| Instructions for Form 5471 |
2006 Tax Year |
This is archived information that pertains only to the 2006 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 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;
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The name, address, and identifying number of the return with which the information was or will be filed; and
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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 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.
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 unless one of the exceptions below applies.
See section 986(a).
Exceptions.
If one of the following exceptions applies, use the exchange rate in effect on the date you paid the tax.
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The tax is paid before the beginning of the year to which the tax relates.
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For tax years beginning after December 31, 2004, there is an election in effect under section 986(a)(1)(D) to translate foreign
taxes
attributable to the CFC using the exchange rate in effect on the date of payment.
Enter the exchange rate used in column (c). Report the exchange rate using the “divide-by convention” specified under Reporting Exchange
Rates on Form 5471 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:
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Name and EIN (if any) of the foreign partnership;
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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;
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Name of the tax matters partner (if any); and
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Beginning and ending dates of the foreign partnership's tax year.
Check the “Yes” box if the foreign corporation is the tax owner of a foreign disregarded entity (FDE). The “tax owner” of an FDE is the
person that is treated as owning the assets and liabilities of the FDE for purposes of U.S. income tax law.
If the foreign corporation is the tax owner of an FDE and you are a category 4 or 5 filer of Form 5471, you are required to
attach Form 8858 to
Form 5471.
If the foreign corporation is the tax owner of an FDE and you are not a category 4 or 5 filer of Form 5471, you must attach
the statement described
below in lieu of Form 8858.
Statement in lieu of Form 8858.
This statement must list the name of the FDE, country under whose laws the FDE was organized, and EIN (if any) of
the FDE.
Use Schedule H to report the foreign corporation's current earnings and profits (E&P) for U.S. tax purposes. Enter the amounts
on lines 1
through 5c in functional currency.
Special rules for DASTM.
If the foreign corporation uses DASTM, enter on line 1 the dollar GAAP income or (loss) from line 21 of Schedule C.
Enter on lines 2a through 4 the
adjustments made in figuring current E&P for U.S. tax purposes. Report these amounts in U.S. dollars. Enter on line 5b the
DASTM gain or loss
figured under Regulations section 1.985-3(d).
Lines 2a through 2h.
Certain adjustments (required by Regulations sections 1.964-1(b) and (c)) must be made to the foreign corporation's
line 1 net book income or
(loss) to determine its current E&P. These adjustments may include both positive and negative adjustments to conform the foreign
book income to
U.S. GAAP and to U.S. tax accounting principles. If the foreign corporation's books are maintained in functional currency
in accordance with U.S.
GAAP, enter on line 1 the functional currency GAAP income or (loss) from line 21 of Schedule C, rather than starting with
foreign book income, and
show GAAP-to-tax adjustments on lines 2a through 2h.
Lines 2b and 2c.
Generally, depreciation, depletion, and amortization allowances must be based on the historical cost of the underlying
asset, and depreciation must
be figured according to section 167. However, if 20% or more of the foreign corporation's gross income is from U.S. sources,
depreciation must be
figured on a straight line basis according to Regulations section 1.312-15.
Line 2f.
Inventories must be taken into account according to the rules of
sections 471 (incorporating the provisions of section 263A) and 472 and the related regulations.
Line 2g.
See the instructions for Schedule C, line 20 above.
Line 2h.
Enter the net amount of any additional adjustments not included on lines 2a through 2g. List these additional adjustments
on a separate 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 8) to compute the U.S. shareholder's pro rata share of subpart F income of the
CFC. Subpart F income includes
the following:
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Adjusted net foreign base company income (lines 1 through 19);
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Adjusted net insurance income (line 20);
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Adjusted net related person insurance income (line 21);
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International boycott income (line 22);
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Illegal bribes, kickbacks, and other payments (line 23); and
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Income from a country described in section 952(a)(5) (line 24).
Important:
If the subpart F income of any CFC for any tax year was reduced because of the current E&P limitation (see the instructions
for line 29 of
Worksheet A on page 10), 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:
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Earnings invested in U.S. property (Worksheet B);
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Amounts withdrawn from qualified investments in less developed countries and amounts withdrawn from qualified investments
in foreign base
company shipping operations (Worksheet C); and
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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, 9, and 11 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 Form 1040,
line 9a (and, if applicable, on Schedule B (Form 1040), line 5), 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, 2004, foreign base company income does not include foreign base company shipping
income as defined in
former section 954(f).
