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IRS Issues Early Drafts of International Tax Reporting Forms, Form 5471 & FINCEN 14

AAFCPAs would like to make clients aware that the IRS has issued early drafts of revisions to international tax Forms 5471 and FINCEN14 (formerly known as FBAR).

What’s New with Form 5471?

Internal Revenue Service Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations (CFC), has been in existence for many years, gaining significantly more complexity in 2017 after the passage of the Tax Cuts and Jobs Act. This form contains important disclosure information related to foreign controlled corporations and, in many cases, determines U.S. taxability of the U.S. shareholder of such foreign corporation.

This form continues to increase in complexity as the IRS adds additional schedules and expands on the questions to answer. Some of the major changes include expansion of the types of U.S. filers that may be required to file this report, including constructively related and unrelated U.S. shareholders. AAFCPAs advises clients of the importance to understand the organizational structure of your company’s business activity to make sure a filing requirement is not missed. In addition, the IRS would like to understand more about the books and records of the controlled foreign corporation and with this change would like to know on what basis the books of the CFC are kept.

Tracking of historical Earnings and Profits (E&P) is another key focus area.  E&P has always been at the heart of this disclosure, and the IRS has expanded reporting and analysis of previously taxed earnings and profits (PTEPs) of a foreign CFC. They are requiring these PTEPs to be sliced into many more categories. Brand new schedules Q and R have been added to this reporting package in order to granularly bifurcate CFC’s income by certain groups, as well as provide detail on distributions from foreign corporations to U.S.

FBAR to Include Virtual Currency as Reportable Income

The IRS has also issued a notice about a filing requirement for inclusion of virtual currency on the Report of Foreign Bank and Financial Accounts (FBAR). Currently, FBAR regulations do not define a foreign account holding virtual currency as a type of reportable account. With the issuance of this notice, AAFCPAs believes there is intent to amend current regulations to include virtual currency as a type of reportable account.  AAFCPAs will monitor the development of this notice and provide further guidance as it becomes available.

Failure to file Form 5471 and FBAR or complete them in their entirety could result in significant penalties to the U.S. taxpayer. Penalties may be $10,000 or more, per form for each applicable annual accounting period.

The rules and new updates to these forms are complex. AAFCPAs has expertise providing guidance on compliance as well as best practices in foreign reporting. We continue to monitor ever-changing developments in international tax. If you have questions, please contact: Bella Amigud, CPA, MST, at bamigud@nullaafcpa.com, 774.512.4060; or your AAFCPAs Partner.

About the Author

Bella Amigud
Bella delivers compliance and tax planning solutions for public and privately-held companies, and family-owned businesses in a variety of industries, including: healthcare technology, high tech, software, green tech, clean tech, retail, and private equity.  Her skills are concentrated on federal and multi-state taxation, advising AAFCPAs’ clients on:  understanding the impact of the Tax Cuts and Jobs Act (H.R. 1); physical presence versus economic nexus; state apportionment; tax exposure in relation to FIN 48 financial reporting; and the tax implications of multi-state transactions, such as: mergers, acquisitions, expansions and relocations. Bella advises corporations, S corporations, partnerships, and limited liability companies on issues affecting tax liability.