

INTERNATIONAL INFORMATION REPORTING
August 2, 2017 Jennifer Sklar-Romano
SMALL SEEDS LEAD TO
BIG SUCCESS
When fully grown, the giant sequoia is the
largest plant on earth. Yet it begins life as
a tiny seedling

OVERVIEW OF
INTERNATIONAL TAX
CONCEPTS

DEFINITIONS
Foreign corporation – a corporation created under the laws of a
foreign jurisdiction.
CFC – a foreign corporation that has U.S. shareholders that own
directly, indirectly, or constructively, more than 50% of the
stock by vote or value on any day during the foreign
corporation’s tax year.
U.S. shareholder - a U.S. person, who owns directly, indirectly,
or constructively, at least 10% of the voting stock of the foreign
corporation.
U.S. person
• U.S. citizen or resident
• Domestic partnership
• Domestic corporation
• Domestic estate or trust
3

DEFINITIONS
Ownership includes:
• Direct ownership
• Indirect ownership – stock owned through foreign entities –
shareholders, partners and beneficiaries are treated as owning stock
held by the foreign corporation, partnership, trust or estate
• Constructive ownership – includes family attribution, upwards (from
entity) attribution and downward (to entity) attribution
Earnings and profits (E&P)
• A measuring device used to determine the extent to which a
distribution is made from a corporation’s economic income as
opposed to its taxable income or paid-in capital.
4

DEFINITIONS
Earnings and profits (E&P)
• The E&P of a CFC are to be determined under rules substantially
similar to those applicable to domestic corporations in the following
manner:
• Preparation of a P&L statement from the books regularly
maintained by the foreign corporation;
• Calculation of adjustments necessary to conform the P&L
statement to U.S. GAAP principles; and
• Calculation of additional adjustments necessary to conform the
P&L statements to U.S. tax accounting standards.
• Items with significant differences between E&P and taxable
income include:
o Depreciation lives and methods – historical cost and §167
depreciation (e.g., straight-line) for calculating depreciation
expense for E&P purposes
o Federal income taxes – only taxes actually paid reduce E&P
5

DEFINITIONS
Dividends - any distribution of property including cash, made by
a corporation to its shareholders out of (1) accumulated E&P; or
(2) current E&P.
• A distribution in excess of accumulated E&P or current E&P is treated
as a return of capital and any amount in excess of the stock basis is
treated as a gain on the sale of stock.
• Example:
o Losses through 2016 $(10,000,000)
o Income in 2017 2,000,000
o Accumulated E&P through 2017 (8,000,000)
o Distribution in 2017 3,000,000
– Dividend 2,000,000
– Excess 1,000,000 (reduces stock basis and any amount in
excess of basis is gain)
6

BASIC PRINCIPLES OF U.S. INTERNATIONAL
TAXATION
U.S. Taxation of Foreign Corporations
• Not taxable except for:
o U.S. source fixed or determinable annual or periodical income (FDAP)
 Dividends, interest, rents, royalties
o Effectively Connected Income (ECI)
• A foreign corporation is required to file Form 1120-F in any of the following
circumstances: (1) the foreign corporation was engaged in a trade or
business in the US (regardless of whether it generated ECI), (2) the foreign
corporation had ECI, or (3) the foreign corporation had US source income
and the tax liability was not fully satisfied through withholding at source.
U.S. Taxation of U.S. Shareholders on Income Earned by a CFC
• Not taxable until income is repatriated or shares are sold.
• Exceptions:
o Foreign corporations used for tax avoidance
o Anti-Deferral Regimes
 Subpart F income
 Investment of Earnings in U.S. Property7

TAXATION
• Subpart F Income
o A U.S. shareholder of a CFC is currently taxed in the U.S. on certain types of
income earned by the CFC.
o For purposes of determining whether a U.S. shareholder is required to pick
up Subpart F income, the U.S. shareholder must own the stock of the CFC
directly or indirectly though a foreign entity (a U.S. shareholder that
constructively owns the stock of the CFC is not subject to the Subpart F
regime).
o Foreign Base Company Income (FBCI):
 Foreign personal holding company income (FPHCI) - passive income
such as dividends, interest, rents, royalties, and gains from the sale of
assets producing such income or sales of non-income-producing assets
 Foreign base company sales income
 Foreign base company sales income is primarily concerned with the
separation of sales income from the manufacturing activities of a
related party so that the sales income is generated in a low tax or no
tax foreign jurisdiction.
8

TAXATION
o Foreign Base Company Income (FBCI):
 Foreign base company sales income
 Inserting a CFC in a low tax jurisdiction to act as an intermediary to
reduce tax
 Foreign base company sales income is income earned by a CFC with
respect to (1) the purchase of personal property from a related person
and its sale to any person; (2) the sale of personal property to any
person on behalf of a related person; (3) the purchase of personal
property from any person and its sale to a related person; or (4) the
purchase of personal property from any person on behalf of a related
person.
 Only if the property is manufactured or produced outside the CFC’s
country of incorporation and sold or purchased for use outside that
country.
 Branch rule: A foreign branch of a CFC may be treated as a separate
corporation for purposes of determining foreign base company sales
income.
9

TAXATION
o Foreign Base Company Income (FBCI)
 Foreign base company services income
 Foreign base company services income is primarily concerned with the
separation of services income from the manufacturing activities of a
related party so that the services income is generated in a low tax or
no tax foreign jurisdiction.
 Foreign base company services income is income derived from the
performance of specified services for, or on behalf of, a related person
 Only if the services are performed outside the CFC’s country of
incorporation
• Investment of Earnings in U.S. Property
o Section 956 is primarily concerned with U.S. shareholders attempting to
repatriate earnings of a CFC through nontaxable transactions
10

TAXATION
• Investment of Earnings in U.S. Property
o Examples:
 Loan from CFC to US parent (or CFC’s guarantee of a loan of its US parent)
 Intercompany balances due from US parent resulting from intercompany sales
made in the ordinary course of business are not treated as an investment of
earnings in US property
 Investment by CFC in the stock of its US parent
• Subpart F and Section 956 income inclusions are not eligible for
qualified dividend treatment and are, therefore, taxed at ordinary
income tax rates.
• An indirect foreign tax credit is available for U.S. corporate
shareholders who have included Subpart F or Section 956 income
during the taxable year.
11