For tax years beginning after December 31, 1998, and before January 1, 2009, the following exceptions apply:
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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)).
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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)).
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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:
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Interest from conducting a banking business that is “export financing interest” (section 904(d)(2)(G));
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Rents and royalties from actively conducting a trade or business received from a person other than a “related person” (as defined in
section 954(d)(3)); and
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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,
2009, see section 954(c)(1)(B)(i).
-
An interest in a trust, partnership, or REMIC. However, see the instructions for line 1i for an exception that provides for
look-through
treatment for certain sales of partnership interests.
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Property that does not produce any income.
Do not include:
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Income, gain, deduction, or loss from any transaction (including a hedging transaction) and transactions involving physical
settlement of a
regular dealer in property, forward contracts, option contracts, and similar financial instruments (section 954(c)(2)(C)).
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Gains and losses from the sale or exchange of any property that, in the hands of the CFC, is property described in section
1221(a)(1).
Line 1c.
Enter the excess of gains over losses from transactions (including futures, forward, and similar transactions) in
any commodities. See section
954(c)(1)(C) for exceptions. See section 954(c)(5) for a definition and special rules relating to commodity transactions.
Line 1d.
Enter the excess of foreign currency gains over foreign currency losses from section 988 transactions. An exception
applies to transactions
directly related to the business needs of a CFC.
Line 1e.
Enter any income equivalent to interest, including income from commitment fees (or similar amounts) for loans actually
made.
Line 1f.
Include net income from notional principal contracts (except a contract entered into to hedge inventory property).
Line 1g.
Include payments in lieu of dividends that are made as required under section 1058.
Line 1h.
Enter amounts received:
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Under a contract under which the corporation is to furnish personal services if (a) some person other than the corporation
has a right to
designate (by name or by description) the individual who is to perform the services or (b) the individual who is to perform
the services is designated
(by name or by description) in the contract, and
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From the sale or other disposition of such a contract.
Note.
The above rules apply with respect to amounts received for services under a particular contract only if at some time during
the tax year 25% or
more in value of the outstanding stock of the corporation is owned, directly or indirectly, by or for the individual who has
performed, is to perform,
or may be designated (by name or by description) as the one to perform, such services.
Line 1i.
For tax years beginning after December 31, 2004, in the case of any sale by a CFC of an interest in a partnership
with respect to which the CFC is
a 25% owner (defined below), such CFC is treated for purposes of computing its foreign personal holding company income as
selling the proportionate
share of the assets of the partnership attributable to such interest. Thus, the sale of a partnership interest by a CFC that
meets the ownership
threshold constitutes subpart F income only to the extent that a proportionate sale of the underlying partnership assets attributable
to the
partnership interest would constitute subpart F income. Do not report these amounts on line 1b. Instead, report them on new
line 1i.
25% owner.
For purposes of these rules, a 25% shareholder is a CFC that owns directly 25% or more of the capital or profits interest
in a partnership. For
purposes of the preceding sentence, if a CFC is a shareholder or partner of a corporation or partnership, the CFC is treated
as owning directly its
proportionate share of any such capital or profits interest held directly or indirectly by such corporation or partnership.
If a CFC is treated as
owning a capital or profits interest in a partnership under constructive ownership rules similar to the rules of section 958(b),
the CFC shall be
treated as owning such interest directly or indirectly for purposes of this definition.
Line 11. De minimis rule.
If the sum of foreign base company income (determined without regard to section 954(b)(5)) and gross insurance income
(as defined in section
954(b)(3)(C)) for the tax year is less than the smaller of 5% of gross income for income tax purposes, or $1 million, then no portion of
the gross income for the tax year is treated as foreign base company income or insurance income. In this case, enter zero
on line 11 and skip lines 12
through 21. Otherwise, go to line 12.
Line 12. Full inclusion rule.
If the sum of foreign base company income (determined without regard to section 954(b)(5)) and gross insurance income
for the tax year exceeds 70%
of gross income for income tax purposes, the entire gross income for the tax year must (subject to the high tax exception
described below, the section
952(b) exclusion, and the deductions to be taken into account under section 954(b)(5)) be treated as foreign base company
income or insurance income,
whichever is appropriate. In this case, enter total gross income (for income tax purposes) on line 12. Otherwise, enter zero.
