2003 HTML Instructions for Form 5471,

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Table of Contents

Purpose of Form

Form 5471 is used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations. The form and schedules are used to satisfy the reporting requirements of sections 6035, 6038, 6046, and the related regulations.

Who Must File

Generally, all U.S. persons described in Categories of Filers below must complete the schedules, statements,
and/or other information requested in the chart, Filing Requirements for Categories of Filers, on page 2. Read the information for each category carefully to determine which schedules, statements, and/or information apply.

If the filer is described in more than one filing category, do not duplicate information. However, complete all items that apply. For example, if you are the sole owner of a controlled foreign corporation (CFC) that is also a foreign personal holding company (i.e., you are described in Categories 1, 4, and 5), complete all four pages of Form 5471 and separate Schedules J, M, and N.

Note:

Complete a separate Form 5471 and all applicable schedules for each applicable foreign corporation.

When and Where To File

Form 5471 is due when your income tax return is due, including extensions. Attach the original copy of the Form 5471 and schedules to your income tax return. You are required to file a duplicate copy of the form and required schedules with the Internal Revenue Service Center, Philadelphia, PA 19255. However, see Electronic Filing of Form 5471
on page 3.

Categories of Filers

Category 1 Filer

This includes a U.S. citizen or resident who is an officer, director, or 10% shareholder of a foreign personal holding company.

A 10% shareholder is any individual who owns, directly or indirectly (within the meaning of section 554), 10% or more in value of the outstanding stock of the foreign personal holding company.

Foreign personal holding company. A foreign corporation qualifies as a foreign personal holding company if:

At any time during the tax year more than 50% of the combined voting power of all classes of stock entitled to vote or the total value of the stock of the foreign corporation is owned (directly or indirectly) by or for a group of five or fewer citizens or residents of the United States and
At least 60% of the foreign corporation's gross income (as defined in section 555(a)) is foreign personal holding company income (defined in section 553).

For more information, see section 552.

Once a foreign personal holding company meets the gross income test, the minimum percentage is lowered to 50% for any subsequent tax year. The foreign corporation will, however, continue to be considered a foreign personal holding company until either:

The stock requirement test is not met or
The end of 3 consecutive tax years in each of which less than 50% of the gross income is foreign personal holding company income.

Category 2 Filer

This includes a U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. person (defined below) has acquired (in one or more transactions):

Stock which meets the 10% stock ownership requirement (described below) with respect to the foreign corporation or
An additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation.

A U.S. person has acquired stock in a foreign corporation when that person has an unqualified right to receive the stock, even though the stock is not actually issued. See Regulations section 1.6046-1(f)(1) for more details.

Stock ownership requirement. For purposes of Category 2 and Category 3, the stock ownership threshold is met if a U.S. person owns:

10% or more of the total value of the foreign corporation's stock or
10% or more of the total combined voting power of all classes of stock with voting rights.

U.S. person. For purposes of Category 2 and Category 3, a U.S. person is:

A citizen or resident of the United States,
A domestic partnership,
A domestic corporation, and
An estate or trust that is not a foreign estate or trust defined in section 7701(a)(31).

See Regulations section 1.6046-1(f)(3) for exceptions.

Category 3 Filer

This category includes:

A U.S. person (defined above) who acquires stock in a foreign corporation which, when added to any stock owned on the date of acquisition, meets the 10% stock ownership requirement (described above) with respect to the foreign corporation;
A U.S. person who acquires stock which, without regard to stock already owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation;
A person who is treated as a U.S. shareholder under section 953(c) with respect to the foreign corporation;
A person who becomes a U.S. person while meeting the 10% stock ownership requirement with respect to the foreign corporation; or
A U.S. person who disposes of sufficient stock in the foreign corporation to reduce his or her interest to less than the stock ownership requirement.

For more information, see section 6046 and Regulations section 1.6046-1.

Category 4 Filer

This includes a U.S. person who had control (defined on page 2) of a foreign corporation for an uninterrupted period of at least 30 days during the annual accounting period of the foreign corporation.

