New Form 5471 Proves Challenging for First-Time Filers

Due to the Tax Cuts and Jobs Act of 2017 (“TCJA”), many taxpayers and practitioners are encountering the new and significantly more daunting Form 5471. Form 5471 is used by U.S. Shareholders of Foreign Corporations to report the activity and potential deemed inclusions to those same shareholders.

The form itself has expanded in several respects:

• Different categories of filers.
• Number of schedules included in the form.
• Requirements for additional information which, for many filers, is not easy to obtain.

Let’s take a look at some specifics:

The biggest consideration with preparing the form itself is to ensure you are reported as the proper category of filer.

Each category has different schedules to be included with the filing and, in many cases, preparers are not including them all. One must ensure they have enough information to complete those schedules and the flow of that information from one schedule to the next might prove to be challenging. Assuming you have been able to complete this form properly, the filer may now have additional other disclosures -- and new forms to report this information properly on their tax returns.

These additional forms include the Forms 965, 965-A, 965-B, 8992 and 8993.

The Forms 965, 965-A and 965-B are used to report the one-time transition tax of all the U.S. shareholder’s SFCs (“Specified Foreign Corporations”), the various elections involved and the deferred tax payments to the extent that one could make an election to defer or apply installment treatment. 

The Form 8992 was created to report the U.S. shareholder’s GILTI inclusions (“Global Intangible Low Taxed Income”); although currently, certain foreign “high taxed” income is subject to this GILTI regime. This may change when the IRS issues final regulations regarding these rules.

The Form 8993 was created to report FDII (“Foreign Derived Intangible Income”) and the related deductions on this income as well as the GILTI inclusions.

Also, let’s not forget about the Forms 1118 and 1116 to report and take credit on the foreign taxes paid by these SFCs to provide some benefit to both corporate and individual (with a Section 962 election) U.S. shareholders.

The New 5471 asks for specific details such as:

• Reporting tax liabilities in each foreign jurisdiction and reconciliations of the expanded PTEP accounts (“Previously Taxed Earnings and Profits”).
• Where there are multiple levels of investment, such as in the financial services industry, identifying the ultimate shareholder, which can be problematic.

Bottom line, the new Form 5471 has some significant challenges. Don’t go at it alone – reach out to your international tax specialist.