Lines 14g, 15d, 16d, 18d, 20d, and 21d. Exception for certain income subject to high foreign taxes.
Foreign base company income and insurance income does not include any item of income received by a CFC if the taxpayer
establishes that such income
was subject to an effective rate of income tax imposed by a foreign country that is greater than 90% of the maximum rate of
tax specified in section
11. This rule does not apply to foreign base company oil-related income. For more information, see section 954(a)(5) and Regulations
section
1.954-1(d)(1).
Line 20. Adjusted net insurance income.
In determining a shareholder's pro rata share of the subpart F income of a CFC, insurance income is any income:
-
That is attributable to the issuing (or reinsuring) of any insurance or annuity contract:
-
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
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For risks not described in 1 above, resulting from any arrangement in which another corporation receives a substantially equal
amount of
premiums or other consideration for issuing (or reinsuring) a contract described in 1 above.
-
That would, subject to the modifications provided in sections 953(b)(1) and 953(b)(2), be taxed under subchapter L (insurance
company tax)
if such income were income of a domestic insurance company.
Line 21. Adjusted net related person insurance income.
In determining a shareholder's pro rata share of the subpart F income of a CFC, related person insurance income is
any insurance income (within the
meaning of section 953(a)) attributable to a policy of insurance or reinsurance for which the person insured (directly or
indirectly) is a U.S.
shareholder (as defined in section 953(c)(1)(A)) in a CFC, or a related person (as defined in section 953(c)(6)) to such a
shareholder. In such case,
the pro rata share referred to above is to be determined under the rules of section 953(c)(5).
Exceptions.
The above definition does not apply to any foreign corporation if:
-
At all times during the foreign corporation's tax year, less than 20% of the total combined voting power of all classes of
stock of the
corporation entitled to vote, and less than 20% of the total value of the corporation, is owned (directly or indirectly under
the principles of
section 883(c)(4)) by persons who are (directly or indirectly) insured under any policy of insurance or reinsurance issued
by the corporation or who
are related persons to any such person;
-
The related person insurance income (determined on a gross basis) of the corporation for the tax year is less than 20% of
its insurance
income for the tax year determined without regard to the provisions of section 953(a)(1) that limit insurance income to income
from countries other
than the country in which the corporation was created or organized; or
-
The corporation:
-
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 22. International boycott income.
If a CFC or a member of a controlled group (within the meaning of section 993(a)(3)) that includes the CFC has operations
in, or related to, a
country (or with the government, a company, or a national of a country) that requires participation in or cooperation with
an international boycott as
a condition of doing business within such country or with the government, company, or national of that country, a portion
of the CFC's income is
included in subpart F income. The amount included is determined by multiplying the CFC's income (other than income included
under section 951 and U.S.
source effectively connected business income described in section 952(b)) by the international boycott factor. This factor
is a fraction determined on
Schedule A (Form 5713).
Special rule.
If the shareholder of a CFC can clearly demonstrate that the income earned for the tax year is from specific operations,
then, instead of applying
the international boycott factor, the addition to subpart F income is the amount specifically from the operations in which
there was participation in
or cooperation with an international boycott. See Schedule B (Form 5713).
Line 23. Illegal bribes, kickbacks, and other payments.
Enter the total of any illegal bribes, kickbacks, or other payments (within the meaning of section 162(c)) paid by
or on behalf of the corporation,
directly or indirectly, to an official, employee, or agent of a government.
Line 24. Income described in section 952(a)(5).
The income of a CFC derived from any foreign country during any period during which section 901(j) applies to such
foreign country will be deemed
to be income to the U.S. shareholders of such CFC. As of the date these instructions were revised, section 901(j) applied
to: Cuba, Iran, North Korea,
Sudan, and Syria.
Line 26. Exclusion of U.S. income.
Subpart F income does not include any U.S. source income (which, for these purposes, includes all carrying charges
and all interest, dividends,
royalties, and other investment income received or accrued by a FSC) that is effectively connected with a CFC's conduct of
a trade or business in the
United States unless that item is exempt from taxation (or is subject to a reduced rate of tax) pursuant to a treaty obligation
of the United States
or the Code.
