In recent years, the U.S. tax reporting requirements for cross-border situations, penalties for failure to comply with them, and IRS scrutiny of such compliance have rapidly increased. Reporting Requirements Under the Code for International Transactions discusses special tax compliance issues for U.S. persons with foreign operations, subsidiaries, or other assets, and foreign persons with U.S. operations, subsidiaries, or other assets.

Written by Matthew S. Blum, Esq., David J. Canale, Esq., Lilo A. Hester, Esq., and Margaret O'Connor, Esq. all of Ernst & Young, this Portfolio begins with an overview of the process and principles of outbound reporting, inbound reporting, and transfer pricing.  It then examines the pervasive practical issues that plague international companies, including separately determining taxes, U.S. GAAP, and foreign GAAP (non)conformity; obtaining structural and financial information; and reorganizing and restructuring.

Numerous issues related to the completion of Form 5471 by U.S. owners of foreign corporations—including who must file, when to file, where to file, how to file, and what must be filed—are addressed in detail.  This Portfolio also closely examines the reporting requirements for five other circumstances:

• Creation/liquidation/reorganization/funding of foreign corporations—Form 926 Issues and 367 Notices
• Passive foreign investment companies—Form 8621
• Reporting requirements for foreign partnerships—Forms 1065 and 8865
• Foreign-owned U.S. corporations and foreign corporations with a U.S. trade or business—Form 5472 and related issues, and §§6038A and 6038C
• Corporations engaged in a U.S. trade or business—Form 1120-F

In addition, this Portfolio discusses the interaction of the international tax compliance project with the transfer pricing rules and the effect of the “dual consolidated loss” rules of §1503(d) on persons who have losses deductible on both a U.S. and a foreign tax return.  It also examines the mechanics and practical issues of Form 8858 for disregarded entities, treaty-based return positions, and returns relating to foreign bank financial accounts.

Reporting Requirements Under the Code for International Transactions allows you to benefit from:

• Hundreds of hours of original research on specific tax planning topics from leading practitioners in this area
• Invaluable practice documents including tables, charts and lists
• Plain-English guidance from world-class experts
• Real-world and in-depth analysis that lets you explore various options
• Time-saving access to relevant sections of tax laws, regulations, court cases, IRS documents and more.
• Alternative approaches to both common and unique tax scenarios

This Portfolio is part of the Foreign Income Portfolios Library, a comprehensive series containing more than 90 Portfolios, which covers critical transactions and issues in international taxation. This highly-regarded resource service offers commentary on a wide range of foreign income topics including: Foreign Tax Credit, Business Operations in more than 40 foreign countries, Branch ProfitsTax, Source of Income Rules, Subpart F (Controlled Foreign Corporations), Foreign Partnerships and Partners, Transfer Pricing, and more.

Detailed Analysis

I. Introduction

A. Overview of Outbound Reporting

B. Overview of Inbound Reporting

C. Transfer Pricing

II. Pervasive Practical Issues

A. Tax/U.S. GAAP/Foreign GAAP (non)Conformity

B. Obtaining Information

1. Structural Information

2. Financial Information

C. Reorganizations and Restructurings

III. U.S. Owners of Foreign Corporations - Form 5471 Issues

A. Introduction

B. Mechanics and Practical Issues

1. Who Must File

a. Category 1 Filer (pre-2005 years)