CFC RULES: DETERMINING SUBPART F INCOME
De minimis rule: If the FBCI is less than the lesser of:
(1) 5% of the CFC’s gross income or
(2) $1,000,000,
then no portion of the CFC’s gross income for the taxable year will be
treated as FBCI.
Full inclusion rule: The entire gross income of the CFC will be treated
as FBCI if the CFC’s FBCI exceeds 70% of its gross income.
High foreign tax exception: If the foreign effective tax rate is greater
than 90% of the maximum U.S. corporate tax rate (currently 31.5%)
the CFC’s FBCI will not be subject to current U.S. taxation.
Same country exception: Applies to FPHCI (i.e., dividends, interest,
rents, royalties) received from related parties.
12

Active trade or business exception: Applies to FPHCI that is
rents or royalties received from unrelated parties.
CFC Look-through Rule: FPHCI does not include dividends,
interest, rents, and royalties received or accrued from a related
CFC and attributable to income of the related CFC that is not
Subpart F income.
• A related CFC is a CFC that controls or is controlled by the other
CFC, or a CFC that is controlled by the same person(s) that
control the other CFC. Control is defined as ownership of more
than 50 percent by vote or value of the CFC’s stock.
• The look-through rule does not apply to the extent the interest,
rent, or royalties create or increase a deficit that may reduce
Subpart F income of the payer CFC or another CFC.
13

Subpart F income is equal to net FBCI: The CFC calculates its
separate items of Subpart F income by allocating and apportioning
expenses to each item of gross income.
Subpart F income is limited to the foreign corporation’s current
E&P: There is no Subpart F inclusion if the CFC has an overall loss
for the taxable year. There is no Subpart F loss.
Recapture of Subpart F income: When the CFC has net FBCI, but an
overall loss, the FBCI reduced by the loss must be recaptured in a
subsequent year when the CFC has non-Subpart F income.
14

FOREIGN COMPLIANCE AND
REPORTING REQUIREMENTS

INTRODUCTION
International tax reporting requires consideration of various issues and concepts
that do not apply to domestic corporations, including currency conversions,
foreign tax credits, Subpart F income, and transfer pricing.
The IRS applies heightened scrutiny to U.S. persons with foreign activities and
continues to prioritize these taxpayers for examination.
Failure to timely and accurately file foreign forms can result in significant
penalties assessed against the taxpayer.
The information reporting returns have grown in complexity over time and
require extensive financial information.
The IRS applies a very complicated set of constructive and indirect ownership
rules to determine who is required to file. To complicate things further, 3
separate sets of constructive and indirect ownership rules apply for purposes of
Form 5471, and another set of rules applies for purposes of Form 8865. And even
within Form 5471, different constructive ownership rules apply to different filers.
16

International Practice Units (IPUs)
• Issued by the IRS Large Business and International Division (“LB&I”) to
serve as training materials for LB&I examiners on international tax
issues.
• Non-precedential but provide the current thinking of the IRS in
addressing cross-border transactions.
• With respect to compliance and reporting for foreign entities, the
following IPUs have been issued:
o Failure to File the Form 926 – Return by a U.S. Transferor of Property to a
Foreign Corporation – Monetary Penalty, issued on June 14, 2016.
o Failure to File the Form 5471 – Category 4 and 5 Filers – Monetary
Penalty, issued on October 22, 2015 and updated on November 12, 2015.
o Failure to File the Form 3520/3520-A – Penalties, issued on November
23, 2015.
o Failure to File the Form 8865 – Category 1 and 2 Filers – Monetary
Penalty, issued on November 23, 2015.
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INTRODUCTION

INTRODUCTION
“Substantially Incomplete” Reporting
• In October 2015, the IRS released an International Practice Unit (IPU)
focused upon penalties to be imposed for “substantially incomplete”
Forms 5471.
• Facially incomplete Forms 5471
o Failure to identify the category(ies) of filer
o Failure to complete any required Schedule
o Failure to report the amount of voting stock the taxpayer owns in the
foreign corporation
o Failure to provide proper financial statements for the foreign
corporation
o Reporting only partial data regarding the identity and location of the
foreign corporation
o Stating that certain required information will be provided by the
taxpayer upon request from the IRS
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INTRODUCTION
Substantially Incomplete” Reporting
• The IRS has treated the following information returns as
substantially incomplete:
o Overreporting of purchases of stock in trade by more than 50% of the
correct amount on Form 5472
o Failure to attach Schedule O and failure to report certain items in USD
and in accordance with U.S. GAAP
o Reporting of intercompany receivables that were excepted from
reporting
o Reporting a beginning balance of related party loans that did not match
the ending balance on the prior year’s Form 5472
o Reporting of only $250,000 of a total of $400,000 of reportable
transactions on Form 5472
o Failure to attach a Cost Sharing Statement to Form 5471
o Failure to report the Income Statement and Balance Sheet in USD on
Form 5471
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INTRODUCTION
Information required to assess and comply with foreign
information reporting requirements:
• Organizational chart that contains:
o name
o address
o country of incorporation
o country of residence for tax purposes
o corporate form
o date of formation
o capital structure
o list of directors/officers
o tax classification in country of tax residence (e.g., corporation,
partnership, etc.)
o classification for U.S. tax purposes
o function of each legal entity in the group
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INTRODUCTION
Information required to assess and comply with foreign
information reporting requirements:
• Profit and loss statement, balance sheet, and trial balance in
local/functional currency
• “Statutory accounts” in functional currency, including an English
translation
• Tax returns filed for the foreign entity, including an English translation
• Information about intercompany transactions including a description
of the transaction, date entered into, payment made, etc.
• Information about changes in business and functions during the year.
• Profit and loss statement, balance sheet, and trial balance conformed
to U.S. GAAP
• Basis for exchange rate conversions from functional currency to USD
(e.g., Oanda)
21

PENALTIES FOR NONCOMPLIANCE WITH
FOREIGN INFORMATION REPORTING
REQUIREMENTS
Monetary Penalties
• Filed after the due date of the income tax return (including
extensions)
• Does not include complete and accurate information required.
• Failure to file Form 926 or Form 8865 as a Category 3 Filer - 10% of
fair market value of the property at the time of the transfer, with a
$100,000 cap unless the failure to file with respect to the transfer
was due to intentional disregard.
• Failure to file Form 5471, Form 5472, Form 8865 as a Category 1,
Category 2 or Category 4 Filer, or Form 8938 - $10,000 per Form.
o Effective January 1, 2009, the IRS Center began to automatically apply
the monetary penalty to late-filed or incomplete Forms 5471 with
respect to which the taxpayer is a Category 4 or Category 5 filer.
22