Line 29. Current E&P.
A CFC's subpart F income is limited to its current year E&P, computed under the special rule of section 952(c)(3).
The amount included in the
gross income of a U.S. shareholder of a CFC under section 951(a)(1)(A)(i) for any tax year and attributable to a qualified
activity must be reduced by
the shareholder's pro rata share of any qualified deficit (see section 952(c)(1)(B)).
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).
Worksheet A--Foreign Base Company Income and Insurance Income and Summary of U.S. Shareholder's Pro Rata Share of Subpart
F Income of a
C.F.C. Summary: This is an example of worksheet A, which is used to determine the shareholder's share of Subpart F income. The line
items to be
completed are:
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“1. Gross foreign personal holding company income:”
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|
“1a. Dividends, interest, royalties, rents, and annuities (section 954(c)(1)(A)) (excluding amounts described in sections 954(c)(2)
and
(3))” field
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“1b. Excess of gains over losses from certain property transactions (section 954(c)(1)(B))” field
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“1c. Excess of gains over losses from commodity transactions (section 954(c)(1)(C))” field
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“1d. Excess of foreign currency gains over foreign currency losses (section 954(c)(1)(D))” field
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“1e. Income equivalent to interest (section 954(c)(1)(E))” field
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“1f. Net income from a notional principal contract (section 954(c)(1)(F))” field
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“1g. Payments in lieu of dividends (section 954(c)(1)(G))” field
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“2. Gross foreign personal holding company income. Add lines 1a through 1g” field
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“3. Gross foreign base company sales income (see section 954(d))” field
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“4. Gross foreign base company services income (see section 954(e))” field
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“5. Gross foreign base company oil-related income (see section 954(g)) after application of section 954(b)(8)” field
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“6. Gross foreign base company income. Add lines 2 through 5” field
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“7. Gross insurance income (see sections 953 and 954(b)(3)(C) and the instructions for lines 22 and 23)” field
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“8. Gross foreign base company income and gross insurance income. Add lines 6 and 7” field
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“9. Enter 5% of total gross income (as computed for income tax purposes)” field
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“10. Enter 70% of total gross income (as computed for income tax purposes)” field
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“11. If line 8 is less than line 9 and less than $1 million, enter 0 on this line and skip lines 12 through 21” field
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“12. If line 8 is more than line 10, enter total gross income (as computed for income tax purposes)” field
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“13. Total adjusted gross foreign base company income and insurance income (enter the greater of line 8 or line 12)” field
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“14. Adjusted net foreign personal holding company income:”
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“14a. Enter amount from line 2” field
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“14b. Expenses directly related to amount on line 2” field
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“14c. Subtract line 14b from line 14a” field
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“14d. Related person interest expense (see section 954(b)(5))” field
|
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“14e. Other expenses allocated and apportioned to the amount on line 2 under section 954(b)(5)” field
|
|
“14f. Net foreign personal holding company income. Subtract the sum of lines 14d and 14e from line 14c” field
|
|
“14g. Net foreign personal holding company income excluded under high-tax exception” field
|
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“14h. Subtract line 14g from line 14f” field
|
|
“15. Adjusted net foreign base company sales income:”
|
|
“15a. Enter amount from line 3” field
|
|
“15b. Expenses allocated and apportioned to the amount on line 3 under section 954(b)(5)” field
|
|
“15c. Net foreign base company sales income. Subtract line 15b from line 15a” field
|
|
“15d. Net foreign base company sales income excluded under high-tax exception” field
|
|
“15e. Subtract line 15d from line 15c” field
|
|
“16. Adjusted net foreign base company services income:”
|
|
“16a. Enter amount from line 4” field
|
|
“16b. Expenses allocated and apportioned to line 4 under section 954(b)(5)” field
|
|
“16c. Net foreign base company services income. Subtract line 16b from line 16a” field
|
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“16d. Net foreign base company services income excluded under high-tax exception” field
|
|
“16e. Subtract line 16d from line 16c” field
|
Worksheet A (continued). Summary: This is an example of worksheet A, page 2, which is used to determine the shareholder's share of Subpart F income.
