(New) Form 5471 CFC Filing Rules – IRS Rev. Proc. 2019-40

(New) Form 5471 CFC Filing Rules – IRS Rev. Proc. 2019-40 (Golding & Golding, Board-Certified Tax Law Specialist)

(New) Form 5471 CFC Filing Rules – IRS Rev. Proc. 2019-40

When a person is the owner of a CFC (Controlled Foreign Corporation), they may have a Form 5471 filing requirement. The Form 5471 is a very detailed form. And, even the IRS realizes that some individuals may not be able to obtain all the necessary information required to determine if they are a CFC – and possibly have to file Form 5471.

Rev. Proc. 2019-40

Recently, the IRS issued a Regulation involving the filing of Form 5471, and when it may be exempt.

We will refer to the relevant portions of the Rev. Proc.2019-40:

(New) Form 5471 CFC Regulations

Pursuant to section 6038(a)(4), the IRS may require any U.S. person treated as a U.S. shareholder of a CFC to file an information return on Form 5471 with respect to its ownership in such CFC.

In section 5.02 of Notice 2018-13, 2018-6 I.R.B. 341, the Treasury Department and the IRS announced that the IRS intended to amend the instructions for Form 5471 to provide an exception from Category 5 filing for a: 

• U.S. person that
• is a U.S. shareholder with respect to a CFC
• if no U.S. shareholder (including such U.S. person) owns, within the meaning of section 958(a), stock in such CFC, an
• foreign corporation is a CFC solely because such U.S. person owns stock of CFC owned by a foreign person under Sec 318(a)(3).

Example

For example, if Michelle is a U.S. shareholder U.S. Person of a CFC in which no U.S. shareholder (including U.S. Persons) owns stock in the CFC, but rather the CFC is only a CFC because the U.S. Person owns stock in accordance with 318 (a)(3)

IRC 958(a)

958(a) refers to Direct Ownership of Stock. Therefore, the regulation is referring to owners who do not “directly” own stock

318(a)(3)

What is section 318?

318

Refers to Constructive ownership of Stock

318 (a)

Refers to the General Rule

318 (a)(3)

Refers to Attribution to partnerships, estates, trusts, and corporations

When does the Regulation become Active?

2018.

Who is Exempt from Reporting?

As provided by the IRS:

Accordingly, the instructions for Form 5471 (rev. December 2018) provide that a Category 1 or 5 filer does not have to file a Form 5471 if no U.S. shareholder (including the filer) owns, within the meaning of section 958(a), stock in the foreign corporation, and the foreign corporation is a specified foreign corporation or CFC solely because one or more U.S. persons is considered to own the stock of the foreign corporation owned by a foreign person under section 318(a)(3).

However, the Treasury Department and the IRS understand that, even as modified, the Form 5471 filing requirements may result in a significant undertaking for certain U.S. shareholders with limited access to information with respect to a foreign controlled CFC.

Accordingly, the Treasury Department and the IRS intend to further limit the Form 5471 filing requirements.

Golding & Golding: International Tax Law Firm.

We specialize exclusively in international tax, and specifically IRS offshore disclosure.

Contact our firm today for assistance with getting compliant.