b. Category 2 Filer

c. Category 3 Filer

d. Category 4 Filer

e. Category 5 Filer

f. Special Rules and Overlaps

g. Dual Residents

2. Filing Mechanics: When/Where/How

a. In General

b. Dormant Corporations

3. What Goes on the Form and How to Get It

a. Introduction

b. Category 1 Filers

c. Category 2 Filers

d. Category 3 Filers

e. Category 4 Filers

f. Category 5 Filers

g. Other Practical Issues

C. Penalties

1. Introduction

2. Category 1 Filers

3. Category 2 and 3 Filers

4. Category 4 and 5 Filers

IV. Creation/Liquidation/Reorganization/Funding of Foreign Corporations - Form 926 Issues and 367 Notices

A. Introduction

B. Form 926: Reporting of Outbound Transfers by U.S. Persons

1. Introduction

2. Mechanics and Practical Issues

3. Section 6038B

a. History of § 6038B

b. Persons Required to File Information Returns

c. Exceptions for Transfers of Stock or Securities

d. Cash Transfers to Foreign Corporations

e. Special Rules for Spinoffs and Other § 355 Transfers

f. Special Rules for § 332 Liquidating Distributions

g. Special Rules for Certain Reorganizations

h. Transfers of Intangible Property and Subsequent Filings

4. Information Required To Be Filed: Form 926 and Attachments

5. Consequences of Noncompliance

a. Loss of Beneficial § 367(a) Treatment

b. Monetary Penalty

c. Extension of the Statute of Limitations

C. Section 367(a) Notice Requirement for U.S. Corporations Transferred to Foreign Corporations

1. Introduction

2. Form of Statement and Disclosure Requirements

3. Consequences of Non-Compliance

D. Section 367(b) Notice Requirements for Inbound and Foreign-to-Foreign Reorganizations

1. Persons Subject to the § 367(b) Notice Requirement

a. In General

b. Repatriation of Foreign Assets - 10% Voting Shareholders

c. Repatriation of Foreign Assets - Other Shareholders

d. Foreign-to-Foreign Reorganizations

e. Foreign Spinoffs, Split-Offs, and Split-Ups

f. Foreign § 381 Transactions

2. Time and Manner of Filing Notice

3. Consequences of Not Providing § 367(b) Notice

V. Passive Foreign Investment Companies - Form 8621

A. Introduction

B. Mechanics and Practical Issues

1. Who Must File

2. Filing Mechanics: When/Where/How

3. What Goes on the Form and How to Get It

a. Identification Information and Attachment

b. Part I - Elections

c. Part II - Income from a Qualified Electing Fund

d. Part III - Gain/Loss from a Mark-to-Market Election

e. Part IV - Distributions and Dispositions of § 1291 Funds

f. Part V - Status of § 1294 Elections

4. Protective Filings

5. Dispositions

6. Traps for the Unwary

C. Failure to File

VI. Reporting Requirements for Foreign Partnerships - Forms 1065 and 8865

A. Introduction

B. Foreign Partnerships - Form 1065 Filing Requirements

1. Introduction

2. Mechanics and Practical Issues

a. Which Foreign Partnerships Must File

b. What Goes on the Return?

c. Due Dates for Return

d. Signing Returns

e. Skeleton Returns for Making Elections

3. Penalties

a. Monetary Penalty

b. Disallowance of Certain Deductions and Credits

C. U.S. Partners of Foreign Partnerships - Form 8865 Reporting Requirements

1. Introduction

2. History

3. Mechanics and Practical Issues

a. Who Must File

(1) Category 1 Filer

(2) Category 2 Filer

(3) Category 3 Filer

(4) Category 4 Filer

(5) Overlap Rules

(6) Special Rules and Exceptions

(7) Tax Year Issues

b. Filing Mechanics: When/Where/How

c. What Goes on the Form and How to Get It

(1) Category 1 Filers

(2) Category 2 Filers

(3) Category 3 Filers

(4) Category 4 Filers

(5) Form 1065/Form 8865 Overlap Rules

d. Penalties

(1) Category 1 and 2 Filers/§ 6038

(2) Category 3 Filers/§ 6038B

(3) Category 4 Filers/§ 6046A

VII. Foreign-Owned U.S. Corporations and Foreign Corporations with a U.S. Trade or Business - Form 5472 and Related Issues, and § § 6038A and 6038C

