{"id":2068,"date":"2021-05-12T13:58:07","date_gmt":"2021-05-12T13:58:07","guid":{"rendered":"https:\/\/gtmtax.com\/insight\/faq-significant-changes-expected-to-the-2020-form-5471-again\/"},"modified":"2025-07-23T20:03:11","modified_gmt":"2025-07-23T20:03:11","slug":"faq-significant-changes-expected-to-the-2020-form-5471-again","status":"publish","type":"insight","link":"https:\/\/gtmtax.com\/insight\/faq-significant-changes-expected-to-the-2020-form-5471-again\/","title":{"rendered":"Significant Changes Expected to the 2020 Form 5471"},"content":{"rendered":"
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In 2020, the IRS proposed new changes to the Information Return of U.S. Personas with Respect to Certain Foreign Corporations – known as Form 5471 – which will impact reporting requirements for prior tax years for US taxpayers with ownership in foreign corporations.<\/p>\n

In GTM\u2019s recent webinar session, Back to the Future: Significant Changes Expected to the 2020 Form 5471 (Again)<\/a>, we examined the changes to the form expected for tax year 2020. This included a detailed overview of new schedules Q and R, which require taxpayers to provide significant amounts of information not previously needed.<\/p>\n

Participants asked several questions during the session, including some that we could not address due to time constraints. Here, we address them all, in detail.<\/p>\n

Have additional questions on this topic? Reach out to Brian Abbey<\/a> and Raymond Wynman<\/a>. Watch the original webinar on demand here<\/a>.<\/p>\n

Form 5471: Schedule Q & Schedule R<\/h2>\n

Question:<\/strong>\u00a0 On Schedule Q, should column (xi) Net Income tie to Schedule H Line 5 Current earnings and profits?<\/p>\n

Answer:<\/strong>\u00a0 In some cases, it might.\u00a0 However, it might not if E&P and Tested Income are not the same number.\u00a0 Tested Income, which is essentially a computation of the CFC\u2019s taxable income, may include additional adjustments not considered for E&P purposes.\u00a0 E.g., meals and entertainment, fines & penalties, 163(j), etc.<\/p>\n

Question:<\/strong>\u00a0 Are there any checks and balances within Form 5471 to ensure Schedule Q is completed correctly?<\/p>\n

Answer:\u00a0<\/strong> One potential check would be to make sure that Tested income (loss) on Line 6 of Schedule I-1 ties to Column (xiii) Net Income of Line 3 Tested Income Group on Schedule Q.\u00a0 If the High Tax Election is made and some income is kicked out into the residual group, then Line 4 should be factored into the equation, but in totality the amounts should still agree.<\/p>\n

Question:<\/strong>\u00a0 Does the need to describe the nature of the distributions on Schedule R seem duplicative considering that distributions by category are being provided on Schedules J and P already?<\/p>\n

Answer:\u00a0<\/strong> In a sense, yes.\u00a0 However, Schedule R asks for additional information. Schedules J and P track the distributions themselves and it can be ascertained what amounts relate to dividends or PTEP distributions, but Schedule R tracks the distributions themselves to the shareholder(s), including distributions that reduce basis or create capital gain. It is now necessary to provide Section 986(c) gain or loss on a PTEP distribution, the amount of dividend income, or the capital gain related to an excess distribution.\u00a0 That information is not otherwise found on Form 5471.<\/p>\n

Question:<\/strong>\u00a0 Is Schedule R intended to record only distributions to the U.S. or any distribution from a foreign corporation?<\/p>\n

Answer:<\/strong>\u00a0 It is not specified that Schedule R should be only for distributions from top-tier CFCs to their U.S. Shareholders.\u00a0 Therefore, all CFCs that make distributions during the tax year should report those amounts on Schedule R.<\/p>\n

Note \u2013 the result may differ if it is a foreign-to-foreign distribution rather than a foreign-to-U.S. distribution.\u00a0 For example, in a distribution of PTEP from one CFC to another, there would be no 986(c) gain or loss recorded in column (d) as 986(c) is only relevant when a CFC makes a distribution of PTEP to a U.S. Shareholder.<\/p>\n

Question:<\/strong>\u00a0 Are the assets reported on Schedule Q column (xiii) representative of a tested unit\u2019s total assets or QBAI?<\/p>\n

Answer:\u00a0<\/strong>\u00a0As the purpose of that information is to show how interest expense could be apportioned under the asset method, the number reported should be the amount of total assets.\u00a0 If the Modified Gross Income method is utilized, column (xiii) would be strictly informational.<\/p>\n

Note \u2013 since the assets reported are for interest expense purposes, they should be the average total assets measured using the appropriate method under the Section 861 regulations (i.e., tax book value).<\/p>\n

Question:<\/strong>\u00a0 If no high tax election will be made, should Schedule Q only reflect items in the Subpart F or Tested Income categories?<\/p>\n

Answer:<\/strong>\u00a0 For the most part, yes.\u00a0 Residual income is income that does not fit into any other category. The high tax election \u201ckicks out\u201d income from either Subpart F or GILTI and thus it will not fall into any specific category. Therefore, it gets reported as Residual category income.<\/p>\n

However, another example would be a dividend received by the CFC from another CFC. Dividends that are not Subpart F by way of an exception (de minimis, look-thru, same country, etc.) are also \u201ckicked out\u201d of tested income as \u2018related party dividends\u2019 (see Schedule I-1) and therefore would also fall into the Residual group of income.<\/p>\n

