| Instructions for Form 5471 |
2003 Tax Year |
Specific Instructions
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
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.
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:
- That is treated as a CFC under subpart F or is a foreign personal holding company and
- 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.
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.
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. Identify the direct owner in Item D.
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
on page 2. 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
income 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.
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 14.
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.
Category 1, 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 or, for a foreign personal
holding company, foreign
personal holding company income.
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. E&P should be accounted for on
line 2g of Schedule
H.
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. See section 986(a). 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 on
page 3. Enter the translated dollar amount in column (d).
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.
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:
- Name and EIN (if any) of the foreign partnership;
- 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;
- Name of the tax matters partner (if any); and
- Beginning and ending dates of the foreign partnership's tax year.
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 (or, if 20% or more of the foreign corporation's gross income is from U.S. sources, 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.
Line 2h.
Enter the net amount of any additional adjustments not included on lines 2a through 2g. List these additional adjustments
on a separate schedule.
Attach this schedule 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 on
page 3. 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.
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.
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 7) 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 21);
- Adjusted net insurance income (line 22);
- Adjusted net related person insurance income (line 23);
- International boycott income (line 24);
- Illegal bribes, kickbacks, and other payments (line 25); and
- Income from a country described in section 952(a)(5) (line 26).
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 31 of
Worksheet A on page 9), 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.
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).
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, 10, and 12 of Worksheet A and the related instructions).
Add lines 1 through 5. Enter the result here and on your income tax return. For a corporate U.S. shareholder, enter the result
on line 14, Schedule
C, Form 1120, or on the comparable line of other corporate income tax returns. For a noncorporate U.S. shareholder, enter
the result on line 5,
Schedule B, Form 1040, or on the comparable line of other noncorporate income tax returns.
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.
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 income 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 income tax returns.
Important:
For tax years beginning after December 31, 1998, and before January 1, 2007, the following exceptions apply:
- Foreign personal holding company income generally shall not include income derived in the active conduct of a CFC of a banking,
finance, or
similar business (section 954(h)).
- Foreign personal holding company and insurance income shall not include certain investment income derived by a qualifying
insurance company
and by certain qualifying insurance branches (sections 953(a)(2) and 954(i)).
- Foreign base company services income shall not include income that is 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” (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. (For tax years beginning after December 31, 1998, and before
January 1,
2007, see section 954(c)(1)(B)(i).)
- An interest in a trust, partnership, or REMIC.
- Property that does not produce any income.
Do not include:
- Income, gain, deduction, or loss from any transaction (including a hedging transaction) 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.
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 12. 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 12 and skip lines 13
through 23. Otherwise, go to line 13.
Line 13. 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 13. Otherwise, enter
zero.
Lines 15g, 16d, 17d, 18d, 20d, 22d, and 23d. 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(a)(5) and Regulations
section
1.954-1(d)(1).
Line 22. 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:
- 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
- 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 23. 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:
- 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;
- Elects to waive all treaty benefits (other than from section 884) for related person insurance income; and
- 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 24. 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 25. 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 26. Income from a country described in section 952(a)(5).
The income of a CFC from any country described in section 901(j) will be deemed to be income to the U.S. shareholders
of such CFC. As of the date
these instructions were revised, the countries described in section 901(j) included: Cuba, Iran, Iraq, Libya, North Korea,
Sudan, and Syria.
Line 28. 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.
Line 31. 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)).
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).
Use Worksheet B on page 10 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:
- Compute the current subpart F inclusion (potentially increasing that previously taxed account);
- Take into account current distributions (potentially reducing the previously taxed and untaxed accounts); and
- 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.
Use Schedule J to report accumulated E&P, in functional currency, computed under sections 964(a) and 986(b).
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.
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.
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).
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.
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 on
page 3.
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.
Lines 6 and 16.
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 19 and 20.
Report on lines 19 and 20 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.
Important:
In computing a shareholder's taxable income, actual dividends are translated into U.S. dollars at the spot rate on the date
the dividend is
included in income. Deemed inclusions of undistributed foreign personal holding company income are 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(s) in the entry space provided
at the top of
Schedule N using the “divide-by convention” specified under Reporting Exchange Rates on Form 5471 on
page 3.
Every U.S. citizen or resident described in Category 1 must file Schedule N to report the activities of a foreign personal
holding company. See
page 1 for the definition of a foreign personal holding company. The information entered must be for the company's annual
accounting period that ends
with or within the officer's, director's, or shareholder's tax year.
The determination of whether an individual is a Category 1 filer is made on the date Form 5471 is required to be filed. If
no individual qualifies
as of that date, the determination is made on the last day of the foreign corporation's tax year in which there was such a
person who was a U.S.
citizen or resident.
If the corporation ceased to be a foreign personal holding company during the tax year or after the tax year ended, you must
still file Schedule N
if the corporation was a foreign personal holding company at any time during the tax year.
First-time filer.
If this is the first time you are submitting information required under section 6035, attach the following:
- A statement of stock ownership showing that during the corporation's tax year more than 50% in value of its outstanding stock
was owned,
directly or indirectly, by or for not more than five individual citizens or residents of the United States.
- A detailed statement of the conversion privileges of any outstanding securities that are convertible to the corporation's
stock.
