Ladies and gentlemen, I see that we are at the top of the hour. So, welcome again today. For those of you just joining us, welcome to today's webinar, Overview of the Revised Form 5471. We're really happy that you're joining us today. My name is Philip Yamalis. I'm a Stakeholder Liaison with the Internal Revenue Service. I will be your moderator for today's webinar, which is slated for 120 minutes. Before we begin today, I'd like to ask if there is anyone in the audience that is with the media, we ask that you please send us an e-mail to the address which is on this slide. Be sure to include your contact information as well as the news publication that you're with. Our Media Relations team as well as our Stakeholder Liaison staff will gladly assist you and answer any questions that you might have today. As a reminder, ladies and gentlemen, this webinar will be recorded and posted to the IRS video portal in just a few weeks. This portal is located at www.IRSvideos.gov. That's IRSvideos.gov. Please note though, that Continuing Education Credits or Certificates of Completion are not offered if you view any version of our webinar after the live broadcast. Now, we hope that you won't experience any technology issues today. But if you do, this slide shows some helpful tips as well as some helpful reminders. Now, we posted a Technical Help document that you can download from the materials section on the left side of your screen. As I mentioned earlier, provides some minimum system requirements for viewing this webinar, along with some best practices and quick solutions. Now, if you've completed and passed your system check today and you're still having problems, try one of the following options. Again, the first option is to close the screen where you're viewing the webinar and simply relaunch it. The second option is to click on your settings on your browser viewing screen and select the 3 letters HLS. You should have received today's PowerPoint and a reminder e-mail for today's webinar. But if not, no worries. You can download it by clicking on the materials drop-down arrow on the left side of your screen as shown again on this slide. Now, the following forms are also available for download today. We have the Form 5471 as well as Schedules E and E-1 to the Form 5471, Schedule I-1, Schedule J, Schedule P. We also have attached Rev. Proc. 2019-40 as well as Rev. Proc. 2019-40 Examples 1, 2 and 3. Ladies and gentlemen, closed captioning is available for today's presentation. If you are having trouble hearing the audio through your computer speakers, please click the closed captioning drop-down arrow located on the left side of your screen. This feature will be available throughout the webinar today. Now, during this presentation, we will take a few breaks to share some knowledge base questions with you. At those times, a polling style feature will pop up on your screen with a question as well as some multiple choice answers. We ask when that happens that you select the response that you believe is correct by clicking on the radio button next to the correct selection and then clicking Submit. Some people may not get the polling question. And this might be because you have your pop-up blocker on. So please, take a moment now to disable your pop-up blocker if it's on. In this way, you'll be able to answer these polling questions. Now, if you have a topic-specific question today, please submit it to us by clicking the Ask Question drop-down arrow to reveal a text-box. Type your question in that text-box and then click Send. Now, it's very important to remember, please, please, please do not enter any sensitive or taxpayer-specific information when inputting your question in the text-box. Again, ladies and gentlemen, welcome and thank you for joining us for today's webinar. Before we move along with our session, let me make sure that you're in the right place. Hopefully, you've figured it out that today's webinar is an Overview of the Revised Form 5471. Again, this webinar is scheduled for approximately 120 minutes. So before we begin our presentation today, let me take this opportunity to introduce you to John Hinding, the Director of Cross Border Activities, CBA; as well as Cindy Kim, the CBA Practice Network Program Manager. They would like to welcome you to today's webinar. So, John, let me turn it over to you, to begin our program today. John Hinding: Thanks, Philip. And to our audience, welcome and thank you for joining today's event. Form 5471 was significantly revised after the Tax Cuts and Jobs Act was enacted in 2017. And we've made yearly updates based on regulatory guidance that's been issued since then. This is the first training of its kind for LB&I and Cross Border Activities. So we hope that you like this training and will find it to be useful. We're also very interested in your feedback. We may be holding more sessions like this based on the feedback that we receive. So it is very important that if this is useful to you, that you let us know. We started an e-mail box where you can provide comments on today's training and any future training events you wish to see. That e-mail address is up on the screen. It is lbi.international.forms.training@irs.gov. That's also included in the materials and we will be posting this again at the end of the presentation. I think we've got a great presentation for you today. I'll turn it over to Cindy to introduce our presenters. Cindy? Cindy Kim: Thank you, John. Hello, everybody. Today's presentation is being provided by the CBA or Cross Border Activities Practice Network Technical Specialists. The CBA Practice Network is the business international knowledge management arm within Large Business and International. And I'm here with several esteemed Technical Specialists, including Jeffrey Johnson, Ann Ng, Lingfen Kung, David Nachman, Riaz Gopalani, Brian Sheba, Georgia LaFontaine and Maisa Mooney. And we'll now go over the agenda, which is highlighted on the next slide. So this slide provides a roadmap for today's presentation. We will start out with an overview of the Form 5471, including the major changes we made to the Form post TCJA. We then move into a discussion on previously taxed earnings and profits or PTEP. Now, post TCJA, PTEP is now a more important international tax concept. And much of our discussion today focuses on PTEP. And PTEP is predominantly covered in 3 Schedules on the Form 5471. We start with Schedule J, which reports the accumulated earnings and profits of the controlled foreign corporation. We then cover the new Schedule P, which is a PTEP Schedule, which is required for each U.S. shareholder. And then, we move to the expanded Schedule E, and the new Schedule E-1, which covers foreign taxes paid or accrued. And then, we do conclude with the Schedule I-1, which reports information needed for the U.S. shareholder to calculate GILTI, which stands for Global Intangible Low-Taxed Income. And then, we do conclude the session with Q&A. And as Philip mentioned earlier, we reserved some time at the end for questions. So please go ahead and submit your questions in the Q&A box. And we will try to get to as many questions as possible at the end. But if we run out of time, we will consider all your questions for future training or consider for future updates to the Form 5471 or the instruction. So now, I'll turn it over to our first presenters, Jeff and Ann. Jeffrey Johnson: Thank you, Cindy. Hi, everyone. This is Jeff Johnson. And Ann Ng and I are in info gathering team. And today, we're going to give you an overview of the Form 5471. So let's jump right into it. For this portion of the discussion, we're going to be discussing the purpose of Form 5471, including the 5 filing categories, and an overview of the Schedules that are required to be filed by each filing category. We'll also talk about a failure to file Form 5471, what constitutes a failure to file, and the potential consequences for the failure to file a 5471. First, let's go over some of the definitions that are relevant to our discussion on Form 5471. To start with, we have a U.S. person and under 7701(a)(30). That's defined as a U.S. citizen or resident, a domestic partnership, domestic corporation or an estate or trust that is not a foreign estate or trust. That's important, because then next, we're going to talk about a controlled foreign corporation under 957(c). So 957 gives us the definition that we have to look to U.S. shareholders to determine whether or not we have a controlled foreign corporation. And with respect to 957, the definition under 7701(a)(30) applies except that when we talk about an entity or a person who is a bona fide resident of Puerto Rico. They are not considered a U.S. person with respect to 957(c).