U.S. person. For purposes of Category 4, a U.S. person is:

A citizen or resident of the United States;
A nonresident alien for whom an election is in effect under section 6013(g) to be treated as a resident of the United States;
An individual for whom an election is in effect under section 6013(h), relating to nonresident aliens who become residents of the United States during the tax year and are married at the close of the tax year to a citizen or resident of the United States;
A domestic partnership;
A domestic corporation; and
An estate or trust that is not a foreign estate or trust defined in section 7701(a)(31).

See Regulations section 1.6038-2(d) for exceptions.

Control. A U.S. person has control of a foreign corporation if, at any time during that person's tax year, it owns stock possessing:

More than 50% of the total combined voting power of all classes of stock of the foreign corporation entitled to vote or
More than 50% of the total value of shares of all classes of stock of the foreign corporation.

A person in control of a corporation that, in turn, owns more than 50% of the combined voting power, or the value, of all classes of stock of another corporation is also treated as being in control of such other corporation.

Example. Corporation A owns 51% of the voting stock in Corporation B. Corporation B owns 51% of the voting stock in Corporation C. Corporation C owns 51% of the voting stock in Corporation D. Therefore, Corporation D is controlled by Corporation A.

For more details on “control,” see Regulations sections 1.6038-2(b) and (c).

Category 5 Filer

This includes a U.S. shareholder who owns stock in a foreign corporation that is a CFC for an uninterrupted period of 30 days or more during any tax year of the foreign corporation, and who owned that stock on the last day of that year.

U.S. shareholder. For purposes of Category 5, a U.S. shareholder is a U.S. person who:

Owns (directly, indirectly, or constructively, within the meaning of sections 958(a) and (b)) 10% or more of the total combined voting power of all classes of voting stock of a CFC or
Owns (either directly or indirectly, within the meaning of section 958(a)) any stock of a CFC (as defined in sections 953(c)(1)(B) and 957(b)) that is also a captive insurance company.

U.S. person. For purposes of Category 5, a U.S. person is:

A citizen or resident of the United States,
A domestic partnership,
A domestic corporation, and
An estate or trust that is not a foreign estate or trust defined in section 7701(a)(31).

See section 957(c) for exceptions.

CFC. A CFC is a foreign corporation that has U.S. shareholders that own (directly, indirectly, or constructively, within the meaning of sections 958(a) and (b)) on any day of the tax year of the foreign corporation, more than 50% of:

The total combined voting power of all classes of its voting stock or
The total value of the stock of the corporation.

Exceptions From Filing

Multiple filers of same information. One person may file Form 5471 and the applicable schedules for other persons who have the same filing requirements. If you and one or more other persons are required to furnish information for the same foreign corporation for the same period, a joint information return that contains the required information may be filed with your income tax return or with the income tax return of any one of the other persons. For example, a U.S. person described in Category 5 may file a joint Form 5471 with a Category 4 or another Category 5 filer. However, for Category 3 filers, the required information may only be filed by another person having an equal or greater interest (measured in terms of value or voting power of the stock of the foreign corporation).

The person that files Form 5471 must complete Item D on page 1 of the form. All persons identified in Item D must attach a statement to their income tax return that includes the information described in the instructions for Item D on page 4.

Domestic corporations. Shareholders are not required to file the information checked in the chart on this page for a foreign insurance company that has elected (under section 953(d)) to be treated as a domestic corporation and has filed a U.S. income tax return for its tax year under that provision.

Members of consolidated groups. A Category 4 filer is not required to file Form 5471 for a corporation defined in section 1504(d) that files a consolidated return for the tax year.

Constructive owners.