- A detailed statement of the respective rights of the various classes of shareholders if more than one class of stock is
outstanding.
Exception.
This information does not need to be submitted if it was previously furnished by another person.
Part I—Shareholder Information
List the following:
- The foreign personal holding company's outstanding securities that are convertible into its stock,
- The interest rate and the face value of the securities at the beginning and end of the corporation's annual accounting period,
and
- Any options granted by the corporation during its tax year.
List the following:
- The identity of each person (name and address) who is the holder of convertible securities in the foreign personal holding
company or who is
granted an option for the corporation's stock,
- The class of securities held and the number and face value of the securities at the beginning and end of the corporation's
tax year,
and
- An explanation of any change in the holdings for each person holding the convertible securities.
Part II—Income Information
Line 4. Adjustments to taxable income or (loss).Line 4a.
Enter the difference between the taxes deducted in computing taxable income and the taxes allowable under section
556(b)(1) in computing
undistributed foreign personal holding company income. Attach the following:
- A schedule showing the nature of income on which Federal income tax was paid or withheld at the source; when and where the
tax was paid or
withheld; the amount of tax paid or accrued; and the tax year to which the tax relates.
- A schedule of income, war profits, and excess profits taxes of foreign countries and U.S. possessions accrued during the tax
year not
allowable as a deduction because a foreign tax credit was claimed.
Line 4b.
Enter the difference between the charitable contributions deducted in computing taxable income and the charitable
contributions allowable under
section 556(b)(2) in computing undistributed foreign personal holding company income. See section 556(b)(2) and the related
regulations.
The carryover of charitable contributions made in a prior year is not allowed as a deduction in computing undistributed
foreign personal holding
company income for any tax year.
Line 4c.
The special deductions described in section 556(b)(3) are not allowed in computing undistributed foreign personal
holding company income.
Therefore, they must be added back to taxable income in computing undistributed foreign personal holding company income. Enter
these amounts on line
4c as a positive number.
Line 4d.
Refigure the net operating loss (as defined in section 172(c)) for the preceding tax year computed without the deductions
provided in sections 241
through 247, 249, and 250. Enter on line 4d the difference between this amount and the net operating loss deduction allowed
in computing taxable
income.
Line 4e.
Enter the total expenses limited by section 556(b)(5) as a positive number. In computing undistributed foreign personal
holding company income,
section 556(b)(5) limits the allowance of deductions for trade or business expenses and depreciation that are allocable to
the operation and
maintenance of the property owned or operated by a foreign personal holding company. These deductions will not be allowed
in excess of the aggregate
amount of the rent or other compensation received for the use of, or the right to use, the property unless it is established
to the satisfaction of
the IRS that:
- The rent or other compensation received was the highest obtainable or, if none was received, that none was obtainable;
- The property was held in the course of a business carried on for profit; and
- Either there was reasonable expectation that the operation of the property would result in a profit or the property was necessary
to the
conduct of the business.
If excess deductions are claimed, attach a statement for each property showing the following:
- A description of the property;
- The cost or other basis to the corporation and the nature and value of the consideration paid for the property;
- The name and address of the person from whom the property was acquired and the date the property was acquired;
- The name and address of the person to whom the property was leased or rented, or the person permitted to use the property,
and the number of
shares of stock, if any, held by the person and the members of his or her family; and
- The nature (cash, securities, services, etc.) and the gross amount of rent or other compensation received or accrued for the
use of, or the
right to use, the property during the tax year and for each of the 5 preceding years and the amount of expense incurred for,
and the depreciation
sustained on, the property for such years.
Also include the following:
- Evidence that the rent or other compensation was the highest obtainable or, if none was received or accrued, a statement of
the reason that
none was received or accrued;
- A copy of the contract, lease, or rental agreement;
- The purpose for which the property was used;
- The business carried on by the corporation for which the property was held and the gross income, expenses, and taxable income
from the
conduct of that business for the tax year and for each of the 5 preceding years;
- The reasons for acquiring the property, for expecting that it would be profitable, and for using the property in the business
of the
corporation; and
- Any other information to support the deductions.
Line 4f.
Enter the total of any deductions taken in computing taxable income relating to taxes of a shareholder paid by the
corporation (section 164(e)),
and pensions, trusts, etc. (section 404).
Line 8. Deduction allowed for dividends paid after close of tax year.
Enter all dividends paid after the close of the tax year and on or before the 15th day of the 3rd month following
the close of the year if the
foreign personal holding company designated such dividends as taken into account under section 563(c).
Note:
This amount may not exceed the amount entered on line 7. See section 563(c) for additional information.
The deduction for dividends paid is the sum of the dividends paid during the tax year and the consent dividends for the tax
year (determined under
section 565). See sections 561 and 562.
Attach the following:
- A copy of each dividend resolution and
- A concise statement of the pertinent facts relating to the payment of each dividend, clearly specifying:
- The medium of payment;
- If not paid in money, the fair market value and adjusted basis (or face value, if paid in the corporation's own obligations)
on the date of
distribution of the property; and
- The manner in which the fair market value and adjusted basis were determined.
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.
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.
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 1993, 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, 2002, 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, 2002,” 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).
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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