And the U.S. person term does not apply to a corporation organized in Guam, American Samoa or the Northern Mariana Islands. And it does not apply to an individual who is a bona fide resident of those territories. So they are excluded as U.S. persons with respect to 957(c). So, U.S.

shareholder, 951 tells us that a U.S. shareholder is a person, U.S. person who owns either directly or indirectly or through the constructive ownership rules, 10% or more of the total voting power of all classes of stock entitled to vote in a foreign corporation or 10% or more of the total value of shares of all classes of stock. So, the U.S. person who owns 10% or more of the total foreign corporation's vote or value. So that brings us to 957(a), what is a controlled foreign corporation? Well, for our purposes, a controlled foreign corporation is any foreign corporation that U.S. shareholders own more than 50% of the combined total voting power or the combined total value of the stock. And it has to be more than 50%. So if you have 50% U.S.

ownership and 50% foreign ownership, that does not make it a CFC, because we need more than 51% owned by U.S. shareholders. So, Form 5471 instructions also talk about control, a foreign controlled corporation. And that is a foreign corporation that is either a section 965 specified foreign corporation or it is a CFC. So a controlled foreign corporation, that would not be a 965 specified foreign corporation or a CFC, if the determination was made without applying the downward attribution rules of stock ownership. So the 318(a)(3) rules would turn it into a controlled foreign corporation, foreign controlled foreign corporation, if the result is because of downward attribution of stock from a foreign person to a U.S. person, giving the foreign corporation more than 50% ownership by U.S. person. And as a result of the repeal of 958(b)(4), that's where we get the downward attribution of stock prior to the repeal of 958(b)(4), that downward attribution did not apply to apply the downward attribution of stock from a foreign person to a U.S. person. So, let me come to what is 965. What is a specified foreign corporation under 965? It is any controlled foreign corporation and any foreign corporation with respect to, which one or more domestic corporations is a U.S. shareholder. So it has to have a U.S.

shareholder that is a corporation for it to be a 965 specified foreign corporation. And so, SFC as we call it, that term came out of the Tax Cuts and Jobs Act of 2017. So it applies to certain foreign corporations for purposes of 951 and 961. That's subpart F rules. And it's described 965(e)(1)(B) is the section that talks about the controlled foreign corporation and why it's important. I think this is a good time to stop for our first polling question. Philip? Philip Yamalis: Jeff, I certainly agree. Thank you so much. So ladies and gentlemen, here is our first polling question this afternoon or this morning, wherever you are in this fine universe of ours.

Which of the following is defined as any controlled foreign corporation and any foreign corporation with respect to which one or more domestic corporations is a U.S. shareholder? Is it, A, a specified foreign corporation? Is it, B, a section 965 corporation? C, a specified limited liability company? Or is it, D, a specified controlled foreign entity? Please take a minute to review the question again. And click on the radio button, which you believe most closely answers, this question as you see it on the slide. I'll give you just a few more seconds to make your selection. Okay. Let's go ahead and stop the polling now. We'll share the correct answer on the next slide. There it is, the correct answer is A, a specified foreign corporation. So I see about 52% of you responded correctly. So Jeff, I'm just going to ask you to clarify this answer and maybe give us a better explanation of why the specified foreign corporation would be the correct answer here. Jeffrey Johnson: Okay. So it is a specified foreign corporation, because number 1, it has a domestic corporation as one of its shareholders. So if we only had U.S. individuals, who were shareholders of a foreign corporation that would not meet the definition of a 965 specified foreign corporation, because it doesn't have a domestic corporation as a shareholder. And generally, if they're being treated - they apply to foreign corporations for purposes of 951 and 961, so treated as a controlled foreign corporation for purposes of taking into account the subpart F income and the rules under subpart F. That's why it's a specified foreign corporation.

Philip Yamalis: Excellent. Thank you so much for that clarification, Jeff. It looks like you're going to continue here by discussing related persons next, is that correct? Jeffrey Johnson: That is correct. So section 954(d)(3) gives us the rules for determining whether 2 persons are related, and it looks to control. So what it says is that an individual corporation partnership, trust, or estate, which controls or is controlled by the controlled foreign corporation, they would meet the definition of related persons. Also a corporation, a partnership, trust or estate, which is controlled by the same person, which controls the controlled foreign corporation, so if you have a parent company that owns a U.S. entity directly and indirectly owns a foreign corporation, 100% of the stock of both, because there is a common control between the U.S. entity and the foreign corporation, they are related within the meaning of 954(d)(3). And the reason that we need to talk about now we're going to move on to the 958(a) shareholder rules. 958(a) gives us the direct and indirect ownership rules. And so under 958(a), a U.S. person is a U.S. shareholder of a foreign corporation if they own directly or indirectly 10% or more of the voting power or value of a foreign corporation, the 958(a) is direct or indirect. We have to think about our direct and indirect shareholder rules when we're talking about control. When we start to talk about the filing categories of Form 5471, the 958(a) U.S. shareholder, an unrelated section 958(a) U.S.

shareholder is a U.S. shareholder that has a direct or indirect interest in a foreign corporation, but is not related within the meaning of 954(d)(3). So when we talked about that common element of control or if the U.S. controls the foreign corporation, so an unrelated 958(a) U.S. shareholder is a direct or indirect shareholder, but doesn't meet the definition of related under 954(d)(3).

We also think about constructive shareholders when we're talking about filing requirements for 5471. And a constructive shareholders, a U.S. shareholder, that does not own stock within the meaning of 958(a), in other words, direct or indirect. However, we apply the attribution rules of section 318 to determine if a person is a constructive owner of stock of the foreign corporation, and so 318 gives us the constructive ownership rules. When we then take the constructive ownership rules and layer on the 954(d)(3) control and related person rules, we end up with related constructive U.S. shareholder. So that's clearly a constructive U.S. shareholder, a direct or indirect ownership, they have constructive ownership of stock of a foreign corporation. And they meet the definition of related under 954(d)(3). Conversely, we have unrelated constructive U.S.

shareholder, again, so person that owns stock under the constructive ownership rules, but does not meet the definition of related under 954(d)(3). So let's with those definitions in mind, let's dive into the purpose of the Form 5471. The Form 5471 is an information return of U.S. persons with respect to certain foreign corporations. It is the primary form for collection of information about foreign corporations with substantial U.S. ownership and U.S. shareholders file Form 5471 to satisfy reporting requirements under 6038, 6046, and 965. Also, Form 5471 can be filed by U.S.

persons, who are officers or directors of a foreign corporation who have a filing requirement under 6046 that brings us to the categories of filers we will talk about the categories in a little more detail. Form 5471 has 5 filing categories. And there are specific schedules that are required for each category of filer. And something to make it very easy to figure out which forms you need to file which schedules you need to file in the instructions. For Form 5471, there's a table that lists the schedules that are required to be filed by each category of filer. So we have category 1 filer is a U.S. shareholder 10% or more U.S. shareholder of a section 965 specified foreign corporation at any time during the tax year, and who owned the stock on the last day of the year, in which it was a specified foreign corp.. Category 2 we just touched on briefly for a moment, which is a U.S. citizen or resident who's an officer or director of a foreign corporation, where a U.S. person has acquired stock to meet the 10% stock ownership rules. So a Category 2 filer is the 10% ownership trigger. Category 3 is the actual, the person who acquires the stock in a foreign corporation that meets the 10% ownership requirements of 6046. Or a U.S. person who disposes of enough stock in a foreign corporation that their interest is now less than 10%. And why is it that we're talking about these 10% numbers here, because that's what gives us a U.S.

