2024-12-19
Yesterday the IRS uploaded a completed Form 1120 with a Form 5471 attached. The Form 5471 starts on Page 31 of the PDF.
Since I often review Forms 5471, I thought I would take a few minutes to review the IRS-prepared Form 5471. My comments are below.
If you satisfy the requirements of both Category 4 and Category 5a filers, only check the box for Category 4 and leave the box for Category 5a blank.If the instructions to the form have remained the same, the Category 5a filer should not be checked.
Although various schedules were missing from the Form 5471, it seemed like the IRS got most of the numbers right. Of course, they did punt a bit by treating a German CFC as having the US dollar as its functional currency. Even Schedule E showed that they paid tax in Germany in US dollars. Never seen that before.
They also simplified the calculations by treating all of the income as foreign base company sales income. I am really curious what the balance sheet looks like and what the related party transactions look like, but they didn’t include Schedules F or M.
One thing that the IRS did right that I see many tax preparers doing incorrectly was to include only the deferred taxes from Schedule C as an add back on Schedule H. I see many Forms 5471 with all of the taxes from Schedule C being added back on Schedule H. If I recall correctly, something on the form or in the instructions made a lot of preparers believe that all of the income taxes deducted should be added back as an E&P adjustment on Schedule H.