Schedule M, Form 5471

(Schedule M) Form 5471

How to Prepare (Schedule M) Form 5471 CFC Related Transactions: Unlike many of the Form 5471 Schedules that are required for the different categories of filers — the IRS Schedule M is only required by Category 4 filers. Category 4 Filers applies when a US Person had control (defined below) of a foreign corporation during the annual accounting period of the foreign corporation. It is important to note that not all transactions are included on Schedule M, but rather transactions between Controlled Foreign Corporations (CFCs) and Shareholders or other Related Persons. Thus, for many Category 4 filers of Schedule M, the amount of actual reporting on the Form may be limited. It should be noted that a separate Schedule M is required for each controlled foreign corporation.

Category 4 Filer, Schedule M & Form 5471

• • • This category includes a U.S. person who had control (defined below) of a foreign corporation during the annual accounting period of the foreign corporation. U.S. person. For purposes of Category 4, a U.S. person is:

      • A citizen or resident of the United States;

      • A nonresident alien for whom an election is in effect under section 6013(g) to be treated as a resident of the United States;

      • An individual for whom an election is in effect under section 6013(h), relating to nonresident aliens who become residents of the United States during the tax year and are married at the close of the tax year to a citizen or resident of the United States;

      • A domestic partnership;

      • A domestic corporation; and

      • An estate or trust that is not a foreign estate or trust as defined in section 7701(a)(31). See Regulations section 1.6038-2(d) for exceptions. Control. A U.S. person has control of a foreign corporation if, at any time during that person’s tax year, it owns stock possessing:

        • 1. More than 50% of the total combined voting power of all classes of stock of the foreign corporation entitled to vote, or
        • 2. More than 50% of the total value of shares of all classes of stock of the foreign corporation.

      • A person in control of a corporation that, in turn, owns more than 50% of the combined voting power, or the value, of all classes of stock of another corporation is also treated as being in control of such other corporation.

        • Example. Corporation A owns 51% of the voting stock in Corporation B. Corporation B owns 51% of the voting stock in Corporation C. Corporation C owns 51% of the voting stock in Corporation D.

          • Therefore, Corporation D is controlled by Corporation A. For more details on “control,” see Regulations sections 1.6038-2(b) and (c).

Transactions of Foreign Corporations

There are many different types of transactions that are included and reportable on Schedule M, and include the following:

• • • Sales of stock in trade (inventory)

    • Sales of tangible property other than stock in

    • Sales of property rights (patents, trademarks, etc.)

    • Platform contribution transaction payments received

    • Cost sharing transaction payments received

    • Compensation received for technical, managerial, engineering, construction, or like

    • Commissions received

    • Rents, royalties, and license fees received

    • Hybrid dividends received (see instructions)

    • Dividends received (exclude hybrid dividends, deemed distributions under subpart F, and distributions of previously taxed income)

    • Interest received

    • Premiums received for insurance or reinsurance

    • Loan guarantee fees received

    • Other amounts received (attach statement)

      • Add lines 1 through 14

    •  Purchases of stock in trade (inventory)

    • Purchases of tangible property other than stock in trade

    • Purchases of property rights (patents, trademarks, etc.)

    • Platform contribution transaction payments paid

    • Cost sharing transaction payments paid

    • Compensation paid for technical, managerial, engineering, construction, or like services .

    • Commissions paid

    • Rents, royalties, and license fees paid

    • Hybrid dividends paid (see instructions)

    • Dividends paid (exclude hybrid dividends paid)

    • Interest paid

    • Premiums paid for insurance or reinsurance

    • Loan guarantee fees paid

    • Other amounts paid (attach statement)

    • Add lines 16 through 29

    • Accounts Payable

    • Amounts borrowed (enter the maximum loan balance during the year)—see instructions

    • Accounts Receivable

    • Amounts loaned (enter the maximum loan balance during the year)—see instructions

Schedule M Reporting Requirements

In addition to the type of transactions of the foreign corporation, the Filer must also include:

• • • Transactions of foreign corporation

    • U.S. person filing this return

    • Any domestic corporation or partnership controlled by U.S. person filing this return

    • Any other foreign corporation or partnership controlled by U.S. person filing this return

    • 10% or more U.S. shareholder of controlled foreign corporation (other than the U.S. person filing this return)

    • 10% or more U.S. shareholder of any corporation controlling the foreign corporation

Additional Schedule M Form 5471 Instructions Tip

 As provided by the Schedule M, Form 5471 Instructions:

• • • Every U.S. person described in Category 4 must file Schedule M to report the transactions that occurred during the foreign corporation’s annual accounting period ending with or within the U.S. person’s tax year.

    • If a U.S. corporation that owns stock in a foreign corporation is a member of a consolidated group, list the common parent as the U.S. person filing Schedule M. Important. In translating the amounts from functional currency to U.S. dollars, use the average exchange rate for the foreign corporation’s tax year. See section 989(b).

    • Report the exchange rate in the entry space provided at the top of Schedule M using the “divide-by convention” specified under Reporting exchange rates on Form 5471, earlier.

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