shareholder. If I own 9% of the stock of a foreign corporation, that's all I own directly, indirectly, or constructive. I'm not a U.S. shareholder for purposes of determining if the foreign corporations are CFC. That's why the 10% threshold is there. Category 4 is a U.S. person who controlled the foreign corporation during the annual accounting period of the foreign corp.. So a person in control and we're going to talk about what control is in a moment. Category 5 is a U.S. shareholder, who own stock in a CFC for an uninterrupted period of 30 days you own that stock on the last day of the year. So if I own 15% of the stock of a foreign corporation that makes me a U.S. shareholder. If my colleague and owns a 40% of the stock of that foreign corporation. Collectively, we own more than 50% that makes it a CFC. Neither one of us is in control, because we don't have more than 50%, but we both have to file Form 5471. So let's go into a little more detail on the category filer, if category 1 filers of the U.S. shareholder of a 965 specified foreign corporation at any time during the year, but they also have to own the stock on the last day of the year in which it was in SFC under section 965. So if they don't own the stock on the last day, it's in SFC, they're not a category 1 filer. The ownership rules for Category 1 is a U.S. shareholder, the 10% rule who owns directly, indirectly, or constructively so under 958(a) or (b), 10% or more of the combined total voting power of a foreign corporation of all the classes of stock or 10% or more of the value of all F shares of all the classes of stock that makes you a U.S. shareholder and a category 1 filer. The category 1 filer is required to file Form 5471 for as long as the foreign corporation is a section 965 SFC, specified foreign corporation, that has accumulated E&P related to section 965. In the U.S. shareholder has previously taxed E&P that relates to 965 that is reportable on Form 5471 Schedule P. In January of 2021, just keep in mind, TCJA came out at the end of 2018 and changed the rules for filing Form 5471, because the downward attribution of stock from a foreign entity. So in January 2021, treasury and the IRS providing clarification, and that distinguishing category 1 filers into 3 categories: category 1a, b and c. So, 1a is kind of a catch all it's for any person who does not qualify as category 1b or c filer. Category 1b is an unrelated section 958(a) U.S. shareholder of a specified foreign corporation. So, we said that the unrelated 958(a) shareholder owns a direct or indirect interest in the foreign corp., but is not related within the meaning of 954(d)(3). We have category 1c is a related constructive U.S. shareholder. So they do not own the stock directly or indirectly, they constructively on stock of a 965 SFC, but they meet the definition of related within 954(d)(3). And Rev. Proc. 2019-40 has more information and an attachment to our downloadable from this discussion, so that includes the information about the categories of filing the 1a, b and c. Category 2 we touched on it is if I am a U.S. citizen or resident who is an officer or director of a foreign corporation, and a U.S. person acquires 10% or more of the stock of that foreign corporation, either 10% of the document titled to vote or 10% of the value of the total voting power. I have to file Form 5471 as the officer or director to report that acquisition of stock by a U.S. person. And again, why is that important U.S. shareholder 10% requirement. So category 3 is the actual person who acquires the stock of a foreign corporation meets the 10% ownership requirements. And it's a U.S. person who acquires stock that without regard to stock already own meets 10% ownership. So in other words, you're one if I acquire 15% of the stock of a foreign corp., I have a file category 3 filing requirement. The next time I have to file a category 3 with respect to acquiring more stock is at the point where I acquire an additional 10%. If I'm at 15, I don't have to file a category 3, again until I am at 25% ownership. So if it takes me 3 years to get there, by 2% 3%, 5%, your 1, 2 and 3, I have a filing requirement when I get to that 25% number, because I filed that 15%. Category 3 is a U.S. person also that is a shareholder of a captive insurance company under 953(c). We don't have the 10% ownership requirement for captive insurance companies if you are a shareholder of a captive insurance company, no matter how small your ownership percentage may be, you are a U.S. shareholder with respect to captive insurance, and therefore you have to file category 3, when you purchase the stock of a captive insurance.

Also includes a person who becomes a U.S. person while owning stocks. If a foreign person owns 100% of a foreign corporation, they become a U.S. person, they have to file Form 5471 category 3.

And the last filer is a person who disposes of enough stock to bring their total ownership to less than 10%. So if I own 90% of the stock of a foreign corp., and I sell 10% off every year, the only time I have to file Form 5471 as a category 3 filer when I'm disposing of stock is at the point where my ownership falls below 10%. Category 4 that is a U.S. person who had control of a foreign corporation during the annual accounting period of that foreign corporation and category 4 could include a nonresident alien who elects to be treated as a resident under 6013(g) or a nonresident alien, who elects under 6013 (h) to file a joint return with a U.S. person. And so if they're married at the close of the tax year, they would be required to file Form 5471, if they elect to file a joint tax return. We talked about a U.S. person that has control of a foreign corporation.

So what is control and control is the ownership of more than 50% of the combined total voting power of all classes of stock, entitled to vote. As I said, if I own 50% of a foreign corporation, I am not in control of it. But if I own 50.001% that gives me control that makes me category 4 filer. And so it's based on the total voting power or the total value of all the stock of the foreign corporation. So just to emphasize a shareholder has done more than 50%, exactly 50% not a controlling interest. The category 5 filer is a U.S. shareholder, though, talking about 10% or more shareholder, direct, indirect, or constructive, who own stock in the foreign corporation that is a CFC at any time during the year, and they own the stock on the last day. So again, if I own 15% of the stock of a foreign corporation that is a CFC, because it has other U.S. shareholders, I have to file as a category 5 filer. And category 5 is I said they own directly, indirectly or constructively, 10% or more their funding requirement also, if they own any stock of a foreign captive insurance company, again, that makes them a U.S. shareholder doesn't matter how little stock they owning any stock of a captive insurance company makes you a U.S shareholder. So in January of 2021, treasury and IRS also provided clarification with respect to category 5 filers like they do with category 1. And like category 1, we have category 5a, and that is a category 5 filer that does not qualify as category b or c, which we're going to talk about now. The category 5(b) filer is an unrelated section 958(a) U.S. shareholder of a CFC. So unrelated section 958(a)

is a U.S. person that owns directly or indirectly stock of the foreign corp., but is not related within the meaning of 954(d)(3). We have category 5c, which is a related constructive U.S.

shareholder. So again, they do not own stock directly or indirectly they have constructive ownership. However, they meet the definition of related under 954(d)(3). So the electronic version of Form 5471 contains 6 pages, and page 1 has the filing requirements of filing categories. So new on the 2020 form 5471 are the categories 1a, b, and c, and 5a, b, and c. We also added 2 items F and G on the face of the return with respect and that's with respect to the 965 transition tax.

Certain filers and this is in Rev. Proc. 2019-40. Certain filers are allowed to use alternative information to determine their 965 reporting requirements if the regular direct information is not available to them, and against certain circumstances, they have to meet the requirements of the Rev. Proc. But if they do meet the requirements and they are using alternative information to fill out the Form 5471 than the required to check the box for F, but we know that it is in fact alternative information that they're using. So the burden for certain U.S. shareholders has been reduced under the Rev. Proc. So the unrelated constructive U.S. shareholders are not required to file Form 5471 with respect to a foreign controlled corporation. We said, what's a foreign controlled corporation, is a corporation that is a CFC due to ownership of stock from a foreign person attributed to a U.S. person. So the U.S. person is not a direct or indirect shareholder, but due to the constructive ownership rules, that foreign corporation is a controlled foreign corporation. Categories 1b, 1c, 5b and 5c, they have reduced filing burden. They don't have the full Category 5 filing requirements that were required before TCJA, because to take into consideration the unrelated and related constructive in 958(a) U.S. shareholder rules, there are certain information that was reduced from them having to provide. In an unrelated 958(a) U.S.

shareholder and in unrelated constructive U.S. shareholder, they are the ones who can use the alternative information, if they don't have any related section 958 U.S. shareholders for this foreign controlled CFC. So there are specific requirements for a U.S. person to be allowed to use alternative information. I think with that, it is time for the next polling question. Is that right, Philip? Philip Yamalis: Jeff, I think you are indeed right. So ladies and gentlemen, here is our second polling question. Thanks, Jeff. So it says here, which category of filers have a reduced filing requirement with respect to foreign controlled corporation? Is it A, Category 3 filers; B, Category 4 filers; C, Category 2 filers; or is it D, Category 5b and 5c. Filers? Let's reflect back on what Jeff just went over on the categories. Take a minute, review the question again. And then, we ask you click on the radio button that you believe most closely answers this concerned question. Ladies and gentlemen, let me give you just a few more seconds to make your selection. Okay, let's go ahead and stop the filing now. And we'll share the correct answer on the next slide. And the correct answer is Category 5b and 5c filers. So let's take a look at the data here. And I see that 80% of our audience responded correctly. Thank you so much for paying attention and being with us. With that, I'm going to turn it over to you, Ann, as it looks like you're going to cover our next topic, which are the schedules of the Form 5471. Is that correct?

