IRS Announces New Foreign Reporting Rules for CFC Shareholders

Oct 12, 2019

Do you own stock in a controlled foreign company? Did the repeal of section 958(b)(4) affect you? If yes, we have some good tax news. The Internal Revenue Service and Department of Treasury published new rules under Revenue Procedure 2019-40. It outlines tax reporting and penalty relief to qualifying U.S. taxpayers with CFC stocks.

What is a Controlled Foreign Company?

A CFC — or controlled foreign corporation — does business in a different country than a portion of its controlling owners. Stateside, the percentage of shares owned by U.S. citizens defines the qualifying benchmark.

For example, let’s say that Acme Widgets primarily operates in the Cayman Islands. If more than 10% of its stockholders, who represent more than 50% of the vote or value of the company, are U.S. citizens, then CFC rules kick in. Affected parties must report income shares to the IRS and pay taxes on earnings.

Amended Foreign Reporting Requirements for Form 5471

Primarily, Revenue Procedure 2019-40 addresses foreign reporting requirements. Specifically, it “limits the inquiries required by U.S. persons to determine whether certain foreign corporations are controlled foreign corporations.”

Under Revenue Procedure 2019-40, U.S. minority CFC shareholders enjoy relief from dense reporting rules. It allows for the use of readily available financial statements to calculate GIL TI and subpart F inclusions.

The new procedure also:

  1. Lowers non-compliance penalties for applicable taxpayers who fail to meet obligations; and
  2. Limits filing requirements for U.S. shareholders who constructively acquire CFC stock from another party.

The IRS is amending Form 5471 instructions to reflect these changes.

Consult with a U.S. Tax Attorney about Foreign Reporting Requirements and Form 5471

The Gordon Law Group has represented CFC shareholders since opening our doors. We help clients develop compliant financial positions that maximize profits and mitigate tax obligations. Our team works with both small businesses and large corporations across the country and around the world.

Discover why:

  1. Our clients rate us 10-out-of-10 on top attorney assessment site AVVO; and
  2. Super Lawyers has awarded the firm top accolades for several years running.

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