Guide to Filing Form 5471
Form 5471 has long been a source of frustration for tax professionals managing the compliance obligations of U.S. shareholders in foreign corporations. It’s a complex form with intricate filing requirements, detailed schedules, and updates stemming from changes in tax laws. Yet, understanding and efficiently completing Form 5471 is critical for your organization and foreign corporations.
To address the complexity, tax professionals are reimagining their workflows by leveraging tax workpaper software that simplifies, automates, and optimizes every stage of the tax process.
This guide will break down the fundamentals of Form 5471, provide clarity on its filing requirements, and explain how Bloomberg Tax Workpapers can streamline the process for busy professionals like you.
Overview of Form 5471
Form 5471, officially known as the “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” is a disclosure requirement to keep track of U.S. taxpayers’ activities involving foreign corporations. The form gathers detailed financial and ownership information to ensure that taxpayers comply with U.S. tax laws.
The form applies under several circumstances, including ownership in controlled foreign corporations (CFCs), acquisition or disposal of significant stock, or certain directorships in foreign entities.
Form 5471 serves a dual purpose:
- Monitoring U.S. taxpayers with overseas interests to safeguard against tax avoidance via foreign income.
- Ensuring compliance with Subpart F income rules and Global Intangible Low-Taxed Income (GILTI) provisions brought forth by the Tax Cuts and Jobs Act (TCJA).
Form 5471 has been updated several times to reflect changes in tax law, including modifications due to TCJA, which introduced new filing categories and requirements. The form includes multiple schedules that must be completed depending on the filer’s category, covering various aspects such as stock ownership, financial information, and related-party transactions.
Who must file Form 5471?
This depends on the filer’s relationship to the foreign corporation. The IRS has defined five categories of filers based on ownership, directorship, and other criteria.
The five categories of filers:
- Category 1: U.S. shareholders of a foreign corporation that was a section 965 specified foreign corporation (SFC) at any time during the foreign corporation’s tax year ending with or within the U.S. shareholder’s tax year.
- Category 2: U.S. citizens or residents serving as officers or directors of a foreign corporation where a U.S. person meets certain ownership thresholds.
- Category 3: U.S. persons who acquire stock in a foreign corporation that results in ownership of at least 10% of the corporation’s stock by vote or value, or U.S. persons who dispose of sufficient stock in the foreign corporation to reduce their interest to less than the 10% stock ownership requirement.
- Category 4: U.S. persons controlling foreign corporations, defined as owning more than 50% by vote or value. Filing exceptions apply to certain constructive owners.
- Category 5: U.S. shareholders that owned stock in a foreign corporation that was a CFC at any time during the foreign corporation’s tax year ending with or within the U.S. shareholder’s tax year.
Each category comes with specific Form 5471 reporting thresholds and filing requirements. For example, ownership can be direct, indirect, or constructive, as defined under Section 958(b).
How do you determine constructive ownership?
Section 958(b) outlines constructive ownership rules to determine if a U.S. person qualifies as a “U.S. shareholder” and whether a foreign corporation is classified as a CFC.
Previously, Section 958(b)(4) restricted downward attribution, preventing shares owned by a foreign person from being attributed to a U.S. person. However, the Tax Cuts and Jobs Act repealed this restriction, enabling stock owned by foreign persons to be attributed to U.S. persons under IRC 318(a)(3), potentially classifying foreign subsidiaries as CFCs.
This change caused confusion and compliance concerns among taxpayers, so the IRS issued new rules to address those concerns. Notice 2018-13 exempts Form 5471 filing if no U.S. person holds a direct or indirect 10% interest and the CFC status arises solely from constructive ownership.
Rev. Proc. 2019-40 expands exceptions for unrelated constructive shareholders (category 5 filers) and category 1 filers for foreign-controlled CFCs while offering a safe harbor for verifying CFC status using alternative information sources. These measures aim to alleviate compliance burdens while maintaining necessary reporting requirements.
What schedules are on Form 5471?
Form 5471 is composed of multiple schedules that vary depending on the filer’s category. Here’s an overview of key schedules tax professionals routinely encounter:
- Information is required regarding stock ownership, direct and indirect ownership, as well as shares constructively owned (Schedules A and B)
- U.S. GAAP financial information including balance sheet, income statement, and a detailed calculation of E&P is required (Schedules C, F, and H)
- Specific details of foreign taxes paid or accrued (Schedules E and E-1)
- Specific answers about base erosion payments and benefits, interest, or royalty amounts paid or accrued for which a deduction is disallowed under §267A, foreign-derived intangible income deductions under §250, cost-sharing arrangements and the transfer of intangibles, and whether the foreign corporation is an expatriated entity (Schedules G and G-1)
- Specific details about the application of the dividends received deduction under §245A and a calculation of global intangible low-taxed income under §951A (Schedules I and I-1)
- Specific E&P information is required including the foreign corporation’s current and accumulated E&P in functional currency for U.S. tax purposes (Schedules C, H, and J)
- Related-party transactions (Schedule M)
- Foreign Personal Holding Company data (Schedule N)
- Organization and reorganization data regarding foreign corporations (Schedule O)
- Previously taxed E&P of the U.S. shareholder of a CFC or SFC (Schedule P)
- CFC’s income, deductions, taxes, and assets by income groups (Schedule Q)
- Distributions from foreign corporations (Schedule R)
Not sure where to start? The Bloomberg Tax Workpapers template makes organizing schedules easy and accurate. Simply input your category, and it’ll automatically tell you which schedules to complete. Everything you need is in one place.