A U.S. citizen or resident described in Category 1 that is a 10% shareholder that does not own 10% or more in value of the outstanding stock directly but is required to file Form 5471 solely by attribution of another U.S. person's stock ownership does not have to file if the direct owner is an individual who furnishes all of the required information.
A U.S. person described in Category 3 or 4 does not have to file Form 5471 if all of the following conditions are met:
1. The U.S. person does not own a direct interest in the foreign corporation,
2. The U.S. person is required to furnish the information requested solely because of constructive ownership (as determined under Regulations section 1.6038-2(c) or 1.6046-1(i)) from another U.S. person, and
3. The U.S. person through which the indirect shareholder constructively owns an interest in the foreign corporation files Form 5471 to report all of the required information.
A Category 2 filer does not have to file Form 5471 if:
1. Immediately after a reportable stock acquisition, three or fewer U.S. persons own 95% or more in value of the outstanding stock of the foreign corporation and the U.S. person making the acquisition files a return for the acquisition as a Category 3 filer or
2. The U.S. person(s) for which the Category 2 filer is required to file Form 5471 does not directly own an interest in the foreign corporation but is required to furnish the information solely because of constructive stock ownership from a U.S. person and the person from whom the stock ownership is attributed furnishes all of the required information.
A Category 4 or 5 filer does not have to file Form 5471 if the shareholder:
1. Does not own a direct or indirect interest in the foreign corporation and
2. Is required to file Form 5471 solely because of constructive ownership from a nonresident alien.

Filing Requirements for Categories of Filers

Additional Filing Requirements

Category 3 filers. Category 3 filers must attach a statement that includes:

The amount and type of any indebtedness the foreign corporation has with the related persons described in Regulations section 1.6046-1(b)(11) and
The name, address, identifying number, and number of shares subscribed to by each subscriber to the foreign corporation's stock.

Foreign sales corporations (FSCs).

Category 2 and Category 3 filers who are shareholders, officers, and directors of a FSC (as defined in section 922) must file Form 5471 and separate Schedule O to report changes in the ownership of the FSC.
Category 4 and 5 filers are not subject to the subpart F rules for:
1. Exempt foreign trade income,
2. Deductions that are apportioned or allocated to exempt foreign trade income,
3. Nonexempt foreign trade income (other than section 923(a)(2) nonexempt income, within the meaning of section 927(d)(6)), and
4. Any deductions that are apportioned or allocated to the nonexempt foreign trade income described above.
Category 4 and 5 filers are subject to the subpart F rules for:
1. All other types of FSC income (including section 923(a)(2) nonexempt income within the meaning of section 927(d)(6)),
2. Investment income and carrying charges (as defined in section 927(c) and (d)(1)), and
3. All other FSC income that is not foreign trade income or investment income or carrying charges.
Category 4 and 5 filers are not required to file a Form 5471 (in order to satisfy the requirements of section 6038) if the FSC has filed a Form 1120-FSC. See Regulations section 1.921-1T(b)(3). However, these filers may be required to file Form 5471 if they are subject to the subpart F rules with respect to certain types of FSC income (see above).

Section 338 election. If a section 338 election is made with respect to a qualified stock purchase of a foreign target corporation for which a Form 5471 must be filed:

A purchaser (or its U.S. shareholder) must attach a copy of Form 8883, Asset Allocation Statement Under Section 338, to the first Form 5471 for the new foreign target corporation. See the Instructions for Form 8883 for details.
A seller (or its U.S. shareholder) must attach a copy of Form 8883 to the last Form 5471 for the old foreign target corporation.

Penalties

Failure to file information required by section 6038(a) (Form 5471 and Schedule M).

A $10,000 penalty is imposed for each annual accounting period of each foreign corporation for failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.
Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901, 902, and 960. If the failure continues 90 days or more after the date the IRS mails notice of the failure to the U.S. person, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038(c)(2) for limits on the amount of this penalty.

Failure to file information required by sections 6035 and 6046 and the related regulations (Form 5471 and Schedules N and O).

Any person who fails to file or report all of the information requested by section 6035 is subject to a $1,000 penalty for each such failure for each reportable transaction.
Any person who fails to file or report all of the information requested by section 6046 is subject to a $10,000 penalty for each such failure for each reportable transaction. If the failure continues for more than 90 days after the date the IRS mails notice of the failure, an additional $10,000 penalty will apply for each 30-day period or fraction thereof during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000.

Criminal penalties. Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file the information required by sections 6035, 6038, and 6046.

Note:

Any person required to file Form 5471 and Schedule J, M, N, or O who agrees to have another person file the form and schedules for him or her may be subject to the above penalties if the other person does not file a correct and proper form and schedule.