Ann Ng: Thank you, Phil. Yes. Hi, everyone. So, let's take a look at the schedules of Form 5471. Now, this and the next 3 slides show the 16 schedules of the Form 5471 and 9 of which are published separately. And we noted them with an asterisk next to the name of the schedule. So you have the Schedule A, which is the stock of the foreign corporation. Schedule B, Part I, U.S.

shareholder of the foreign corporation. Part II, direct shareholders of the foreign corporation.

Schedule C, no need for explanation, the income statement of the foreign corporation. Schedule F, the balance sheet of the foreign corporation. And Schedule E, income or profit and excess profits taxes paid or accrued. And this is published separately. Next, we have Schedule E-1, taxes paid, accrued or deemed paid on accumulated earnings and profits, E&P, of foreign corporation. Schedule G, other information. Schedule H, current E&P. Schedule I, summary of shareholder's income from the foreign corporation. Schedule I-1 information for Global Intangible Low-Taxed Income, GILTI.

This is a new law that came from TCJA, which is Tax Cuts and Jobs Act of 2017. Schedule J, accumulated E&P of the controlled foreign corporation. Schedule M, transaction between controlled foreign corporation and shareholders of or other related person. Schedule O, Part I, organization or reorg of foreign corporation, and acquisitions and dispositions of its stock. Now, this form is to be completed by the U.S. officer and director. Schedule O, organization or Part II, Schedule Part II or reorg of foreign corporation and acquisition and disposition. So this form is to be completed by the U.S. shareholder. Part I is the Director, Part II reported by the U.S.

shareholder. Schedule P, previously taxed E&P of the U.S. shareholder of certain foreign corporation or previously taxed E&P, PTEP. Before, it was known as PTI. Schedule Q and R are new. We released them last year. Schedule Q, CFC income by CFC income group. And Schedule R, distributions from the foreign corporation. So, Jeff mentioned earlier during his presentation that you'll find a table in the instructions for the Form 5471. This is the image of that same table.

This handy table will give you, at a glance, of all the categories that filers that require to include certain schedules. Next, let's look at the schedule a little closer. Category 3 and 4 filers of this schedule is to provide the number of shares of the foreign corporation owned by the U.S. shareholder. Part I of Schedule B is to be completed by Category 3 and 4 filers who owned directly or indirectly 10% or more in value or voting power of any class of foreign corporation stock. Now, Part II of Schedule B is to be completed by Category 1a, 1c, 3, 4, 5a and 5c filers.

Let me remind everyone that Category 1b and 5b are unrelated section 958(a) U.S. shareholder of a specified foreign corporation and CFC respectively. CFC is Controlled Foreign corporation. Category 1c and 5c are related constructive U.S. shareholder of FSC and CFC respectively. Part I of Schedule B is a list of U.S. shareholder of foreign corporation and Part II is the list of direct U.S. shareholder of foreign corporation. Category 3 and 4 filers need to file Schedule C income statement of the foreign corporation. The filer must include or report the income statement in both functional currency and U.S. dollars. Schedule F, the balance sheet must be converted to U.S. dollars in accordance with GAAP. And Category 3 and 4 filers will need to include the schedule. All 3 subcategory of 1 and 5 and Category 4 filers must include the Schedule E. And Brian and Riaz will discuss more on the schedule later. Category 1a, 1b, 3, 4, 5a and 5b, filers are required to file Schedule E-1, which is taxes paid accrual or deemed paid on E&P of the foreign corporation. Again, Brian and Riaz will talk more on Schedule E-1. Category 1c, 3, 4, 5a and 5c filers will answer 22 questions of the schedule, Schedule G. And for Schedule H, Category 4 and 5 filers are to include this form, the schedule. Now, Schedule I-1 is for categories 4, 5a and 5b filers. So this is a summary of shareholders' income from the foreign corporation. Now Schedule I-1 is for Category 4 and all 3 subcategories of Category 5 filers. And this is for GILTI, information from Global Intangible Low-Taxed Income. This is a mouthful for me. And Georgia and Maisa will talk more on this schedule later. Schedule J, accumulated E&P of CFC is required for Category 1a, 4 and 5a filer. And this schedule tracks previously taxed E&P, PTEP, at the CFC level. And David will go over more on this schedule. Schedule M, no need for introduction. This has been around since 1980. And only Category 4 filers need to file the schedule. And this is the U.S. shareholder use this form or the schedule to report certain transactions between the CFC and certain related parties. Part I of Schedule O, the reorganization of foreign corporation in acquisition or disposition of the stock, this to be filed by Category 2 filers, who are U.S.

officers or directors of foreign corporation. And Part II of the Schedule O is to be filed by Category 3 filers, who are U.S. shareholders of the foreign corporation. Schedule P Part I, Category 1a, 1b, 4, 5a and 5b filers are to file the schedule. And part I of the schedule tracks the PTEP at the U.S. shareholder level. David will be going over more on this schedule later. So for this slide, Part II of the Schedule P, now, again, David will go over this schedule a little more. This is the shareholder of the foreign corporation. Schedule Q, this is one of the 2 new schedules that we released last year, the CFC income by CFC group. And Category 1a, 1b, 4, 5a and 5b filers needs to include the schedule with their 5471. Schedule R, distribution from a foreign corporation is to be filed by category 4 and 5 filers. And I think we're at the next polling question, aren't we, Phil? Philip Yamalis: Ann, I think you're correct. We do have our third polling question queued up and ready to go. And this question is an interesting question, wouldn't you say? Here goes. Have the changes to the Form 5471 helped you to be compliant with the new TCJA provisions? So, A, mostly yes; B, partially yes, but the form is more complicated now; C, not really; or, D, I'm not involved with Form 5471 preparation or review. Now, this is a unique question. Take a minute, review the question. Click on the radio button that best describes how your experience with the new Form 5471 resonate. I'll give you a few more seconds to make your selection here. Have the changes to the Form helped you be more compliant with the new TCJA provision? I'll give you a few more seconds to make your selection. Okay. We're going to go ahead and stop the polling now. And we'll share the response that most of you selected on the next slide. No, I don't think we're going to select the one you selected on the right or wrong on the slide. But of course, we're going to tell you. And there it is. As I said, there's no correct answer. But the majority replied, D, I'm not involved with Form 5471 preparation or review. Very interesting. So hopefully, we're learning a lot here. And as you just went over the many schedules of Form 5471, I think the next topic is Failure to File the Form, is that correct? Ann Ng: Yes, it is. So, if you were required to file Form 5471 and you fail to file, well, let's talk about what constitutes a failure to file first. You could fail to file a Form 5471 in one of three ways.

One, you didn't attach the Form 5471 to your income tax return. Two, you filed your income tax return and attached the 5471 to the return, but you filed it late. That's including extension.