A. Introduction

B. Mechanics and Practical Issues

1. Who Must File

a. Introduction

b. Reporting Corporation

(1) 25-Percent Foreign-Owned Domestic Corporations

(2) Foreign Corporations with U.S. Trade or Business

c. Related Party

d. Attribution Rules

e. Reportable Transaction

f. Form 5471/5472 Overlap

g. Consolidated Returns

2. When/Where/How to File

3. Interaction with Transfer Pricing

C. What Goes on the Form and How to Get It

1. Introduction

2. Headline Information: Parts I, II and III

3. Parts IV and V: Transactions with Foreign Related Parties

4. Part VI: Additional Information

D. Consequences of Non-Compliance

1. Introduction

2. Monetary Penalty

3. Extension of Statute of Limitations

VIII. Foreign Corporations Engaged in a U.S. Trade or Business - Form 1120-F

A. Introduction

B. Mechanics and Practical Issues

1. Who Must File

a. In General

b. Treaty Situations

c. Protective Returns

d. Group Issues

e. Refund Claims

2. Employer Identification Number

3. Due Dates

4. Payment of Balance Due

C. What Goes on the Form and How to Get It

1. Introduction

2. When Is Income ECI?

a. In General

b. Real Estate Income

c. The Branch Balance Sheet

3. Form 1120-F

a. Identifying Information

b. Computation of Tax Due

c. Section I: Income Not Effectively Connected

d. Section II: Effectively Connected Income

e. Section III: Branch Taxes

f. Balance Sheet and Book Income Reconciliation

D. Consequences of Non-Compliance

IX. Transfer Pricing Documentation

A. General - Contemporaneous Documentation Rule

B. Relationship of the Transfer Pricing Study and the Return

1. The Transfer Pricing Study as a Data Source for the Return

2. The Search for Transfer Pricing Issues

3. The Return as a Check on the Transfer Pricing Study

C. Cost-Sharing Arrangements

D. Penalties

X. Dual Consolidated Losses

A. Introduction

B. Overview of the Current DCL Regulations and Related Filings

1. What Is a DCL?

2. Consequences of a DCL

3. The Domestic Use (Previously (g)(2)) Agreement

a. The Initial Agreement

b. Ongoing Certifications

4. No Possibility of Foreign Loss

5. Subsequent Transactions

C. Failure to Make Elections and Certifications on a Timely Basis

D. Transition Issues

XI. Form 8858: Disregarded Entities

A. Introduction

B. Mechanics and Practical Issues

1. Who Must File

a. In General

b. Tax-Exempt Entities

c. Multiple Filers of the Same Information

2. Filing Mechanics: When/Where/How

a. In General

b. Dormant FDEs

3. What Goes on the Form & How to Get It

a. In General

b. Direct U.S. Tax Owners

(1) Introduction

(2) Schedule C

(3) Schedule C-1

(4) Schedule F

c. Form 5471 Filers

d. Form 8865 Filers

C. Penalties

XII. Treaty-Based Return Positions - § 6114

A. Introduction

B. Who Must File

1. In General

2. Overriding Exceptions for Income Otherwise Reported

3. Other Exceptions for Interest, Dividends, Royalties, etc.

4. De Minimis Exceptions

5. Other Exceptions

C. Mechanics of Filing

D. Penalties for Failure to Disclose Treaty-Based Return Positions

XIII. Returns Relating to Foreign Bank Financial Accounts

A. Introduction

B. Who Must File

1. In General

2. United States Person

3. Financial Account

4. Foreign Country

5. Financial Interest

6. Signature Authority

7. Exceptions from Filing

C. Mechanics of Filing: What/When/How

D. Penalties for Failure to File

E. Practical Observations

Working Papers

Table of Worksheets

Worksheet 1 List of Relevant IRS Forms

Bibliography

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Treasury Regulations:

Other Federal Statutory Provisions and Related Administrative Acts:

Treaties and Agreements:

Legislative History:

Treasury Rulings:

Cases:

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Periodicals:

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