Other Reporting Requirements

Reporting Exchange Rates on Form 5471

When translating amounts from functional currency to U.S. dollars, you must use the method specified in these instructions. For example, when translating amounts to be reported on Schedule E, you must use the average exchange rate as defined in section 986(a). But, regardless of the specific method required, all exchange rates must be reported using a “divide-by convention” rounded to at least 4 places. That is, the exchange rate must be reported in terms of the amount by which the functional currency amount must be divided in order to reflect an equivalent amount of U.S. dollars. As such, the exchange rate must be reported as the units of foreign currency that equal one U.S. dollar, rounded to at least 4 places. Do not report the exchange rate as the number of U.S. dollars that equal one unit of foreign currency.

Note:

You must round the result to more than 4 places if failure to do so would materially distort the exchange rate or the equivalent amount of U.S. dollars.

Example.

During its annual accounting period, the foreign corporation paid income taxes of 30,255,400 Yen to Japan. The Schedule E instructions specify that the foreign corporation must translate these amounts into U.S. dollars at the average exchange rate for the tax year to which the tax relates in accordance with the rules of section 986(a). The average exchange rate is 118.5050 Japanese Yen to 1 U.S. dollar (0.00843846 U.S. dollars to 1 Japanese Yen). The foreign corporation divides 30,255,400 Yen by 118.5050 to determine the U.S. dollar amount to enter in column (d) of Schedule E. Line 2 of Schedule E is to be completed as follows: Enter “Japan” in column (a), “30,255,400” in column (b), “118.5050” in column (c), and “255,309” in column (d).

Electronic Filing of Form 5471

If you file your income tax return electronically, see the instructions for your income tax return for general information about electronic filing. If you file your original Form 5471 electronically (as an attachment to your electronically filed income tax return), it is not necessary to file a duplicate Form 5471.

Computer-Generated Form 5471 and Schedules

A computer-generated Form 5471 and its schedules may be filed if they conform to and do not deviate from the official form and schedules. Generally, all computer-generated forms must receive prior approval from the IRS and are subject to an annual review.

Submit all requests for approval to: Internal Revenue Service, Attention: Substitute Forms Program, W:CAR:MP:T:T:SP, 1111 Constitution Avenue, NW, Room 6411, Washington, DC 20224.

Important:

Be sure to attach the approval letter to Form 5471.

Every year, the IRS issues a revenue procedure to provide guidance for filers of computer-generated forms. In addition, every year the IRS issues Pub. 1167, General Rules and Specifications For Substitute Tax Forms and Schedules, which reprints the most recent applicable revenue procedure. Pub. 1167 can be ordered by calling 1-800-TAX-FORM (1-800-829-3676). This publication is also available from the IRS website at www.irs.gov.

Dormant Foreign Corporations

Rev. Proc. 92-70, 1992-2 C.B. 435, provides a summary filing procedure for filing Form 5471 for a dormant foreign corporation (defined in sec. 3 of Rev. Proc. 92-70). This summary filing procedure will satisfy the reporting requirements of sections 6038 and 6046.

If the filer elects the summary procedure, only page 1 of Form 5471 is completed for each dormant foreign corporation as follows:

The top margin of the summary return must be labeled “Filed Pursuant to Rev. Proc. 92-70 for Dormant Foreign Corporation.”
Include filer information such as name and address, Items A through C, and tax year.
Include corporate information such as the dormant corporation's annual accounting period (below the title of the form) and Items 1a, 1b, 1c, and 1d.

For more information, see Rev. Proc. 92-70.

File page 1 in duplicate with each filer's regularly filed income tax return. See When and Where To File on
page 1.

Treaty-Based Return Positions

File Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b), to disclose a return position that any treaty of the United States (such as an income tax treaty, an estate and gift tax treaty, or a friendship, commerce, and navigation treaty):

Overrides or modifies any provision of the Internal Revenue Code and
Causes, or potentially causes, a reduction of any tax incurred at any time.

Failure to make such a report may result in a $1,000 penalty ($10,000 for a C corporation). See section 6712.

General Instructions