Three, you filed your Form 5471 along with your income tax return, but the form itself has or contains errors or incomplete information. So one of those three scenarios, it could cause a failure to file Form 5471. What would be a consequence of failure to file Form 5471? We could penalize you monetarily or reduce your foreign tax income credit, if you do not have reasonable cause for the failure. Now, irrespective of whether you have reasonable cause or not for the failure, Section 6501(c)(8), C as in Charlie, will extend the statute of limitation for any tax item, specifically related to the CFC, 3 years from the date that we received and accepted the substantially complete Form 5471. This takes us to the next section. And I'd like to turn it over to my colleague, David Nachman. David Nachman: Thank you so much, Ann. I'm going to be taking you through the overview of the PTEP schedules. And for those of you who aren't familiar, PTEP, it stands for Previously Taxed Earnings and Profits. It's a type of earnings and profits. I'm going to be taking you through the relevant schedules there. And there are 3 relevant schedules that have to do with PTEP. And I'm actually going to only take you through 2 of them. I guess I kind of lied. Okay. The first one is Schedule J, which tracks PTEP at the CFC level. The Schedule J tells you how much PTEP the CFC has got. Schedule P tracks PTEP at the U.S. shareholder level. So you know how much each U.S. shareholder has got of that PTEP. Now, so if you've got 3 U.S.

shareholders, there's going to be 3 Schedule Ps, one for each U.S. shareholder, and 1 Schedule J.

And the Schedule J is for the entire CFC, if that makes sense. Schedule E-1 tracks taxes paid accrued or deemed paid on E&P, so it's more along the foreign tax credit world. And that's actually going to be covered next by Brian and Riaz. Okay. As you guys know, TCJA rather dramatically changed international tax. And some of the changes that's made by the TCJA created the need to account for more groups of PTEP, more groups that have previously taxed earnings and profits. And I'm going to take you guys really quickly through why, because when you look at the Schedule J or the Schedule P, you start saying, Wow, that's a lot of groups. And I'm going to take you through why there are so many groups. TCJA created 3 new ways to derive PTEP on top of the ways that already existed. One of them was the transition tax, Section 965. Another one was GILTI, which stands for Global Intangible Low-Taxed Income, which is Section 951A. And the third new way to derive PTEP was from hybrid dividends, which is Section 245A(e). Okay. One of the things you'll notice about these different PTEP groups is that they have different foreign tax credit and foreign currency rules. So, for example, GILTI has got a haircut on foreign taxes. 965 is also got a haircut on foreign taxes, but it's a different haircut. Subpart F doesn't have a haircut at all on foreign taxes, hybrid dividends has no foreign tax credits allowed at all. And 965, its 2 types of PTEP has special foreign currency rules, so because of these different foreign tax credit and foreign currency rules, this PTEP needs to be held in different groups. Also, there's distribution ordering rules that are going to be dependent upon which PTEP group you're in, and what the tax you're at that PTEP came in at what year that PTEP was created. Okay. I'm paid close attention to this one, because you're going to need this idea in a second. As a result, the most recent Form 5471 tracks 10 groups of PTEP, there's 10 groups of PTEP. Okay. So I think this is probably a good time for polling question. I think I'll turn it over to Philip. Philip Yamalis: Thank you, David.

We certainly can take a pause for the pause or pause for the cause. There it is. We certainly can pause for another question, got a little tongue twisted there. Thanks, David. The fourth polling question is how many categories of previously taxed E&P in the PTEP are tracked on the Schedule J.

Again, how many categories of previously taxed, E&P, PTEP are tracked on the Schedule J? Is it, A, 5? B, 2? C, 8? Or is it, D, 10? Take a minute, review the question again. Think back on what we just heard. Click on the radio button that you believe most closely answers this question. And I will give you a few more seconds to make your selection. Thanks for being with us today. Okay, hopefully you guys are all being protected by the weird weather we've had. All right, here it is.

We're going to stop the polling now. And we'll share the correct answer on the next slide. And the correct answer is D, 10. It looks like about 53% of you responded correctly. So David or Ann, would you like to clarify that answer to that question either one of you? David Nachman: Yeah, absolutely. This is David. And, I guess, let me go ahead and take this one. There's all these different types of groups that PTEP due to different foreign currency rules and foreign tax credit rules. And if you look at the current 5471, there are 10 groups of previously taxed earnings and profits on Schedule J. Philip Yamalis: Excellent. Excellent way to clarify that for us. I appreciate it. So David, it looks like based on the schedule we have here that I'm turning it back over to you to talk a little bit about accumulated E&P. David Nachman: Correct. Correct. So let me take you through accumulated E&P of the CFC. Okay. Not everybody's got a file Schedule J. Only - and you heard it before only category 1, 4 and 5 filers have to file Schedule J. Okay. Schedule J has to be completed in functional currency. And he said, what does that mean? Pay that the foreign corporations' functional currency is the Japanese yen. The 5471 Schedule J would actually be completed in Japanese yen. So it's a form that it's only going to use U.S. dollars if that's the functional currency of a foreign corporation. Okay. There's also going to be separate Scheduled J's by general and passive categories with a total Schedule J. It's going to track like we talked about before, 10 groups of PTEP, it also taxes E&P not previously taxed. A lot of people like to call that untaxed E&P, but it's technically E&P not previously taxed. And it also tracks post 2017 E&P, the old 5471 did post-1986 and pre-1987, not previously taxed, this one also picks up to post-2017, not previously taxed started in process. Okay. One of the big advances of the recent 5471 Schedule J is that it's now got a line for beginning balance adjustments. On the old form, what would happen is, if a taxpayer made an E&P adjustment in some back year, what they would do is they flow that through to the beginning balance of the current year Schedule J. And that would mean that the ending balance of the prior year doesn't equal to the beginning balance of the current year. And that always looks like a problem, because if you picked up the 2 forms, you'd say, why doesn't the ending balance on the prior year equal to beginning balance of the current year? So what they developed was a line where you would take the ending balance, and put and start with that, and then put any adjustments that you have from prior year adjustments, and then have an adjusted beginning balance. So now it doesn't throw off that strange look of like, wow, the ending balance of the prior year doesn't equal the beginning balance of the current year. One of the other things it does, is it requires reporting of hovering deficit that was never on the old 5471 Schedule J. So now, when you file your Schedule J, you can also disclose whether you've got a hovering deficit, you guys who aren't familiar with hovering deficits. That's when you put 2 corporations together to form corporations together. And one of them got an E&P deficit corporation at the time to make the merge together, maybe to get liquidated together. And that deficit is considered a hovering deficit, and those weren't disclosed; now they're disclosed. It also requires reporting of E&P adjustments related to taxes suspended under the anti-splitter rule. Those are the rules that have to do with if one foreign corporations paying foreign tax on behalf of other corporations. How then there's a whole special set of rules on how the foreign tax credits are going to work there and there's also E&P adjustments that have to be made. And there are now specific lines to handle those adjustments on the 5471. And the last thing it does is on the old 5471 there'd be reclassifications. And actual distributions on the same line, the new 5471 it's not that separate lines for reclassifications and for distribution. So you don't have to try to figure out, how much of this is from distributions? How much of this change from reclassifications and reclassifications are simply when you go from 959(c)(3) to 959(c)(2), or something like that, where you're changing the bucket of E&P. Okay. And now we're going to talk about an example kind of like they came up with Schedule J, especially with regard to GILTI and current E&P. Okay. GILTI stands for Global Intangible Low-Taxed Income. And current E&P is E&P.

And it turns out that sometimes GILTI, which is based on income can be bigger than current E&P.