REQUIREMENTS
Monetary Penalties
• Failure to file Form 3520 or Form 3520-A
o Creation/transfer to a foreign trust - $10,000 or 35% of the gross value of any
property transferred, whichever is greater.
o Distribution from a foreign trust - $10,000 or 35% of the gross value of the
distribution received, whichever is greater.
o Foreign gifts - 5% of the amount of all foreign gifts (with an aggregate value of at
least $10,000 during the year) for each month for which the failure to report
continues, not to exceed 25% of the aggregate amount of such foreign gifts.
o Failure to file Form 3520-A & failure to attach the Foreign Grantor Trust Owner
Statement (or substitute Form 3520-A) to Form 3520 - $10,000 or 5% of the
gross value of the portion of the trust assets treated as owned by the U.S.
person, whichever is greater.
• Additional penalty - if the IRS mails a notice to the taxpayer for failure
to file and the failure continues for more than 90 days after the notice is
mailed, an additional $10,000 for each 30-day period after the 90-day
period has expired, not to exceed $50,000 for each failure to file Form
926, Form 5471, Form 5472, Form 8865 or Form 8938 and not to exceed
the gross reportable amount for each failure to file Form 3520 or Form
3520-A.
23

REQUIREMENTS
Monetary Penalties
• 40% accuracy related penalty for underpayments of tax as a result
of transactions involving an undisclosed specified foreign financial
asset
o Failure to file Form 926, Form 5471, Form 8865, Form 8938 or
Form 3520/3520-A may trigger a 40% penalty with respect to
an underpayment of tax that is attributable to such failure
(e.g., failure to report and pay tax on Subpart F income of a
foreign corporation).
24

REQUIREMENTS
Reduction of Foreign Tax Credits
• Form 5471, Category 4 and Category 5 filers
• Form 8865, Category 1 and Category 2 filers
• 10% reduction of the foreign taxes available for credit for each late-
filed or incomplete Form 5471 or Form 8865.
• Applied in addition to the monetary penalty
o Monetary penalty for the same period reduces the amount of the
foreign tax credit reduction penalty.
• Reduction Cap: Greater of $10,000 or the income of the foreign
corporation or foreign partnership for the applicable accounting
period.
• If the IRS mails a notice to the taxpayer for the failure to file Form
5471 or Form 8865 and the failure continues for more than 90 days
after the notice is mailed, there is an additional 5% reduction for
each 3-month period after the 90-day period has expired.
25

REQUIREMENTS
Recognition of Gain Under Section 367(a)(1)
• Form 926
• Nonrecognition rule for an active foreign trade or business does not
apply if the U.S. transferor fails to comply with the Form 926 filing
requirements.
Extension of Statute of Limitations
• For returns filed after March 18, 2010, and returns filed on or before
March 18, 2010 as to which the SOL has not yet expired as of March
18, 2010, the extension of the SOL applies to any tax return, event
or period to which the unreported information relates.
o If failure to provide the required information was due to reasonable
cause and not willful neglect, the extended time for assessment will be
limited to the unreported information.
26

REQUIREMENTS
Extension of Statute of Limitations
• Six-year statute of limitations applies to the omission of gross income
from the taxpayer’s return:
o More than 25% of a taxpayer’s gross income is omitted from the tax
return.
o Omission of gross income attributable to specified foreign financial assets
in excess of $5,000.
 The extension of the period of assessment applies even if the specified
foreign financial asset was not required to be disclosed on Form 8938 (e.g.,
the reporting threshold was not met).
o Omission from gross income of certain deemed inclusions of Subpart F
income and Section 956 investment of earnings in U.S. property by a US
shareholder of a CFC, regardless of the amount of income omitted.
27

FORM 5471, INFORMATION RETURN OF U.S.
PERSONS WITH RESPECT TO CERTAIN FOREIGN
CORPORATIONS
The IRS generally uses Form 5471 to determine the following:
• Transactions between related parties and whether there has been
compliance with transfer pricing rules.
• Current U.S. taxation of a CFC’s earnings and profits as Subpart F or
Section 956 income.
• Accurate computation of foreign earnings and profits and foreign
income taxes.
• Consistent reporting of a foreign corporation’s information.
• Adequacy of stated interest paid or accrued with respect to amounts
loaned or borrowed between related parties.
28

CORPORATIONS
A separate Form 5471 must be filed for each CFC and certain foreign
corporations for each tax year of the foreign corporation ending during the
U.S. person’s tax year.
• Certain “categories” of U.S. persons are required to file Form 5471. In general,
for purposes of all categories of filers, U.S. persons include citizens or
residents of the U.S., domestic partnerships, domestic corporations, and
domestic trusts and estates.
A Form 5471 is required even if the foreign corporation is dormant. A one
page Form 5471 is permitted to be completed as follows:
• The top margin of page 1 must be labeled “Filed Pursuant to Rev. Proc. 92-70
for Dormant Corporation
• Items A through C, and tax year must be completed
• the foreign corporation’s annual accounting period must be included
• Items 1a, 1b, 1c, and 1d must be completed.
29

CORPORATIONS
The foreign corporation is dormant if it satisfies all of the following:
• conducted no business and owned no stock in any corporation except
another dormant foreign corporation;
• was not a party to a reorganization, and none of its shares were sold,
exchanged, redeemed, or otherwise transferred, except for directors'
qualifying shares;
• did not receive or accrue more than $5,000 of gross income or gross
receipts;
• did not pay or accrue more than $5,000 of expenses;
• none of its assets were sold, exchanged, or otherwise transferred;
• GAAP-basis gross assets did not exceed $100,000;
• made no distributions, and
• either had no current or accumulated E&P or had changes only due to
permitted de minimis receipts and expenses.
30

CORPORATIONS
Certain “categories” of U.S. persons that have an interest in a foreign
corporation are required to file Form 5471.
Multiple Category Filers: You don’t just pick the highest number, i.e.,
Category 4 and 5 just files as a Category 5. All required schedules for
each category filer must be attached.
31

CORPORATIONS
Exceptions to filing: Constructive ownership exception and multiple filer
exception as well as exceptions from filing as one category filer because you
file as another (i.e., often times a Category 2 is not required to file if a
Category 3 filer files Form 5471).
A rule of thumb – A taxpayer acquiring or disposing of at least 10%, in vote or
value, of the stock of the foreign corporation will be required to file as a Category 3
filer and Schedule O must be completed. A taxpayer is a Category 3 filer only in the
year of acquisition, the year of disposition or a year during which the taxpayer
acquires additional stock to meet the 10% or more stock ownership requirement. A
taxpayer who becomes a US person while meeting the 10% or more stock ownership
requirement is also a Category 3 filer. If the taxpayer is a Category 3 filer, you must
determine whether the taxpayer must file Form 926, Return by a U.S. Transferor of
Property to a Foreign Corporation.
 In general, if Schedule O reports the organization or reorganization of a
foreign corporation, Form 926 may be required.
32

