Andrew Mitchel LLC

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Review of An IRS-Prepared Form 5471

2024-12-19

Top of Form 5471

 

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.

  1. Category 4 and 5a filers have been checked. The instructions to last year’s form (this year’s instructions are not yet out) state:
    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.
  2. Item C near the top of Page 1 does not include a percentage. It should show 100%.
  3. Schedule B, Part II has not been completed.
  4. Schedule C states at the top that if the functional currency is the US dollar, then only the US dollar column should be completed. The CFC in this example uses the US dollar as its functional currency but both columns have been completed.
  5. Schedule I, Line 7a was not completed.
  6. Schedule J does not include totals in column (f) or for some columns on Line 14.
  7. Schedule Q does not include totals on Line 5.
  8. Multiple schedules are missing, including Schedules F, G, G-1, I-1, M, and R. The instructions to Form 5471 state that these schedules are required for Category 4 filers.

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.

Tags: Form 5471, 951 Subpart F Income