And when you first hear that you're like, how can income be bigger than earnings. And what would drive some like this would be an expense that's not deductible. If you had an expense is not deductible, it's not pushing down income. But a non-deductible expense actually does push down earnings and profit. So it's possible to actually have your GILTI inclusion with space on taxable income bigger than your current E&P. And I'm going to take you through a quick example here. In this example, you've got CFC in the first year of existence, and it uses the U.S. dollar as functional currency. The CFC is $100 of tested income and $80 of current E&P. And you're immediately thinking about tested incomes from GILTI, how do you get more tested income and you've got current earnings. And the reason why if you read down to the last bullet point is that, it's due to a $20 section 163(j) limitation on interest. Now, what that is, is that's a non-deductible expense. So the $20 is not allowed as a deduction and calculating tested income, but it does reduce current E&P. Okay. There's a similar example and notice 2019-01. And it starts saying, what do you do? I've got $80 of current E&P, but because of the GILTI inclusion, I've got to reclassify $100 of current E&P over to GILTI E&P, how do I do it? And so treasury thought about that actually came into the question. And what they decided was that that you would do this reclassification of $100 and the $80 would go all the way negative to negative $20. So by doing that, you end up results in a $20 deficit in section 959(c)(3) E&P. This form will show you how it's going to look on Schedule J. And column A is the not previously taxed column and as you can see, it starts with zero. And then we got $80, and then I know you need really good eyes to see the slide. And he's got $80 of current E&P on line 8, two things are going on. This is where the reclassification is going on. So current E&P are not previously taxed E&P is going down by $100. But then on the other hand, and you'll see it in a different part of the form GILTI E&P, or they call it 951A E&P is going up by $100. So we're moving from untaxed E&P to previously taxed E&P. And when you get to the bottom of it, you're going to see that your total is negative $20. So you're going to enter $100 - okay, yes. And you can see on the next page, kind of how it works. See column (a), this is where you put your section 951A PTEP. And section 951A is just a fancy way of saying GILTI. This is where you're GILTI previously taxed earnings and profits do. And on line 8, as you can see that reclassification happened, where $100 have not previously tax got reclassified into $100 of 951A PTEP, which gave you the total of $100. Okay. Now we're going to talk about Schedule P, which has got the same architecture as Scheduled J. But it only requires reporting of PTEP, and does not require reporting of E&P not previous taxed. So when you pick up a Schedule P, you're going to say, wow, this form really looks familiar. It really looks a lot like Schedule J. And it really is, except it doesn't have not previously taxed E&P on it. And it's also only the U.S. shareholders portion of the previously taxed earnings and profits. It's not the entire CFCs, previously taxed earnings and profits only the U.S. shareholders portion of it. Every U.S. shareholder is required to file a Schedule P to track it share the PTEP, of course, in the foreign corporation. And one thing that's also different about the Schedule P is that Part I is in functional currency. And that's the functional currency of the CFC that they see is in Japanese yen, it'd be in Japanese yen. Part II is in U.S. dollars, so this is where you're actually going to make the conversion and you're actually going to see the amounts in U.S. dollars. Okay. One of the interesting things about Schedule P and this is again a GILTI issue, is that with the GILTI change to the tax cut, reporting a PTEP at the U.S. shareholder level has really become much more relevant for both foreign corporations and U.S. shareholders of TCJA. Okay. For one of the big problems is that GILTI is calculated the U.S. shareholders level, okay. And I'm going to show you an example that's a little bit, but different U.S. shareholders can have a very different GILTI inclusion based upon their ownerships and other foreign corporations. Remember, the CFC we're looking at might not be the only thing a U.S. shareholder own. And that's actually going to move their GILTI calculation is what it can do is impact the overall GILTI PTEP at the CFC level. Okay. The Schedule J that's where we're always talking about each U.S. shareholders as Schedule P and then the CFC just got a Schedule J for everybody. So the Schedule J amounts are generally an aggregate of all the Schedule P amounts where the columns overlap. So it's pretty much an aggregate of all those Schedule P. Okay. There could be a problem and being able to do Schedule J, though, and I'm going to talk about this in a second, when you don't know what the other U.S. shareholder Schedule P looks like. Okay. And we're going to see an example in a second on this. Because when you file the Schedule J, you need to figure out how much E&P you're going to reclassify to GILTI. And unless you know all of the GILTI inclusions of all the other U.S. shareholders, you don't know how much E&P to reclassify, so the taxpayer brought this problem to our attention a couple years ago.

And because the filer may not be able to provide complete information, they may not know how much to actually reclassify. So what they did, they was created a checkbox on the top of Schedule J, if this is the case. Okay. And I'm going to take you through an example of kind of why this problem would come up. Treat that U.S. 1 and U.S. 2, two U.S. shareholders. And I want you to focus on CFC2 first. CFC2 has got $1,000 a tested income and its own 50% by U.S. 2 and 50% by U.S. 1. Okay.

So that means that U.S. 2 is picking up $500 of tested income from CFC2, and U.S. 1 is picking up $500 of tested income from CFC2. Now U.S. 1 also owns 100% of CFC1, and CFC1 has got a $400 tested loss. So U.S. 1 is picking up a $400 tested loss here. So at the end of the day, once you work through all this with the $500 of tested income, $400 of tested loss, U.S. 1 is going to have GILTI of only $100, after you take into account that tested loss. U.S. 2 on the other hand has $500 of tested income, because it's not taken into account any other CFC. So in a perfect world, the $100 and the $500 of section 951A PTEP, which is a fancy way of saying GILTI, will be reported on U.S. 1 and U.S. 2's respective Schedule P. That's the amount that should be on their Schedule P in a perfect world. Okay. So these are both 5471 filers. So what they're going to do is in a perfect world, reclassify $600 in section 959(c)(3) E&P. 2 section 951A PTEP, which again is GILTI PTEP on their respective Schedule J. So the Schedule J remember is giving you the CFC2 the whole thing not just that each your shareholders portion, but the whole thing there should be a $600 reclassification. But if at the time of filing, U.S. 2 doesn't have the 951A PTEP information from U.S. 1, it doesn't know that U.S. 1 has got this extra CFC, it doesn't know what U.S. 1 GILTI inclusion really is. What U.S. 2 can do is check a box below the heading of Part I, and you're going to see on the next page, and only report the known $500, its Schedule P reclassification.

Okay. So if you look at this little checkbox with a little red arrow is, this is the box you can check if you don't know the other U.S. shareholders GILTI inclusion. And you're going to go ahead and just reclassify just your GILTI inclusion for the year. Okay. In this case U.S. 2 only record it's $500 of PTEP. Okay. This schedule right here, this is the Schedule P and what is going to show you is, U.S. 1's PTEP account with regard to CFC2. Okay. And you can see this is again, this is Page II of the Schedule P. And this shows you the beginning balance of zero and line 1a, it will show you the amounts reclassified and that's the $100 and you get the total balance of $100 online as well. Okay. This Schedule P represents U.S. 2's PTEP account with regard to CFC2. So this is U.S. 2, yeah. And if you look at it, it's showing you again a beginning balance of zero.

On line 7, you've got the $500 of amount reclassified to GILTI PTEP, it's a section 951A PTEP is GILTI PTEP. And it also shows you the total balance of $500 on line 12. At this point, I'm going to turn it over to Brian and Riaz, who are going to take you through Schedule E and E-1. Thank you so much. Brian Sheba: And thank you, David, for that presentation on PTEP. So we're going to change gears here a little bit as they indicate and talk about how we do our CFC foreign income taxes on a 5471 Schedule E and E-1 for tax year 2020. So what Schedule E does, it reports the foreign taxes paid or accrued in foreign taxes deemed paid on the 5471 Schedule E. So if you remember from the prior presentation a little bit earlier that there's 9 potential categories of filers, if 1a, 1b, 1c, and then Category 5 also had a, b and c. However, there are some exceptions. Schedule E does not need to be filed by Category 2 or 3 filers, there's also some exceptions on the Rev. Proc.

