The Schedule R (Form 5471) Distributions from a Foreign Company
Contents
The Schedule R (Form 5471) Distributions from a Foreign Company
A Form 5471 is used by US Persons to Report Foreign Corporations – both Controlled Foreign Corporations (CFCs) and other non-CFCs. Depending on which category of filer the US Person Taxpayer qualifies as they may have to prepare one or more different schedules. Some of the schedules are part of the main 5471 form – and others are additional schedules that are submitted along with the main Form 5471. One of the additional schedules is the Schedule R (Distributions from a Foreign Company) – which is required by Category 4 and 5a Filers. Let’s take a brief introductory review of Schedule R.
Why Categories 4 and 5a Filers and Schedule R?
Category 4 filer refers to any US person who had “control” of a foreign corporation during the annual accounting period (more than 50%) and category 5 refers to US shareholders who own stock in a CFC.
What Does Schedule R Require?
In general Schedule R requires the Taxpayer to report more general information about distributions made from the foreign company. There are 4 key pieces of information required for Schedule R:
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Description of distribution
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Date of distribution
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Amount of distribution in foreign corporation’s functional currency
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Amount of E&P distribution in foreign corporation’s functional currency
The reason for the E&P distinction is to assist the IRS in assessing potential Subpart F income tax implications – which is based in part on the company’s E&P.
Form 5471, Schedule R Instructions
Here is what the IRS provides as to Schedule R instructions:
Column (a): Description of distribution
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The description should include whether the distribution was cash or non-cash and taxable or nontaxable to shareholders. Use code sections to properly identify the taxable or nontaxable consequences of the distribution. For example, “taxable cash dividend eligible for a dividends received deduction under section 245A ” or “nontaxable cash distribution of PTEP.”
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Report parts of a distribution on separate rows if the distribution is partially taxable and partially nontaxable, or if the distribution is either taxable or nontaxable by reason of different Code sections.
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For example, a cash distribution of $100 that is a nontaxable distribution of PTEP under section 959(a) of $30, a taxable dividend eligible for a dividends received deduction under section 245A of $15, a taxable dividend under section 301(c)(1) of $25, a nontaxable distribution applied against basis under section 301(c)(2) of $10, and a taxable distribution treated as gain from the sale or exchange of property under section 301(c)(3) of $20, would be reported on five rows.
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If non-cash distributions were made, attach a statement and show both the tax bases and fair market values.
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Column (b): Date of distribution
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Enter the month, day, and year using the following format: MM-DD-YYYY. For example, June 30, 2021, would be entered as “06-30-2021.”
Column (c): Amount of distribution in foreign corporation’s functional currency
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The amount of a distribution is generally the amount of any money paid to the shareholder plus the fair market value (FMV) of any property transferred to the shareholder.
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However, this amount is reduced (but not below zero) by the following liabilities.
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Any liability of the corporation the shareholder assumes in connection with the distribution.
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Any liability to which the property is subject immediately before, and immediately after, the distribution
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Column (d): Amount of E&P distribution in foreign corporation’s functional currency
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A corporate distribution to a shareholder is generally treated as a distribution of earnings and profits. Report distributions from current and accumulated earnings and profits.
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Do not report any part of a distribution that is not from earnings and profits.
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An actual distribution is first out of PTEP, if any, and then out of the section 959(c)(3) balance. See section 959(c). If PTEP were distributed, include on Form 5471, Schedule I, line 6, any foreign currency gain or loss on the distribution that is recognized under section 986(c).
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See the instructions for Form 5471, Schedule I, Line 6 for details. With respect to foreign currency gain or loss on a distribution of GILTI: For a corporate U.S. shareholder, include the gain or (loss) as “Other income” on Form 1120, line 10, or on the comparable line of other corporate tax returns.
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For a noncorporate U.S. shareholder, include the result as “Other income” on Schedule 1 (Form 1040), line 8z, or on the comparable line of other noncorporate tax returns. Note. E&P described in section 959(c)(3) is generally E&P of the foreign corporation that has not been included in gross income of a U.S. shareholder under section 951(a)(1) or section 951A.
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