Tax Reform, Form 5471 & foreign-owned US subsidaries -- navigating the mess

Tax Reform, Form 5471 & foreign-owned US subsidaries -- navigating the mess

https://ift.tt/2LJaB2m Tax reform made it so that 100% non-US owned US subsidiaries now have to file a Form 5471 for any non-US subsidiaries that there foreign parent owns. This sentence is no doubt, incredibly confusing. This video may help you understand how much of a dramatic change this is and creates huge burdens on foreign companies doing business in the US. In 1960, Congress passed the first law that required corporations and individuals to self-report extensively on their US controlled foreign corporations. The purpose was to reduce the ability of US taxpayers from “playing games.” The law made it so that the IRS can look at everything a US taxpayer- controlled corporation is doing overseas, to make sure their overall worldwide income was properly assessed and taxed. Self-reporting is completed on an IRS Form 5471. IRS Form 5471 is quite intense. And unfortunately the same burdens apply if you are a large multinational corporation or if your foreign corporations are not quite as large and closely held. With complicated instructions, the Form requires you to know which category of filer you are to determine which schedules you need to file. The IRS requires you to convert the accounting method you use overseas over to GAAP. The US is the only country in the world that uses GAAP and all Form 5471 filed with the IRS must comport to GAAP or else..the penalties. The penalties for not filing or filing a substantially incomplete Form 5471 start at $10,000 per year and can reach $50,000. Additionally, if a Form 5471 is not filed, the statute of limitations on the Form 5471 is indefinite. So who has to file a Form 5471? If you are a US shareholder in US controlled foreign corporation you have a Form 5471 requirement and must attach it to your return. But also, tax reform made is so non-US means US! Tax Reformed changed what it means to be a US controlled foreign corporation. For every other similar subsidiary around the world. the US foreign owned subisdary probably has a Form 5471 requirement. Causing further concern is the IRS has made Form 5471 penalties a pretty significant part of it enforcement regime. These penalties are easy to assess and can boost up assessments, making the IRS audit divisions look good to Congress and the Treasury Inspector General. So how did this happen? Downward attribution is what the term is used to justify turning a non-US controlled corporation into a US controlled corporation. If you are confused great! It means you are paying attention. Because downward attribution makes about as much sense as “wet roads causing rain.” Downward attribution is a way get something to mean exactly what it doesn’t mean. So why? First I don’t think anyone who voted for this knew what they were voting on. This rule came into place because a section of tax code was removed by tax reform, not added. The justification for this rule is the same argument from my first example. A US subsidiary could be playing games with transfer pricing, allocating income and expenses to lower US subsidiaries tax bill. Therefore, the argument goes, a Form 5471 is required so that IRS could track both or all sides of every transaction with every related party to the subsidiary. But I wonder. Does this onerous compliance regime actually help the US? Here’s the thing. International tax compliance is so difficult the IRS does not have the staff to actually administer it effectively. Two main reasons. One it takes a long time. A very long time. Second, it actually takes a pretty special person to be able to understand the complexities. Whether you are talking about a tax professional representing you or IRS employee tasked to examine you, one both sides, it takes elite talent to properly work an Form 5471 case. The fact is tax reform made international tax compliance far more complicated. If you or your company needs help in navigating not just the old minefields, but these fresh new minefields, don’t hesitate to contact us to see how we can help you get your compliance worries behind you. So what do you think? Do you think it is a good idea the the US government puts such a burden on international business? Do you think there’s a benefit that outweighs the cost? I love to know what you think and if want you would like in the next tax reform package. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269-6699 info@irsmedic.com https://ift.tt/1RfwK1f https://youtu.be/dIwYRSo3mHw IRS Medic