The line items to
be completed are:
|
“17. Adjusted net foreign base company oil-related income:”
|
|
“17a. Enter amount from line 5” field
|
|
“17b. Expenses allocated and apportioned to line 5 under section 954(b)(5)” field
|
|
“17c. Subtract line 17b from line 17a” field
|
|
“18. Adjusted net full inclusion foreign base company income:”
|
|
“18a. Enter the excess, if any, of line 12 over line 8” field
|
|
“18b. Expenses allocated and apportioned under section 954(b)(5)” field
|
|
“18c. Net full inclusion foreign base company income. Subtract line 18b from line 18a” field
|
|
“18d. Net full inclusion foreign base company income excluded under high-tax exception” field
|
|
“18e. Subtract line 18d from line 18c” field
|
|
“19. Adjusted net foreign base company income. Add lines 14h, 15e, 16e, 17c, and 18e” field
|
|
“20. Adjusted net insurance income (other than related person insurance income):”
|
|
“20a. Enter amount from line 7 (other than related person insurance income)” field
|
|
“20b. Expenses allocated and apportioned to the amount from line 7 under section 953” field
|
|
“20c. Net insurance income. Subtract line 20b from line 20a” field
|
|
“20d. Net insurance income excluded under high-tax exception” field
|
|
“20e. Subtract line 20d from line 20c” field
|
|
“21. Adjusted net related person insurance income:”
|
|
“21a. Enter amount from line 7 that is related person insurance income” field
|
|
“21b. Expenses allocated and apportioned to related person insurance income under section 953” field
|
|
“21c. Net related person insurance income. Subtract line 21b from line 21a” field
|
|
“21d. Net related person insurance income excluded under high-tax exception” field
|
|
“21e. Subtract line 21d from line 21c” field
|
|
“22. International boycott income (section 952(a)(3))” field
|
|
“23. Illegal bribes, kickbacks, and other payments (section 952(a)(4))” field
|
|
“24. Income from a country described in section 952(a)(5)” field
|
|
“25. Subpart F income before application of sections 952(b) and (c) and section 959(b). Add lines 19, 20e, 21e, and 22 through
24”
field
|
|
“26. Enter portion of line 25 that is U.S. source income effectively connected with a U.S. trade or business (section 952(b))”
field
|
|
“27. Exclusions under section 959(b)” field
|
|
“28. Total subpart F income. Subtract the sum of lines 26 and 27 from line 25” field
|
|
“29. Current E.&P.” field
|
|
“30. Enter the smaller of line 28 or line 29” field
|
|
“31. Shareholder's pro rata share of line 30” field
|
|
“32. Shareholder's pro rata share of export trade income” field
|
|
“33. Subtract line 32 from line 31” field
|
|
“34. Divide the number of days in the tax year that the corporation was a C.F.C. by the number of days in the tax year and
multiply the result
by line 33” field
|
|
“35. Dividends paid to any other person with respect to your stock during the tax year” field
|
|
“36. Divide the number of days in the tax year you did not own such stock by the number of days in the tax year and multiply
the result by line
33” field
|
|
“37. Enter the smaller of line 35 or line 36” field
|
|
“38a. Shareholder's pro rata share of subpart F income. Subtract line 37 from line 34” field
|
|
“38b Translate the amount on line 38a from functional currency to U.S. dollars at the average exchange rate. See section 989(b).
Enter the
result here and on line 1, Schedule I” field
|
Use Worksheet B (above) 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.
Worksheet B--U.S. Shareholder's Pro Rata Share of Earnings of a C.F.C. Invested in U.S. Property. Summary: This is an example of Worksheet B, used to calculate the U.S. shareholder's share of earnings of a C.F.C. from investment
in U.S.