CORPORATIONS
33
U.S.
Foreign
Corporation
U.S. Director
Category 2
U.S. person who is an officer or director of a
foreign corporation during a year in which a
U.S. person acquired 10% or more in vote or
value (or an additional 10% or more in vote or
value) of the stock of a foreign corporation.
Note: The officer/director need not be the
acquirer of the shares.
≥10%

CORPORATIONS
34
U.S.
Foreign
Corporation
Category 3
• U.S. person who acquired 10% or more in vote
or value of the stock of a foreign corporation,
or who acquired stock which, when added to
stock owned on the date of acquisition, meets
the 10% or more stock ownership requirement.
• U.S. person who disposed of sufficient stock in
the foreign corporation to reduce ownership to
less than the 10% or more stock ownership
requirement.
• Foreign person who becomes a U.S. person
while meeting the 10% or more stock
ownership requirement.
• U.S. shareholder of a foreign captive insurance
company.
≥10%

CORPORATIONS
35
U.S.
Foreign
Corporation
Category 4
U.S. person who owned directly, indirectly, or
constructively, more than 50% in vote or
value of the foreign corporation for an
uninterrupted period of at least 30 days
during the foreign corporation’s taxable year.
50.1%

CORPORATIONS
36
U.S. 2
Foreign
Corporation
Category 5
U.S. person who owned directly, indirectly, or constructively, at least 10% of the voting stock
of a foreign corporation that was a CFC for at least 30 days during the taxable year, and who
owned the stock on the last day of the year.
10%
U.S. 3
15%
U.S. 4
15%
U.S. 5
10.5%
U.S. 1
9.5%
• Category 5 filers: U.S. 2; U.S. 3; U.S. 4 and U.S. 5;
• Multiple Filer Exception: One of the Category 5
filers may file a joint Form 5471 on behalf of the
other Category 5 filers. The person that files Form
5471 must identify the other Category 5 filers in
Item D. All persons identified in Item D must attach
a statement to their income tax return.
• U.S. 1 is not a Category 5 filer provided it does not
constructively own the stock of any other shareholder.

CORPORATIONS
Reportable Information
• Annual accounting period and taxable year-end of the foreign
corporation.
o Taxable year of a CFC - must conform to the tax year of the majority U.S.
shareholder(s) unless there is no Subpart F income inclusion for the year.
o Form 5471 must include information for the tax year of the foreign
corporation that ends with or within the U.S. filer’s tax year.
 A Category 2 or 3 filer must report transactions that occurred during its
tax year on Schedule O.
• Identifying Number - a U.S. EIN or a unique reference ID number.
o Reference ID number must be used consistently from year to year
• Shares of corporation’s stock issued and outstanding (Schedule A)
• Direct and indirect (not constructive) stock ownership (Schedule B)
37

CORPORATIONS
• Company operations (Schedule C) – U.S. GAAP used to report
functional currency and USD amounts. Functional currency converted
using weighted-average exchange rate for the foreign corporation’s
tax year.
• US and foreign taxes paid (Schedule E)
o Accrual basis taxpayer – foreign taxes converted to USD using average
exchange rate.
o Cash basis taxpayer – foreign taxes converted to USD using exchange rate
at the time the taxes are paid.
• Balance sheet (Schedule F) –reported in USD in accordance with U.S.
GAAP.
o Assets & liabilities converted using year-end spot rate
o Retained earnings converted using weighted-average exchange rate for
the relevant tax year
o Other equity items converted using historical exchange rates
38

CORPORATIONS
• Current E&P (Schedule H)
o Reported in functional currency and converted to USD using average
exchange rate
o Must be adjusted to conform functional currency book income/loss to US
GAAP and to US tax accounting principles – include deferred income
taxes, depreciation.
• Shareholder’s income from the company that is currently includable by the
shareholder, including Subpart F and investment in US property, as well as
actual dividends received from the foreign corporation (Schedule I)
o Subpart F income - converted to USD using the average exchange rate for the CFC’s
tax year
o Earnings invested in U.S. property - converted to USD using the spot rate on the
last day of the CFC’s tax year.
o Actual dividends received from the CFC (and not previously taxed as Subpart F
income or earnings invested in U.S. property) - converted to USD using the spot
rate on the date the dividend was included in income.
39

CORPORATIONS
• E&P, including accumulated E&P, current E&P, actual and constructive
dividends, and PTI (Schedule J)
o Current and accumulated E&P before actual and deemed dividends
during the year (Line 3) is the denominator in the fraction used to
compute the section 902 deemed paid foreign tax credit.
o The cumulative balance of PTI resulting from Subpart F and section 956
income inclusions (column (c)) can be used to track the amount of an
actual distribution that will be taxable as a dividend to the US
shareholder(s).
o Ordering rules for actual distributions - first, out of prior year section
956 income inclusions; second, out of prior year and current year
Subpart F income inclusions and section 1248 deemed dividend
inclusions; third, out of other E&P (i.e., non-PTI).
40

CORPORATIONS
• Related party transactions (Schedule M) – reports certain transactions
between the foreign corporation and the U.S. person and other related
persons.
o The IRS generally uses information in Schedule M to determine the
following:
 Transactions between related parties and whether there has been
 Current U.S. taxation of a CFC’s earnings and profits as Subpart F or
Section 956 income.
o Exchange rate - average exchange rate for the foreign corporation’s tax
year
o Accrual method foreign corporation - accrued receipts and accrued
payments must be reported.
41

CORPORATIONS
• Acquisitions and dispositions of stock (Schedule O) - All Category 2 and
3 filers must complete Schedule O.
o Section C – reports an acquisition of stock of foreign corporation by the
U.S. person.
o Section D – reports a disposition of stock of foreign corporation by the
U.S. person.
o Section E – reports the organization or reorganization (e.g., section 351
and section 368 transaction) of the foreign corporation by the U.S.
person.
o Deemed transactions pursuant to a check-the-box election must be
reported on Schedule O:
 Conversion of a CFC to a foreign partnership or FDE must be reported as a
disposition of the stock of the foreign corporation in Section D.
 Conversion of a foreign partnership or FDE to a foreign corporation must be
reported as a an organization of a foreign corporation (section 351
transaction) in Section E.
42