What is the Subpart F de minimus rule?
The Subpart F de minimis rule is a provision within the U.S. tax code that provides an exception to the general rule of taxing certain income of CFCs as Subpart F income. According to the de minimis rule, if the sum of a CFC’s gross foreign base company income and gross insurance income is less than a specified threshold, then none of the CFC’s income for that year will be treated as Subpart F income. Specifically, the threshold is the lesser of 5% of the CFC’s gross income or $1 million.
This rule is designed to simplify compliance and reduce the administrative burden for CFCs with minimal amounts of foreign base company income and insurance income, by allowing them to avoid the complexities of Subpart F income inclusion if their income falls below the de minimis threshold.
How to file Form 5471
Form 5471’s complexity calls for streamlined solutions. Designed specifically for tax professionals, Bloomberg Tax Workpapers integrates automation and insights into your tax workflows to make Form 5471 compliance manageable.
Here’s a step-by-step guide to using the template for Form 5471:
Step 1: Determine the filer’s category and required schedules
Completing form 5471 involves a lot of research to determine the filer’s category and what schedules are required. Bloomberg Tax Workpapers is strategically integrated with Bloomberg Tax Research to allow you to easily find answers from within your worksheet without slowing you down. If you are working in Excel, you’d have to go to a separate research platform to find answers.
Step 2: Consolidate CFC data
Start by gathering information on each CFC including nonfinancial (ownership, address, equity classes, et al.) and financial information (income statement, balance sheet, fixed assets, activity detail, et al.)
With Bloomberg Tax Workpapers, automation features make it easier to aggregate large datasets across different input files and push them to all of your spreadsheets. This saves time and helps to ensure data accuracy and reduce manual errors, especially when making last-minute changes.
Step 3: Input values into your worksheet
To input the values needed for the form and schedules, start with your income statement balance sheet. Using Bloomberg Tax Workpapers’ data connect feature, you can populate the data from a trial balance and link it to the name of the CFC.
Step 4: Review and file
Maintaining accuracy across this data-heavy process can be especially challenging in Excel, where manual input risks errors and managing multiple workbooks can quickly become overwhelming.
With Bloomberg Tax Workpapers, real-time cell-level tracking ensures accurate calculations, improved auditability, and detailed accountability. Any changes made are logged, letting teams collaborate more effectively while reducing risk. Automated workflows eliminate redundancy and allow you to refresh inputs effortlessly.
Why use the Bloomberg Tax Workpapers template for Form 5471?
Tax professionals who switch from traditional Excel to Bloomberg Tax Workpapers experience significant benefits:
Time savings
Manual calculations can eat up hours for even the most straightforward cases. By automating key inputs and ensuring real-time alignment with the latest tax law updates, Bloomberg Tax Workpapers reduces the time involved in completing Form 5471.
Accuracy and compliance
With built-in formulas and logic reflecting the latest tax regulations, Bloomberg Tax Workpapers ensures every calculation meets compliance standards and eliminates risk due to outdated or incorrect spreadsheets. AI-powered Q&A integrated with Bloomberg Tax Research connects users directly to relevant tax law explanations.
User-friendly templates
Bloomberg Tax Workpapers replaces messy Excel files with clean, highly customizable templates that offer clarity and efficiency. Whether you’re onboarding a new team or rolling forward to a new tax year, seamless workflows keep everything running smoothly.
“To have a starting point from Bloomberg Tax Workpapers is extremely helpful as opposed to building it all from scratch, which we could do, but it would just be a massive undertaking,” said Matthew Russell, Hyland Software’s domestic tax manager.
Reduced risk of human error
Integrated error-checking and change-tracking functions detect potential inconsistencies at every stage.
Collaboration and control
The cloud-based platform allows teams to work securely and collaboratively. Versioning features help track changes, and role-based access ensures the right people can review or approve workpapers as needed.
Bloomberg Tax Workpapers simplifies challenging tax calculations and compliance. These tax-specific, repeatable templates automatically update your calculations with the latest tax laws so you can trust that your calculations are always up to date.
Our innovative tax workpaper software can help improve your entire tax process by saving you time during compliance and provision, enabling high-level analysis and corporate tax planning, and reduce key-person dependencies.
Request a demo to see how Bloomberg Tax Workpapers will work for you.