2019-40 for downward attribution for some of the other filers, but just high level point, no Schedule E for Category 2 and 3 filers. Also keep in mind, the way the Schedule E is filed as you may have more than one Schedule E, because you have to file a Schedule E for each separate category of income. So, for example, you may have a general limitation Schedule E filed and a passive Schedule E filed. However, what you won't have is a foreign branch income category, because under TCJA that is a term of art, that's only going to apply to your first year foreign branches and flow-throughs are need certain definitions that are in part of the consolidated 1120.

However, if you have a foreign branch that is underneath the CFC event, yes, those results will be reported on the 5471 Schedule E. Next point I want to make and it's been an area of some confusion is, what to do about the so-called GILTI taxes. So when the CFC has tested income, it may have some tested taxes as well. But the way the CFC is going to report this, since GILTI is a global sort of computation, we don't know until the very end what happens how this is reported to CFC level is normally going to be in the general limitation category of income. That's a little bit different, but then if you have some foreign taxes attributable to 951A PTEP. In that case, you will have a separate 951A Schedule E filed to account for those taxes. So yes, they both relate to GILTI some way somehow, however, just keep in mind, what these taxes are and where they're at, because it may influence where the taxes or which Schedule E section, you might be filing them under. Okay, so moving on Schedule E is divided into 3 parts. And you see here, your first picture. And what this picture is showing us the Schedule E Part I, and if you've done some compliance work with a 5471. In the past, you'll know pre-TCJA, this was pretty easy to do for the Schedule E, it was just the top part of a page 15%, 20% of the page maybe it wasn't so bad.

However, with TCJA, the reporting was greatly expanded. So we're going to talk a little more about section 1 in the next few slides. Part I has 2 sections; we have section 1 and section 2. So the easy way to keep these 2 apart is, yes, there's a lot of detail in these parts, but section 1 is going to be for foreign income taxes pay or accrue directly by the CFC. So this will include taxes on untaxed earnings, as well as taxes directly imposed on PTEP distributions. This is different than section 2, because section 1 is with direct taxes; section 2 is with your deemed paid, so this would be your index, if you will. So this would be foreign taxes deemed paid by the CFC upon distribution of PTEP from a lower-tier CFC. These are taxes that were paid or accrued by a lower-tier CFC and are attributable to a PTEP distribution that has come up with the chain under 960(b)(2). All right, so a couple of things I want to further go into here on this section 1, there's a lot of blocks and reporting here, but one definitional thing, if you will, I want to focus on is what is this payor entity, the form is asking you about? Well, of course, it is the reporting CFC, but more than that, it could be a pass-through entity owned by the reporting CFC.

It could be a branch or qualified business unit of the CFC or a lower-tier foreign corporation that paid a dividend to the reporting CFC. So you'll notice their separate line and rows on the form, and the purpose of that is to distinguish between these various payments by these entities, they are all done separately. Another thing I want to point out to you is some foreign currency issues, they have a CFC and the CFC has a foreign branch. And in another country potentially you might be reporting foreign currency under 3 different ways. What the foreign branch pays might be under the local currency in which it was paid or accrued. You also have, of course, your CFCs functional currency that the CFC does its reporting in translation. And then finally, since we're talking about foreign taxes, the U.S. dollar will be relevant as well. Okay, on the next slide, something new here for 2020 is that section 1 also requires taxpayers to disclose foreign income taxes paid or accrued on U.S. source income, it's just a little checkbox that has been added to the 2020 form. And if you're wondering why that is, is to help identify taxes that may be assigned to the resourced by treaty separate category of income. Okay, so what does Part I not covered?

Well, it excludes taxes that are not creditable. And that would also mean taxes for which a credit is disallowed, and those disallowed taxes are reported on Schedule E Part III, which we'll get to in a little bit, right. It also excludes reporting for suspended and unsuspended taxes under the splitter rules and taxes associated with hovering deficits. These are going to be reported on separate line items on Schedule E-1. Okay, last point on this section in what do we do with foreign tax redetermination? Adjustments the foreign income taxes paid or accrued in a prior year are not reflected on Schedule E in the year of adjustment. Rather, these are generally reported in the year to which taxes relate often this means an amended return, so there's some procedural aspects here under 905(c) and the new regulations under 905(c) that I would point you to. So at this point, I will hand the presentation over to Riaz, who will discuss section 2 of Part I of Schedule E. Riaz Gopalani: Thank you, Brian. Folks, we are going to discuss section 2 of Part I of Schedule E. And as Brian mentioned, I want to reemphasize that Schedule E has 3 parts: Part I, Part II and Part III. We are on Part I, section 2 right in front of us. Beginning in the tax year 2020, CFC that received PTEP distribution from lower-tiers FC will report in Schedule E, Part I as being the taxes probably attributable to such PTEP distribution. Taxes should be reported according to the relevant PTEP group. For example 965(a) PTEP and annual PTEP account. Annual PTEP account is the year in which your shareholder into the income of the lower-tiers foreign corporation under section 951(a) which is subpart F and 951A, which is GILTI, and establish the PTEP account to which distribution is attributed. I'll move that the PTEP and taxes reported in column (g) here and column (h), respectively, should be reported both by PTEP group and annual PTEP account. Also known that the taxes related to section 965 PTEP groups are not reduced by applicable percentage on Schedule E, such reduction is taken into account on Form 1118, Schedule G.

So here is the Schedule E, Part II and Part III. And we'll discuss in the next few slides more about Part II and Part III. So Part II requires the filers to check the box for an election to use the exchange rate on the date of payment, and the 986(a)(1)(D). Let's talk about Part III now.

Now Part III, as Brian mentioned, it reports foreign income taxes for which foreign tax credits are disallowed. Part III requires the filers to provide CFC taxes disallowed under section 901(j), 901(k), 901(l) and 901(m) in the functional currency of the CFC. Part III also requires the filers to report CFC foreign income taxes related to 959(c)(3) earnings and profit in the residual income group. U.S. taxes and any other taxes paid or accrued by the CFC for which income taxes are disallowed. So next slide, we'll talk about more about Part III. Now, here's the caveat. The tax is reported on Part III even though they are disallowed, they're still taken into account in determining foreign corporations' earnings and profit. Also, keep in mind that Schedule E, Part III does not include taxes that do not meet credibility criteria under treasury Reg 1.901-2.

Schedule E, Part III does not include foreign income taxes suspended under enter splitter rules under section 909 or hovering district rules under treasury Reg 1.367(b)-7. Such taxes are reported on Schedule E-1. More on Part III, Schedule E, Part III, column (g) is for taxes attributable to residual income group as determined and reported on Form 5471, Schedule Q, and you guys know Schedule Q is a new schedule come into place. This column does not include taxes attributable to tested income group that are not being paid as a result of inclusion percentage or 80% limitation. And that brings us to the discussion on Schedule E-1. Here Schedule E-1 in front of us, please note that the year 2020 was on modified column (a) such that the foreign income taxes related to current year earnings and profit begin and end with zero. Current year taxes are reported as positive amounts on line 4 and carried from Schedule E-1, Part I, section 1. Current year taxes deemed paid by U.S. shareholders of the CFC are reported as negative amounts in column (a) on lines 9 through line 11. Now, this is because column (a) must equals zero any remaining taxes reported on line 15 are reduced on line 16 and 17. Line 16 is with respect to taxes not being paid under section 960(d), because of the inclusion percentage and 80% limitation. Now, taxpayers are required to attach a statement to Form 5471 explaining any remaining taxes reported on line 17. Now let's look at Page II of Schedule E-1. Here's a Page II, Schedule E-1. And in the year 2020, this form has the 10 PTEP groups under treasury reg now 1.960-3(c)(2) that we just discussed earlier. Those taxes related to those 10 PTEP groups are classified here on Page II. So see the examples in Form 5471 instructions for correct reporting of the distribution and reclass it. Taxes properly attributable to section 965 PTEP distributions are reported before 965(g)

disallowance, and report those reductions on a Form 1118 Schedule G. This brings us to a little more discussion on Schedule E-1. Schedule E-1 is used to report the cumulative balance of foreign income taxes paid or accrued by a CFC by separate categories of income. Also use this schedule to report the foreign income taxes paid or accrued by specified foreign corporations that are only treated as CFCs for the limited purpose under 965(e)(2). Schedule E is not required for Category 1c, Category 2, Category 3 and Category 5c filers. Schedule E is generally completed in U.S.