CORPORATIONS
• Functional Currency and Translation
o Functional currency must be converted using the method specified for
each reportable item.
o Divide-by-convention - Amounts should be reported as units of foreign
currency that equal one USD, rounded to at least four decimal places.
o United States Dollar Approximate Separate Transactions Method (DASTM) -
In certain cases, the special rules for hyperinflationary currency may apply.
43

CORPORATIONS
Organizational Chart for Sample Form 5471
U.S. Consolidated Group
44
FCo
(India)
USCo USCo 2
99% 1%
US Parent
100%100%

CORPORATIONS
In 2012, USCo contributed $9,143 to FCo in exchange FCo stock.
Relevant Items in FCo’s Trial Balance:
*Goods manufactured in India so no Subpart F income analysis required.
FCo was liquidated on December 31, 2013 and distributed the
following amounts to the shareholders in redemption of the
FCo shares:
45
USCo USCo 2
Amount Received in Redemption 172,734 1,745
Basis 9,143 -
Gain (treated as dividends under IRC §1248) 163,591 1,745
Account Description 1st PP-FINAL FINAL
12/31/2012 12/31/2013
2412-IN Loan to U.S. Corporation 2 (317,204.00) (151,894.00)
3302-IN Sales to U.S. Corporation 2* (902,601.00) (1,404,277.00)
8511-IN Taxes: Foreign Income Tax India 20,081.00 31,181.00
8515-IN Taxes: Foreign Sales Tax-India 2,669.00 15,819.00

CORPORATIONS
46
Multiple
Filer
Exception
Only direct owners of FCo in
consolidated group must be
reported.
For 2015 and subsequent year Forms 5471, this is now Item E.
Item D now relates to duplicative
reporting for Form 8938 filing purposes.

CORPORATIONS
47

CORPORATIONS
48
Only direct owners and
indirect owners
through foreign entities
must be reported.

CORPORATIONS
49
Sales to
USCo 2
Sales tax
Income
tax

CORPORATIONS
Currency Conversion (unless functional currency = USD)
• Accrual method - average exchange rate
• Cash method – exchange rate at time taxes are paid (even if prepaid)
50
USD amount of foreign income taxes will be included in FCo’s foreign tax
pool used to compute the Section 902 deemed paid foreign tax credit.

CORPORATIONS
51
Prior year ending
balances must be
consistent with
current year
beginning
balances
Currency Conversion (unless functional currency = USD)
• Assets & Liabilities – year-end spot rate
• Retained Earnings – average exchange rate
• Other Equity Items (stock, APIC) – historical exchange rates
• Exchange rate differential reflected as OCI, not as an adjustment to current earnings
Shareholder
loans must be
reported on Line
16. Only actual
loans, not
intercompany
payables in the
ordinary course
of business.

CORPORATIONS
52
Cost sharing arrangement - an
arrangement whereby the participants
share the costs and risks of developing
cost shared intangibles.
Reportable transaction includes:
• Listed transactions – listed by
IRS as tax avoidance
transactions.
• Confidential transactions
• Loss transactions
• Transactions of interest – IRS
believes have potential for tax
avoidance but lacks enough
information to make such
determination.

CORPORATIONS
Currency conversion: Average
exchange rate
53
Deferred taxes are added back
Common Adjustments
• Deferred income taxes
• Depreciation
• Unrealized capital gain/loss
• Unrealized FX gain/loss
• Bad debt reserves
• UNICAP

CORPORATIONS
54
Dividends should also be
reported on Schedule M, line
21 and Form 1120,
Schedules C and M-3.
Worksheet A should be
completed and Subpart F
income reported.
Worksheet B should be
completed and Investment
in US Property reported.
Certain P&L and balance sheet items may indicate Subpart F or Investment in US Property
• Passive income (e.g., dividends, interest, rent, royalties
• Related party transactions (e.g., sales and purchases)
• Loan by CFC to US shareholder

CORPORATIONS
55
Dividends should also be
reported on Schedule M,
line 21 and Form 1120,

CORPORATIONS
56
Prior Year Ending
Balances should be
consistent with
Current Year Beginning
Balances.
Subpart F
Income/Investment in
US Property reported on
Schedule I is reported on
Lines 4a and 4(c) so the
amount will be excluded
from E&P in subsequent
years and the U.S.
Shareholder will not be
taxed again on the same
amount.
FCo was dissolved in 2013.

CORPORATIONS
57
If the payment to FCo constitutes Subpart F income, Worksheet A should be completed and Subpart F income
must be reported on Schedule I, Line 1.

CORPORATIONS
Dividends are also
reported on Schedule I,
line 7 and Form 1120,
58
Beginning balance of the
loan from Fco 2 is higher
than the ending balance.
Thus, the beginning
balance is reported.Line 26 (amounts loaned) –If the borrower is either the U.S. filer or a domestic corporation that is owned
at least 25% by the CFC’s U.S. shareholders, the loan will be treated as an Investment in U.S. Property
under Section 956. Worksheet B should be completed and the amount of Investment in US Property
must be reported on Schedule I, Line 2.

For purposes of Schedule M, related parties include:
• U.S. person filing the return - Column (b)
• Domestic corporation or partnership controlled by the U.S. person –
Column (c)
• Foreign corporation or partnership controlled by the U.S. person –
Column (d)
• 10% or more U.S. shareholder of the CFC – Column (e)
• 10% or more U.S. shareholder of any corporation controlling the
foreign corporation – Column (f)
The IRS uses information on Schedule M to determine:
• Transactions between related parties and whether there has been
• Current U.S. taxation of a CFC’s earnings and profits as Subpart F or
Section 956 income.
CORPORATIONS
59

CORPORATIONS
Schedule O - A rule of thumb – A taxpayer acquiring or disposing of at least
10%, in vote or value, of the stock of the foreign corporation will be required
to file as a Category 3 filer and Schedule O must be completed.
60

CORPORATIONS
Includes: acquisition of stock
by purchase, gift, bequest or
trade.
If stock was acquired in a
nonrecognition transaction
e.g., 351, 368, the acquisition
is reported in Section E.
61

CORPORATIONS
62

CORPORATIONS
If stock in the foreign
corporation was acquired
in a nonrecognition
transaction e.g., 351, 368,
Section E is completed and
Form 926 may be required.
63