property and to translate the amount from functional currency to U.S. dollars. The line items to be completed are:
|
“1. Amount of U.S. property (as defined in sections 956(c) and (d)) held (directly or indirectly) by the C.F.C. as of the close
of:”
|
|
“1a. The first quarter of the tax year” field
|
|
“1b. The second quarter of the tax year” field
|
|
“1c. The third quarter of the tax year” field
|
|
“1d. The fourth quarter of the tax year” field
|
|
“2. Number of quarter-ends the foreign corporation was a C.F.C. during the tax year” field
|
|
“3. Average amount of U.S. property held (directly or indirectly) by the C.F.C. as of the close of each quarter of the tax
year. (Add lines 1a
through 1d. Divide this amount by the number on line 2.)” field
|
|
“4. U.S. shareholder's pro rata share of the amount on line 3” field
|
|
“5. U.S. shareholder's earnings and profits described in section 959(c)(1)(A) after reductions (if any) for current year distributions”
field
|
|
“6. Subtract line 5 from line 4” field
|
|
“7. Applicable earnings:”
|
|
“7a. Current earnings and profits” field
|
|
“7b. Line 7a plus accumulated earnings and profits” field
|
|
“8. Enter the greater of line 7a or line 7b” field
|
|
“9. Distributions made by the C.F.C. during the tax year” field
|
|
“10. Subtract line 9 from line 8” field
|
|
“11. Earnings and profits described in section 959(c)(1)” field
|
|
“12. Subtract line 11 from line 10” field
|
|
“13. U.S. shareholder's pro rata share of the amount on line 12” field
|
|
“14. U.S. shareholder's earnings invested in U.S. property. (Enter the smaller of line 6 or line 13)” field
|
|
“15. Amount on line 14 that is excluded from the U.S. shareholder's gross income under section 959(a)(2)” field
|
|
“16. Subtract line 15 from line 14” field
|
|
“17. Translate the amount on line 16 from functional currency to U.S. dollars at the year-end spot rate (as provided in section
989(b)). Enter
the result here and on line 2 of Schedule I” field
|
Worksheets C and D. Summary: These are the worksheets used to calculate a U.S. shareholder's pro rata share in: Worksheet C--Previously Excluded
Subpart F Income
of a C.F.C. Withdrawn From Qualified Investments in Less Developed Countries and From Qualified Investments in Foreign Base
Company Shipping
Operations; and Worksheet D--Previously Excluded Export Trade Income of a C.F.C. Withdrawn From Investment in Export Trade
Assets. The line items to
be completed on each worksheet are:
|
Worksheet C:
|
|
“1. Decrease in qualified investments in less developed countries (see Regulations section 1.955-1(b)(1)) and foreign base
company shipping
operations (see Regulations section 1.955A-1(b)(1))” field
|
|
“2. Limitation (see Regulations section 1.955-1(b)(2)):”
|
|
“2a. Enter the sum of E. & P. for the tax year and E. & P. accumulated for prior tax years beginning after 1962”
field
|
|
“2b. Enter the sum of amounts invested in less developed countries or foreign base company shipping operations and excluded
from foreign base
company income for all prior tax years, minus the sum of such amounts withdrawn for such years (see Regulations section 1.955-1(b)(2)(i))”
field
|
|
“3. Enter the smaller of line 2a or line 2b” field
|
|
“4. Previously excluded subpart F income withdrawn for the tax year (enter the smaller of line 1 or line 3)” field
|
|
“5. U.S. shareholder's pro rata share of line 4 (see Regulations section 1.955-1(c))” field
|
|
“6a. Divide the number of days in the tax year that the foreign corporation was a C.F.C. by the number of days in the tax year
and multiply the
result by line 5” field
|
|
“6b. Translate the amount on line 6a from functional currency to U.S. dollars at the average exchange rate. See section 989(b).
Enter the
result here and on line 3, Schedule I” field
|
|
|
Worksheet D:
|
|
“1. Decrease in investments of the C.F.C. in export trade assets (see Regulations section 1.970-1(d)(3))” field
|
|
“2. U.S. shareholder's pro rata share of line 1” field
|
|
“3. U.S. shareholder's pro rata share of the sum of E. & P. of the C.F.C. for the tax year and E. & P. accumulated for prior
tax years
beginning after 1962 (see Regulations section 1.970-1(c)(2)(ii))” field
|
|
“4. Limitation under section 970(b) (see Regulations section 1.970-1(c)(2)(i)):”
|
|
“4a. U.S. shareholder's pro rata share of the sum of the amounts by which the C.F.C.'s subpart F income for prior tax years
was reduced under
section 970(a)” field
|
|
“4b. U.S. shareholder's pro rata share of the sum of the amounts that were not included in subpart F income of the C.F.C. for
prior tax years
because of Regulations section 1.972-1” field
|
|
“4c. Add lines 4a and 4b” field
|
|
“4d. U.S. shareholder's pro rata share of the sum of the amounts that were previously included in his or her gross income for
prior tax years
under section 951(a)(1)(A)(ii) because of section 970(b)” field
|
|
“5. Subtract line 4d from line 4c” field
|
|
“6. Enter the smallest of line 2, 3, or 5” field
|
|
“7a. Divide the number of days in the tax year that the foreign corporation was a C.F.C. by the number of days in the tax year
and multiply the
result by line 6” field
|
|
“7b. Translate the amount on line 7a from functional currency to U.S. dollars at the average exchange rate. See section 989(b).
