(New) 2021 Schedule J of Form 5471

(New) 2021 Schedule J of Form 5471

Exploring the (New) 2021 Schedule J of Form 5471: When it comes to the various international information reporting forms required by US persons with foreign assets, Internal Revenue Service — Form 5471 is one of the most complicated tax forms. Technically, Form 5471 refers to Information Return of U.S. Persons With Respect To Certain Foreign Corporations. In addition to the main Form 5471, there are several different schedules associated with form 5471 — and while some of the schedules are part of the context of the main form, other schedules are considered additional schedules and filed “in addition” to main Form 5471. The different schedules range in complexity and difficulty — with Schedule J being one of the more complicated 5471 schedules — and refers to Accumulated Earnings and Profits (“E&P”) of Controlled Foreign Corporations. Unlike other types of international tax forms, such as Form 8938 or FBAR (which primarily only requires information regarding the asset value) — IRS Form 5471 is much more detailed — with Schedule J being one of the more complicated of the 5471 Schedules. Let’s review the the basics of new 2021 schedule J of Form 5471.

What is a Controlled Foreign Corporation (CFC)?

A Controlled Foreign Corporation is essentially a foreign corporation that is owned more than 50% by US Persons — in which each shareholder owns at least 10%. The definition can then get infinitely more complicated depending on whether the US Person owner involves an individual or domestic shareholder, subsidiary, etc. — which then leads to other SFC (Specified Foreign Corporation) issues. For individuals, the key ingredient is whether or not US persons own more than 50% — if US Persons do not own more than 50% (constructive ownership and attribution rules apply) then the foreign corporation is not a CFC.

What is Earnings & Profit (E&P) for Form 5471 Schedule J?

There is no specific definition of the term accumulated earnings and profits in the Internal Revenue Code — although, there are generally accepted principles an computation methods about how to determine an calculate a company’s Earnings and Profits or “E&P.” Form 5471 and international tax law in general, E&P become much more important with the introduction of TCJA — which brought along with it GILTI and FDII — and additional taxes based on certain accumulated (and not previously taxed) income.

What to do with Schedule J (5471)?

Chances are, if you do not have much background in tax and accounting–  then performing the required computation of a company’s Earnings and Profits will be an exercise in your overall patience — and your ability to grind out the most mundane of calculations.

The Schedule J is broken down like a typical table or graph:

Schedule J Form 5471 PART I – Accumulated E&P of Controlled Foreign Corporation

The columns consist of various key income points in time as follows:

• • • Post-2017 E&P Not Previously Taxed (post-2017 section 959(c)(3) balance)

    • Post-1986 Undistributed Earnings (post-1986 and pre-2018 section 959(c)(3) balance)

    • Pre-1987 E&P Not Previously Taxed (pre-1987 section 959(c)(3) balance)

    • Hovering Deficit and Deduction for Suspended Taxes

    • Previously Taxed E&P (see instructions)

    • Reclassified section 965(a) PTEP (ii)

    • Reclassified section 965(b) PTEP

    • General section 959(c)(1) PTEP

    • Reclassified section 951A PTEP

    • Reclassified section 245A(d) PTEP

    • Section 965(a) PTEP

    • Section 965(b) PTEP

    • Section 951A PTEP

    • Section 245A(d) PTEP

    • Section 951(a)(1)(A) PTEP

The rows are as follows:

• • • 1a Balance at beginning of year (as reported on prior year Schedule J)

    • b Beginning balance adjustments (attach statement)

    • c Adjusted beginning balance (combine lines 1a and 1b)

    • 2a Reduction for taxes unsuspended under anti-splitter rules

    • b Disallowed deduction for taxes suspended under anti-splitter rules

    • 3 Current year E&P (or deficit in E&P) (enter amount from applicable line 5c of Schedule H) . . . 4 E&P attributable to distributions of previously taxed E&P from lower-tier foreign corporation . 5a E&P carried over in nonrecognition transaction .

    • b Reclassify deficit in E&P as hovering deficit after nonrecognition transaction

    • 6 Other adjustments (attach statement)

    • 7 Total current and accumulated E&P (combine lines 1c through 6)

    • 8 Amounts reclassified to section 959(c)(2) E&P from section 959(c)(3) E&P

    • 9 Actual distributions

    • 10 Amounts reclassified to section 959(c)(1) E&P from section 959(c)(2) E&P

    • 11 Amounts included as earnings invested in U.S. property and reclassified to section 959(c)(1) E&P (see instructions)

    • 12 Other adjustments (attach statement)

    • 13 Hovering deficit offset of undistributed post transaction E&P (see instructions)

    • 14 Balance at beginning of next year (combine lines 7 through 13)

Part II Nonpreviously Taxed E&P Subject to Recapture as Subpart F Income (section 952(c)(2))

• • *Important: Enter amounts in functional currency.

    • 1 Balance at beginning of

    • 2 Additions (amounts subject to future recapture)

    • 3 Subtractions (amounts recaptured in current year)

    • 4 Balance at end of year (combine lines 1 through 3)

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