CORPORATIONS
COMMON ERRORS
• Foreign corporation’s annual accounting period is not provided.
o Rule: Except for information contained on Schedule O, report
information for the tax year of the foreign corporation that ends
with or within the taxpayer’s tax year. Do not convert a fiscal year
foreign corporation to a calendar year unless there is Subpart F
income and the foreign corporation’s tax year must conform to
that of the majority shareholder(s).
• Item B - Category 2 is marked when there is a U.S. officer or director
even if there is no acquisition of shares during the year.
o Rule: A taxpayer is a Category 2 filer only in the year when a U.S.
person acquires at least 10% of the vote or value of the foreign
corporation
• Item C – the percentage of voting stock ownership at the end of the
year is not provided.
o Rule: The percentage of voting stock owned in the foreign
corporation at the end of the year including direct, indirect and
constructive ownership must be provided.
64

CORPORATIONS
COMMON ERRORS
• Item E – The U.S. filer is reported on Item E.
o Rule: Only the other US filers on whose behalf the US filer is filing
Form 5471 should be reported on Item E.
• Item E - A U.S. corporation that is part of a consolidated group and
owns shares in the foreign corporation constructively through
another U.S. corporation is reported on Item E.
o Rule: If a U.S. corporation is a member of a consolidated group,
the U.S. corporation is provided on Item E only if the U.S.
corporation is a direct owner of the foreign corporation.
• Line 1b(2) - Reference ID Number is not provided for a foreign entity
that does not have an EIN.
• Line 2d - The name and address of the person with custody of the
books and records of the foreign corporation is not provided.
65

CORPORATIONS
COMMON ERRORS
• Schedule A - The number of shares issued and outstanding at the end
of the foreign corporation’s annual accounting period is blank.
o Rule: The number of shares issued and outstanding at the end of
the foreign corporation’s annual accounting period should be
provided unless the foreign corporation was liquidated during the
year.
• Schedule B – shareholders of the foreign corporation that do not
meet the 10% or more stock ownership requirement are reported.
o Rule: Only U.S. persons that own at least 10% of the shares by
vote or value of the foreign corporation’s stock directly, or
indirectly through foreign entities are reported on Schedule B.
• Schedules C, H & M – The exchange rate is not reported properly.
o Rule: Amounts must be reported as units of foreign currency that
equal one USD (divide-by-convention), rounded to at least four
decimal points.
66

CORPORATIONS
COMMON ERRORS
• Schedule E
o Deferred taxes are included
o Foreign withholding taxes incurred by the CFC are excluded
o Incorrect exchange rate is used to translate taxes from functional
currency to USD.
 Rule: For accrual basis taxpayers, taxes should be translated to U.S. dollar at
the average exchange rate for the tax year to which the tax relates unless
one of the exceptions apply. Cash basis taxpayers must use the exchange
rate at the time the taxes are paid.
• Schedule F – Incorrect exchange rates are used for retained earnings
and stock/APIC
o Rule: The spot rate is used for balance sheet items except retained
earnings (average exchange rate) and stock/APIC (historical exchange
rates).
• Schedules F & J – The beginning balances are not consistent with the
prior year’s ending balances
67

CORPORATIONS
COMMON ERRORS
• Schedules F & M - “Due to/from Related Party” accounts are
reported, however, the underlying transaction that gave rise to the
intercompany payable/receivable is not reported on Schedule M.
o Rule: If the corporation uses the accrual method of accounting,
the accrued payments and receipts must be reported on
Schedule M on the appropriate lines corresponding to the type of
transaction.
• Schedule H – The proper adjustments are not reported to reflect the
E&P of the foreign corporation.
• Schedule H – exclusion of earnings and profits of pass-through
entities owned by the foreign corporation in the foreign corporation’s
earnings and profits as well as failure to make proper adjustments
68

CORPORATIONS
COMMON ERRORS
• Schedule I – Neither Worksheet A nor Worksheet B is completed to
compute Subpart F income on Line 1 and Investment in U.S.
property on Line 2.
• Schedule J, line 5(b) - Reports dividends paid, however, the
dividends are not reported on Schedule M, line 21, column (b).
• Schedule M - Related party transactions are reported on Schedule M
but no analysis is made to determine if the CFC’s income may be
treated as Subpart F or if there are transfer pricing issues.
• Schedule M, lines 25 and 26 – the ending balance of the loans are
reported, however, the beginning balance is higher.
o Rule: The maximum balance of the loans during the year should
be reported on lines 25 & 26.
69

CORPORATIONS
COMMON ERRORS
• Schedule M - Intercompany receivables/payables are reported
as loans on Lines 25/26.
o Rule: Intercompany receivables/payables related to
transactions in the ordinary course of business (e.g.,
sales/purchases) should not be reported as loans but,
rather, should be reported on the appropriate lines
corresponding to the type of transaction (e.g. Line 1/13).
• The proper Schedules required for the category of filer are not
completed.
• The required information and schedules for each Category
of filer are provided in the “Filing Requirements for
Categories of Filers” on page 2 of the Form 5471
Instructions.
70

CORPORATIONS
71
Additional Reporting that May be Required
• Individuals – Form 1040
o Line 21, Other income, should include Subpart F/956 income inclusions.
• Corporations – Form 1120
o Schedule C, Lines 8 & 13 should include dividends from foreign
corporations.
o Schedule C, Line 14 should include Subpart F/956 income inclusions.
o Schedule K, Line 5a should include ownership of certain foreign
corporations.
o Schedule M-3, Part II, Line 2 should include dividends from foreign
corporations.
o Schedule M-3, Part II, Line 3 should include Subpart F/956 income
inclusions.
o Schedule N, Lines 4a & 4b should include ownership of a CFC and the
number of Forms 5471 attached.

CORPORATIONS
72
Additional Reporting that May be Required
• Partnerships – Form 1065
o Line 7, Other income, should include Subpart F/956 income inclusions.
o Schedule B, Line 4a should include ownership of certain foreign
corporations.
o Schedule B, Line 19 should include the number of Forms 5471 attached.

