A Schedule E, H, and J of Form 5471 Taxation Overview

Schedule E, H, and J of Form 5471 Taxation Overview

With each new year, it seems like the Internal Revenue Service goes out of its way to try and further complicate Form 5471. In general, Form 5471 is required by US taxpayers who have ownership or interest in a foreign corporation and qualify as a category that requires reporting. There are five (5) Categories of Form 5471 Filers with categories one and five having subcategories. In addition, there are several schedules that are required ancillary to the main form 5471 form. Three of the most complicated forms are 5471 Schedules E, H, and J.

• • • Schedule E (Income, War Profits, and Excess Profits Taxes Paid or Accrued)

    • Schedule H (Current Earnings and Profits)

    • Schedule J (Accumulated Earnings & Profits (E&P) of Controlled Foreign Corporation)

These forms are very complex, and oftentimes self-purported tax experts tend to get them wrong time and time again. If you are required to file these forms, you should speak with a Board-Certified Tax Law Specialist before making any submission to the IRS. Let’s take a look at a basic introduction about what each form is and what is required.

Schedule E (Categories 1, 4, and 5)

Form 5471 Schedule E is required in order to report taxes paid, accrued, or deemed. In other words, the purpose of Form 5471 schedule E is to ensure that foreign tax credits are being applied properly or correctly. The reason why this has become more complicated in recent years is due to the IRS regulation that allows individuals who may be subject to GILTI, to make a Section 962 election. The reason why this is so important is that technically the individual is not a corporation – but is still required to file the Schedule E. it should be noted that there are different categories for Schedule E to identify the different taxes paid — and they are broken down into the following categories:

• • • Taxes Paid or Accrued Directly by Foreign Corporation

    • Taxes Deemed Paid by Foreign Corporation

    • Taxes for Which a Foreign Tax Credit Is Disallowed

Schedule H (Categories 4 and 5)

Schedule H is used to report a company’s current Earnings and Profits — otherwise referred to as E&P. It is important to note, that schedule H is used specifically for Controlled Foreign Corporations. And under certain circumstances, depending on how much of the information is actually available to the filers, they may be able to rely instead on alternative information in accordance with Revenue Procedure 2019–40.

Schedule J (Categories 1, 4, and 5)

Schedule J of Form 5471 is one of the more complicated if not the most complicated schedules. The purpose of schedule J is to report the accumulated earnings and profits of a controlled foreign corporation; issues involving GILTI and Subpart F make the filing of Schedule J more complicated than it needs to be. In general, taxpayers will have to break down the accumulated earnings and profits (E&P) based on whether or not it was previously taxed; if it involves undistributed earnings pre/post-1987; and whether or not any income is reclassified in accordance with section 965. One important aspect of schedule J is that, unlike other schedules, the financial information included in this Schedule is reported in accordance with the functional currency of the foreign-controlled corporation.

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