Schedule P Form 5471

How to Prepare Schedule P Form 5471 PTEP 

Exploring How to Prepare Schedule P Form 5471 PTEP: One of the most complicated aspects of operating a business is tracking PTEP – Previously Taxed Earnings and Profits. This is especially true for a CFC (Controlled Foreign Corporation). The main reason why this is so important, is because nobody wants to pay the IRS tax twice on the same income.  In order to track the PTEP for Foreign Corporations, the Form 5471 developed Schedule P, which refers to Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations. Let’s go through the basics of Schedule P and PTEP:

Specific Schedule P Reporting Rules

Depending on the type of investors, if there are multiple categories of income – there may be multiple Schedule Ps required:

As provided in the IRS instructions:

Schedule P

• • • Use Schedule P to report the PTEP of the U.S. shareholder of a CFC in the CFC’s functional currency (Part I) and in U.S. dollars (Part II).

    • Also use this schedule to report the PTEP of the U.S. shareholder of an SFC that is only treated as a CFC for limited purposes under section 965(e)(2).

    • A separate Schedule P must be completed by each Category 1, 4, or 5 U.S. shareholder of the foreign corporation with respect to which reporting is furnished on this Form 5471. However, Category 1c and 5c filers are not required to file Schedule P for foreign-controlled corporations.

    • If a U.S. shareholder wholly owns the CFC, Schedule P should include the same information reported on Schedule J, Part I, column (e). If there is more than one U.S. shareholder, the amounts reported on Schedule P with respect to each U.S. shareholder might be different from the amounts reported on Schedule J.

What is IRC 965 (e)(2)?

• • • Internal Revenue Code Section 965 refers to the transition tax, and specifically provides:

    • (2) Application to certain foreign corporations

      • For purposes of sections 951 and 961, a foreign corporation described in paragraph (1)(B) shall be treated as a controlled foreign corporation solely for purposes of taking into account the subpart F income of such corporation under subsection (a) (and for purposes of applying subsection (f)).

Previously Taxed E&P in Functional Currency 

• • • Balance at beginning of year (see instructions)

    • Beginning balance adjustments (attach statement)

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

    • Reduction for taxes unsuspended under anti-splitter rules

    • Previously taxed E&P attributable to distributions of previously taxed E&P from lower-tier foreign corporation

    • Previously taxed E&P carried over in nonrecognition transaction

    • Other adjustments (attach statement)

    • Total previously taxed E&P (combine lines 1c through 5)

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

    • Actual distributions of previously taxed E&

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

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

    • Other adjustments (attach statement)

    • Balance at beginning of next year (combine lines 6 through 11) .

Important Considerations about Previously Taxed E&P

When it comes to tracking the PTEP, there are certain considerations that must be factored into the analysis – especially when it comes to reclassified income. This includes various aspects of IRC 965, including:

• • • Reclassified section 965(a) PTEP

    • Reclassified section 965(b) PTEP

    • General section

    • 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)

Golding & Golding: International Tax Lawyers  Worldwide

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm for assistance.