FORM 926, RETURN BY A U.S. TRANSFEROR OF
PROPERTY TO A FOREIGN CORPORATION
A U.S. person that transfers property to a foreign corporation in connection
with the following actual or deemed transactions:
• Organization (section 351) of a foreign corporation by a U.S. person.
o Conversion of a FDE to a foreign corporation pursuant to a check-the-
box election.
o Conversion of a foreign partnership to a foreign corporation pursuant to
a check-the-box election.
o Organization of a second tier CFC by a first tier CFC does not trigger a
filing requirement because the transferor is a foreign person.
• Transfer of stock or securities of a domestic corporation in exchange for
stock of a foreign corporation pursuant to a plan of reorganization, including
a B reorganization of a foreign corporation.
• Transfer by a domestic corporation of assets to a foreign corporation
pursuant to a plan of reorganization.
• Section 332 liquidation of a domestic corporation into a foreign corporation.
73

FORM 926, RETURN BY A U.S. TRANSFEROR
OF PROPERTY TO A FOREIGN CORPORATION
Transfers of Cash - If cash is transferred to a foreign corporation in a
nonrecognition transaction, the transfer must be reported if:
• The amount exceeds $100,000; or
• the transferor owns directly or indirectly at least 10% of the vote or
value of the foreign corporation immediately after the transfer.
Transfers through a Partnership - If transferor is a domestic or foreign
partnership, the U.S. partners of the partnership, rather than the
partnership, are required to file Form 926.
Exceptions from Filing Requirement
• Certain Reorganizations
• Certain Section 355 Distributions
• Certain Transfers of Stock and Securities
74

FORM 926, RETURN BY A U.S.
TRANSFEROR OF PROPERTY TO A
FOREIGN CORPORATION
• U.S. Transferor - name, U.S. TIN, and address
• Transferee Foreign Corporation – name, U.S. TIN (if any), address, and
country of incorporation
• Description of Transfer – general description of the transfer and any wider
transaction of which it forms a part
• Consideration Received
• Description of Property Transferred
o Must include estimated fair market value and adjusted basis of the
property
o Specific categories of property transferred – cash; active business
property; stock and securities; property subject to depreciation
recapture; property to be leased; property to be sold; foreign loss branch;
tainted property; intangible property; and oil and gas working interests
75

FORM 5472, INFORMATION RETURN OF A 25% FOREIGN-OWNED U.S.
CORPORATION OR A FOREIGN CORPORATION ENGAGED IN A U.S.
TRADE OR BUSINESS
A domestic corporation that is at least 25% foreign-owned at any
time during a taxable year or a foreign corporation engaged in a
U.S. trade or business must file Form 5472 to report all monetary
and nonmonetary transactions with foreign related parties.
Related Parties:
o Any direct or indirect 25% foreign shareholder of the reporting
domestic corporation.
o Any person related to the reporting domestic corporation within the
meaning of IRC §267(b) or §707(b)(1).
o Any person related to a 25% foreign shareholder of the reporting
domestic corporation within the meaning of IRC §267(b) or
§707(b)(1).
o Any other person related to the reporting domestic corporation within
the meaning of IRC §482 and the regulations thereunder.
76

FORM 5472, INFORMATION RETURN OF A 25% FOREIGN-OWNED
U.S. CORPORATION OR A FOREIGN CORPORATION ENGAGED IN A
U.S. TRADE OR BUSINESS
Form 5472 is not required if the reporting domestic corporation
has no reportable transactions (contrary to the requirement that
Forms 5471, 8865, and 8858 be filed even if there is no activity to
report).
Form 5472 is not required to report transactions between two
parties where neither is a U.S. person and the transaction does
not generate U.S.-source gross income or ECI or any expense,
loss, or deduction allocable to such income.
Form 5472 is not required to report reportable transactions with
a foreign related party for which the UC corporation filed Form
5471.
77

FORM 5472, INFORMATION RETURN OF A 25% FOREIGN-
OWNED U.S. CORPORATION OR A FOREIGN CORPORATION
ENGAGED IN A U.S. TRADE OR BUSINESS
Common Errors
• Form 5472 is filed even though there are no reportable transactions
between the U.S. corporation and the related party.
o Rule: Form 5472 is only required to be filed for a tax year when there
is a reportable transaction between the U.S. corporation and a foreign
or domestic related party.
• Part II, lines 3 and 4 – Information on ultimate indirect 25% foreign
shareholder are not provided.
• Part III, line 1e – not all the boxes that describes the relationship
between the U.S. corporation and the related party are marked.
• Part IV is filled out even though the related party is a domestic entity.
o Rule: Part IV is filled out only to report transactions between the U.S.
corporation and a foreign related party. If the related party is domestic
and there are reportable transactions between the parties, Form 5472
is required. However, Part IV is not required.
78

FORM 8865, RETURN OF U.S. PERSONS WITH
RESPECT TO CERTAIN FOREIGN
PARTNERSHIPS
A separate Form 8865 must be filed for each foreign partnership for each tax year of the
foreign partnership ending during the U.S. person’s tax year.
Certain “categories” of U.S. persons that have an interest in a foreign partnership are
required to file Form 8865.
All categories apply the same constructive ownership rules of Section 267(c), with
certain modifications.
Similar to the Form 5471, Form 8865 has similar constructive ownership and multiple
filer, and multiple category exceptions.
Similar to the purpose behind Form 5471, Form 8865 is designed to report the activities
of a foreign entity and to function as a roadmap for the IRS on transfer pricing.
79

PARTNERSHIPS
Categories of Filers
• Category 1 Filer. A U.S. person who controlled the foreign partnership at any
time during the partnership's tax year. A US person controls a foreign
partnership if owns at least 50% of the capital, profits, or deductions/losses of
the foreign partnership.
• Category 2 Filer. A U.S. person who at any time during the tax year of the
foreign partnership owned at least 10% interest in the partnership while the
partnership was controlled by U.S. persons each owning at least 10% interests.
• Category 3 Filer. A U.S. person who contributed property during that person's
tax year to a foreign partnership in exchange for an partnership interest (a
section 721 transfer), if that person either:
o Owned directly or constructively at least a 10% interest in the foreign
partnership immediately after the contribution, or
o Value of the property contributed (when added to the value of any other
property contributed to the partnership by such person, or any related
person, during the 12-month period ending on the date of transfer)
exceeds $100,000.
80

PARTNERSHIPS
Categories of Filers
• Category 3 Filer
o Transfers by a domestic partnership are not required to be reported by
the partnership’s U.S. partners if the partnership files Form 8865.
o Transfers by a foreign partnership with U.S. partners are not required to
be reported, however, the I.R.S. may require such reporting in the future.
• Category 4 Filer. A U.S. person who had a reportable event under
section 6046A during that person's tax year.
o A U.S. person either acquires an additional 10 percent direct interest in
the foreign partnership, or has less than a 10 percent interest before the
acquisition and at least a 10 percent interest after the acquisition;
o A U.S. person either disposes of at least a 10 percent direct interest in the
foreign partnership, or after the disposition the U.S. person has less than
a 10 percent interest in the foreign partnership; or
o The U.S. person’s direct proportionate interest in the foreign partnership
is increased or decreased by at least 10 percent.
81