Question:<\/strong>\u00a0 If a CFC is one tested unit in and of itself, should its name be populated on each line 1 on Schedule Q?<\/p>\n

Answer:<\/strong>\u00a0 Yes, the correct approach would be to repeat its name on each applicable line.<\/p>\n

Question:<\/strong>\u00a0 How do you determine the amount of a tested unit\u2019s assets to report on each line of Schedule Q?\u00a0 In other words, how do you allocate assets to different income groups?<\/p>\n

Answer:<\/strong>\u00a0 After a tested unit\u2019s average asset value is calculated under the tax book value method, the assets are then characterized under the rules of Regulation 1.861-9T.\u00a0 Essentially, assets are characterized based on the type of income that they generate or are held to generate.\u00a0 When assets can produce multiple categories of income, the income yield of each such asset is analyzed to determine the ratio of gross income produced by income group.<\/p>\n

Example \u2013<\/p>\n

CFC has three assets on its books:<\/p>\n

Asset 1 – $100<\/p>\n

Asset 2 – $300<\/p>\n

Asset 3 – $200<\/p>\n

Asset 1 produces solely Subpart F.\u00a0 Asset 2 produces solely GILTI.\u00a0 Asset 3 produces both Subpart F and GILTI.<\/p>\n

During the tax year, CFC produces $5 of Subpart F and $15 of tested income.<\/p>\n

The assets are allocated as follows:<\/p>\n

Subpart F: 100 + (200 * (5\/20)) = 150<\/p>\n

951A: 300 + (200 * (15\/20)) = 450<\/p>\n

Automated Tax Technology<\/h2>\n

Question:<\/strong>\u00a0 Is there any insight into whether OneSource is planning to address Schedule Q and R in a timely release?<\/p>\n

Answer:<\/strong>\u00a0 While we certainly cannot guarantee it, we are staying close to OneSource on this topic.\u00a0 The indication is that these schedules will be automated within the software in one of the slated summer releases.\u00a0 We will keep you posted as more concrete information becomes available.<\/span><\/p>\n

951A Category Income<\/h2>\n

Question:\u00a0<\/strong> Is there no longer a requirement to file a separate Schedule J and P for 951A category income?<\/p>\n

Answer:\u00a0<\/strong> That is correct.\u00a0 There is now clarifying language with respect to both schedules.\u00a0 951A category income\/PTEP should be reported using the General category version of the schedules.\u00a0 Treasury has supported the view that GILTI is a shareholder level calculation as opposed to a CFC level calculation.<\/p>\n

Question:<\/strong>\u00a0 If a 951A Category Schedule J and\/or P was used in prior years, should beginning balance adjustments be used to move the E&P to the General Category version of the form in 2020?<\/p>\n

Answer:<\/strong>\u00a0 While we understand that the result is additional work, if the beginning balance does not tie to the prior year ending balance, it is recommended to use beginning balance adjustments (and an attached schedule of those adjustments) to avoid confusion and ensure substantial completion of the forms.<\/p>\n

General 5471 Form Change Questions<\/h2>\n

Question:<\/strong>\u00a0 Is a Category 1a, 1b, or 1c filing requirement still necessary if all Section 965 PTEP has been exhausted through distributions?<\/p>\n

Answer:\u00a0<\/strong>\u00a0No.\u00a0 A U.S. Shareholder who meets the Category 1 filer definition (owing the stock of a Specified Foreign Corporation on the last day of the year that such corporation was a Specified Foreign Corporation) only remains a Category 1 filer if 965 PTEP remains undistributed.<\/p>\n

Essentially, the Category 1 filer was created to require U.S. Shareholders of foreign corporations who were not CFCs (and thus had no continual Form 5471 filing requirement) to report their 965 attributes.<\/p>\n

Question:<\/strong>\u00a0 Are any changes coming to Form 8990 specifically related to CFCs?\u00a0 For example, new line items or sections to report their 163(j) limitation or a group election?<\/p>\n

Answer:<\/strong>\u00a0 We have not been made aware of any anticipated changes to the form for tax year 2020.\u00a0 However, a Rule by the IRS on 1\/19\/2021 indicated changes are expected for tax year 2021 to reflect things like the CFC group election and the safe-harbor election.<\/p>\n

Question:<\/strong>\u00a0 Can you elaborate on the tested unit rules?<\/p>\n

Answer:<\/strong>\u00a0 We held a previous webinar to specifically discuss the GILTI High Tax Exception and cover those rules more in-depth.\u00a0 You can find a link to it here<\/a>.<\/p>\n

We hope this post is helpful as you assess the impact of upcoming tax changes on your business. View our full library of International Tax insights here<\/a>.<\/p>\n\n <\/div>\n<\/div><\/div>","protected":false},"template":"","meta":{"_acf_changed":false},"class_list":["post-2068","insight","type-insight","status-publish","hentry"],"acf":[],"yoast_head":"\nFAQ: Changes to 2020 Form 5471 Again | Global Tax Management<\/title>\n<meta name=\"description\" content=\"Our recent webinar covered the significant changes to the 2020 Form 5471 requiring taxpayers to add more information than previously provided.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/gtmtax.com\/insight\/faq-significant-changes-expected-to-the-2020-form-5471-again\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"FAQ: Changes to 2020 Form 5471 Again | Global Tax Management\" \/>\n<meta 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