Enter the
result here and on line 4, Schedule I” field
|
|
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.
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 A—General Shareholder Information
If the shareholder's latest income tax return was filed electronically, enter “e-filed” in column (b)(3) instead of a service center.
Section C—Acquisition of Stock
Section C is completed by shareholders who are completing Schedule O because they have acquired sufficient stock in a foreign
corporation. If the
shareholder acquired the stock in more than one transaction, use a separate line to report each transaction.
Column (d).
Enter the method of acquisition (e.g., purchase, gift, bequest, trade).
Column (e)(2).
Enter the number of shares acquired indirectly (within the meaning of section 958(a)(2)) by the shareholder listed
in column (a).
Column (e)(3).
Enter the number of shares constructively owned (within the meaning of section 958(b)) by the shareholder listed in
column (a).
Section D—Disposition of Stock
Section D must be completed by shareholders who dispose of their interest (in whole or in part) in a foreign corporation.
Column (d).
Enter the method of disposition (e.g., sale, bequest, gift, trade).
Example.
In 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, 2004, 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, 2004” in column (c).
-
Enters “gift” in column (d).
-
Enters “5,000” in column (e)(1).
-
Enters “-0-” in column (f) because the disposition was by gift.
-
Enters the name and address of his son, John, in column (g).
Section F—Additional Information
Item (b).
List the date of any reorganization of the foreign corporation that occurred during the last 4 years while any U.S.
person held 10% or more in
value or vote (directly or indirectly) of the corporation's stock. If there is more than one such date, use the most recent
date. However, do not
enter a date for which information was reported in Schedule E. Instead, enter the date (if any) of any reorganization prior
to that date (if it is
within the last 4 years).
Example for Item (c).
Mr. Lyons, a U.S. person, acquires a 10% ownership in foreign corporation F. F is the 100% owner of two foreign corporations,
FI and FJ. F is also
a 50% owner of foreign corporation FK. In addition, F is 90% owned by foreign corporation W. Mr. Lyons does not own any of
the stock of corporation W.
Mr. Lyons completes and files Form 5471 and Schedule O for the corporations in which he is a 10% or more shareholder.
Mr. Lyons is also required to
submit a chart if the foreign corporation is a member of a chain of corporations, and to indicate if he is a 10% or more shareholder
in any of those
corporations.
Mr. Lyons would prepare a list showing the corporations as follows:
-
Corporation W
-
Corporation F
-
Corporation FI
-
Corporation FJ
-
Corporation FK
Then Mr. Lyons is required to indicate that he is a 10% or more shareholder in corporations F, FI, and FJ.
Codes for Principal Business Activity. Summary: This is a listing of principal business activities and their codes for entry in item 1f, page 1, of Form 5471, used
to classify an
enterprise by the type of activity in which it is engaged. This portion of the list contains the codes for Agriculture, Forestry,
Fishing and Hunting:
Crop Production to Manufacturing: Furniture and Related Product Manufacturing.
Codes for Principal Business Activity (continued). Summary: This is a listing of principal business activities and their codes for entry in item 1f, page 1, of Form 5471, used
to classify an
enterprise by the type of activity in which it is engaged. This portion of the list contains the codes for Manufacturing:
Miscellaneous Manufacturing
to Finance and Insurance: Insurance Carriers and Related Activities.
Codes for Principal Business Activity (continued). Summary: This is a listing of principal business activities and their codes for entry in item 1f, page 1 of Form 5471, used
to classify an
enterprise by the type of activity in which it is engaged. This portion of the list contains the codes for Finance and Insurance:
Funds, Trusts, and
Other Financial Vehicles to Other Services: Religious, Grantmaking, Civic, Professional, and Similar Organizations.
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