RESPECT TO CERTAIN FOREIGN PARTNERSHIPS
• Category 1 and 2 filers - Form 8865 must include information for the tax year
of the foreign partnership that ends with/within the tax year of the U.S. filer.
• Category 3 and 4 filers - Form 8865 must include transactions that occurred
during the U.S. filer’s tax year (rather than during the partnership’s tax year).
• Identifying number: a U.S. EIN or a reference ID number.
• Ownership of interests in the foreign partnership, including direct, indirect,
and constructive ownership (Schedules A and A-1).
• Ownership of partnerships interests by the foreign partnership (Schedule A-
2).
• Company operations (Schedule B).
• Partners’ allocable share (Schedules K, K-1).
• Balance sheet (Schedule L).
• Related party transactions (Schedule N) – Certain transactions between the
foreign partnership and the U.S. person and other related parties are
required to be reported.
82

RESPECT TO CERTAIN FOREIGN PARTNERSHIPS
• Acquisitions and dispositions of partnership interests (Schedules O, P)
- Deemed transactions pursuant to a check-the-box election must be
reported as follows:
o Conversion of a foreign corporation to a foreign partnership must be
reported as a transfer of property to a foreign partnership on Schedule O.
o Conversion of a foreign partnership to a foreign corporation must be
reported as a disposition of a partnership interest on Schedule P.
Functional Currency and Translation
• All amounts on Form 8865 must be reported in USD.
• Similar to 5471 requirements, methods specified in sections 985
through 989 must be used to convert to USD and exchange rates must
be reported using the divide-by-convention rounded to at least four
decimal places.
83

PERSONS WITH RESPECT TO FOREIGN
DISREGARDED ENTITIES
Form 8832, Entity Classification Election - A sole owner of a foreign entity
(other than a “per se corporation”) may elect to treat the entity as a flow-
through entity for U.S. income tax purposes by making a check the box
election.
A direct or indirect U.S. owner of a foreign disregarded entity (FDE) is
required to file Form 8858.
• Direct owner of FDE. A U.S. person that is the tax owner of a FDE at any
time during its tax year is required to file Form 8858.
• U.S. partner of a controlled foreign partnership (CFP). A U.S. person that
is a Category 1 or 2 filer with respect to a CFP is required to file Form 8858
if at any time during the CFP’s annual accounting period the CFP was a tax
owner of a FDE.
• U.S. shareholder of a CFC. A U.S. person that is a Category 4 or 5 filer with
respect to a CFC is required to file Form 8858 if at any time during the
CFC’s annual accounting period the CFC was a tax owner of a FDE.
84

The multiple filer exceptions that apply to Category 1 filers of Form 8865 and
Category 4 or 5 filers of Form 5471 may also be used by these filers with
respect to the filing of Form 8858.
• Annual accounting period of a FDE is the annual accounting period of its tax
owner i.e., the U.S. tax owner, the CFC or CFP.
• Each FDE must have an identifying number. – A U.S. EIN or a reference ID
number. If the tax owner of the FDE is a CFC, the reference ID number
reported on the CFC’s Form 5471 should be used. If the tax owner of the FDE
is a CFP, the reference ID number reported on the CFP’s Form 8865 should be
used.
• Ownership of FDE, including tax owner and legal owner, if different
• Organizational chart - required if there is a chain of ownership (including
disregarded entities) between the tax owner and the FDE and/or a chain of
ownership between the FDE and all entities in which the FDE owns at least a
10 percent direct or indirect interest.
85

• Company operations (Schedule C)
• Exchange gain/loss with respect to qualified business units (QBU) (Schedule
C-1) - Tax owners of a FDE that are Category 5 filers of Form 5471 or
Category 2 filers of Form 8865 are not required to complete Schedule C-1.
• Balance sheet (Schedule F) - Only a summary balance sheet is required.
o Converted to USD in accordance with U.S. GAAP.
o Tax owners of a FDE that are Category 5 filers of Form 5471 or Category
2 filers of Form 8865 are not required to complete Schedule F.
• Other Information (Schedule G) - There are questions regarding whether a
165(g)(3) loss was recognized as a result of a CTB, whether the FDE is a
‘‘separate unit’’ (within the meaning of the Section 1503 regs), and whether
the sales branch or manufacturing branch rules of Section 954(d)(2) were
implicated in any transactions between the FDE and its CFC parent.
86

• Earnings and profits (Schedule H)
o If the tax owner of the FDE is a U.S. person or a CFP, the FDE’s taxable
income must be reported on Schedule H. If the tax owner of the FDE is a
CFC, the FDE’s current E&P must be reported on Schedule H.
o E&P - converted to USD using the average exchange rate for the FDE’s tax
year.
o E&P - must be adjusted to conform the functional currency book income
or loss to U.S. GAAP and to U.S. tax accounting principles.
 Any difference between the functional currency amount of the
income taxes reported on Schedule C, Line 7 and the amount of
income taxes that reduce E&P of a FDE owned by a CFC or that are
deductible in computing the U.S. taxable income of a FDE owned by
a U.S. person or CFP, should be reported as a net addition or
subtraction on Line 2 or 3, respectively.
87

o Related party transactions (Schedule M)
 The transactions required to be reported on Schedule M are similar to the
transactions required to be reported on Schedule M of Form 5471.
Dormant FDE - Similar to Form 5471, there is a summary filing procedure for
filing Form 8858 for a dormant FDE.
Functional Currency and Translation - Similar to the exchange rate
requirements applicable to Forms 5471 and 8865, the divide-by-convention
must be used and the DASTM may be required under certain circumstances.
Penalties – If the owner of the FDE is a CFC or CFP, the monetary penalties,
foreign tax credit reduction, and tolling of the SOL are the same as those
imposed for taxpayers required to file Form 5471.
88

ADDITIONAL INTERNATIONAL INFORMATION
REPORTING RETURNS
Form 3520 – Annual Return to Report Transactions with Foreign Trusts and
Receipt of Certain Foreign Gifts
Form 3520 – Annual Information Return of Foreign Trust with a U.S. Owner
FinCEN Form 114 (formerly TD F 90-22.1) – Report of Foreign Bank and
Financial Accounts (“FBAR”)
Form 8938 – Statement of Specified Financial Accounts
• Note: Effective for tax years beginning after December 31, 2015, a specified
domestic entity (SDE) is required to file Form 8938. In general, a SDE is a domestic
corporation or partnership that is closely-held (at least 80%, taking into account
attribution) by a specified individual and that has at least 50% passive income or
50% passive assets.
Form 8621 – Information Return by a Shareholder of a Passive Foreign
Investment Company (PFIC) or Qualified Electing Fund
89

International Information Reporting

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