dollars unless otherwise noted. Now, just a common sense approach here is the beginning year balances should equal the prior year balances. And use line 1b to report any adjustments, for example, any errors in the prior year balances, et cetera. So line 1b is reserved for that. Some more explanation on Schedule E and Schedule E-1 is on the next slide. The total taxes paid on Schedule E, Part I, section 1, line 5 is reported on line 4 of Schedule E-1 in column (a) through (e). So we're just connecting the dots between Schedule E and E-1. So total taxes deemed paid on Schedule E, Part I, section 2, line 5 is reported on line 6 of Schedule E-1 in column (e). And then foreign income taxes reclassified on the 959(c)(2) PTEP to 959(c)(1) PTEP should be reported as negative numbers in column (e)(6) to (e)(10). And as positive numbers in column (e)(1) to (e)(5) on Schedule E-1. Folks, that ends my discussion on Schedule E and E-1. And I'll hand over the microphone to Georgia LaFontaine. Georgia LaFontaine: Thank you, Riaz. Now, before we get into the meet of the Schedule I-1, I just want to go over a little bit more background, some of which has been sort of alluded to earlier. So the Tax Cuts and Jobs Act, or TCJA, added new code section 951A, which provides the U.S. shareholder of any CFC must include in its gross income, the shareholders Global Intangible Low-Taxed Income or GILTI. Now the GILTI inclusion under section 951A is computed at the U.S. shareholder level and that could be a corp.orate or individual shareholder and it's reported on Form 8992. So in order to compute its GILTI inclusion on Form 8992, the U.S. shareholder will need certain information from each of its CFCs. Enter the Schedule I-1, so the Schedule I-1 is used to report information that is determined at the CFC level with respect to the amounts used to compute the GILTI inclusion of a U.S.

shareholder under section 951A. And a U.S. shareholder uses the information from Schedule I-1 for each of the CFCs in which it is a U.S. shareholder to prepare its Form 8992, which again is the U.S. shareholder level calculation of Global Intangible Low-Taxed Income or GILTI. Also, if the taxpayer claimed a foreign tax credit, with respect to foreign taxes attributable to the GILTI inclusion, then the information from Schedule I-1 is also used on its Form 1118, the FTC form or 1116 in the case of individuals. Now initially, a separate Schedule I-1 was required for general and passive categories of income, but that's no longer the case. Now Schedule I-1 is completed once for general category income, passive category income or both. And as we'll see on the next slide for Schedule I-1 reports the CFC level, gross income, exclusions, deductions, taxes, qualified business asset investment, or what we refer to as QBAI tested interest income and tested interest expense. So the Schedule I-1, which you see here onscreen is essentially a roadmap of the CFC level items that are used by the U.S. shareholder in computing its GILTI inclusion under the formula provided in section 951A. So starting at the top of the form, as you can see Schedule I-1 includes a field to report the separate category of income. And as I mentioned on the previous slide, Schedule I-1 is completed only one for each CFC regardless of whether it has income from the general, or passive category, or both. So if the CFC has any passive income included in the tested income reported on line 6, then the separate category code should be PAS for passive. On the other hand, if the CFC has only general category income, it should report separate category code GEN for general category. Okay, next moving on to line 1, the CFC will report its gross income on line 1 of Schedule I-1. And just a quick point here, this gross income is reported net of cost of goods sold, if any. And if for some reason the cost of goods sold exceeds revenues, which would otherwise result in a negative amount on line 1 in that isolated situation, the cost of goods sold should instead be reported on line 5 with the deductions. But generally speaking, the cost of goods sold is included in line 1 as an offset to gross income. So next, the gross income of the CFC on line 1 is reduced on line 2a through 2e by certain types of income that are statutorily excluded from tested income. And these include things like Effectively Connected Income or ECI, subpart F income and income to the subject to the high tax exception. Next, line 5 reports the deductions that are properly allocable to tested income. And note that deductions properly allocable to any other type of income should not be included on line 5. So deductions related to, for example, subpart F or ECI, those shouldn't be included on line 5. So deductions properly allocable to tested income are reported on line 5, and they reduce that gross income less exclusions amount from line 4 to arrive at the CFC's tested income or loss on line 6, and that amount is used in the U.S. shareholders computation of its net CFC tested income on Form 8992.

You'll also see that tested foreign income taxes are reported on line 7, and used by the U.S.

shareholder to complete its Form 1118 or 1116 for foreign tax credits. And finally, lines 8, 9 and 10 reports the CFCs qualified business asset investment, or QBAI, and interest expense and interest income items that are used to compute the U.S. shareholders net deemed tangible income return again on its 8992. Now, let's shift gears a little bit and look at a recent revision to Form 5471, in which several questions were added to Schedule G. And the one I want to draw your attention to now is on line 19. Line 19 is used to indicate whether any exceptions, exclusions or other provisions apply to reduce or exclude any amounts reported or reportable as subpart F income. Now, line 19 on the face of schedule G simply asks, yes or no, did you answer yes to any of the questions in Worksheet A of the instruction. And when you refer to Worksheet A, you find 22 questions about the various exceptions, exclusions, deductions and other provisions that may reduce or exclude the amounts that are reported or reportable as subpart F income. Now, in case you're wondering, historically, we might have seen a return with little or no subpart F income reported, but perhaps certain transactions reported on Schedule C, the income statement or schedule and the related party transactions. That would seem to indicate that perhaps more subpart F income should have been reported. But we obviously had no way of knowing whether subpart F income was actually under reported, or whether it was simply subject to a lawful exclusion or exception, and so you can see how that might have led to unnecessary increase, unnecessary examination. And so now by adding this line 19 and the underlying questions, we have a little more line of sight into why subpart F income may not have been reported. And so, that permits us to focus our compliance efforts more specifically on areas where there is a genuine risk of noncompliance. So if the CFC derives any income that was not reported or reportable as subpart F income by reason of one of those exclusions, exceptions, deductions or other provisions, specifically enumerated in Worksheet A, and that includes a catch all question 22 for any other provisions not explicitly listed in those questions, in that case, a statement must be attached to provide certain information or any questions to which the answer is yes. And specifically, we're looking for the amounts excluded or deducted, along with the codes corresponding to the nature of the exclusion, exception, deduction or other provision. Now, while there are 22 questions in Worksheet A, which may sound like a lot of questions, we anticipate that most taxpayers will only have reporting with respect to a small number of these 22 items, given the fact that many of these provisions are industry-specific. So for example, exceptions related to active hedging commodities or export financing interest, securities dealers, agricultural commodities, active financing and insurance, these provisions will apply to a relatively small subset of taxpayers. And so, they wouldn't be expected to impact most taxpayers completing Form 5471. So don't be daunted by those 22 questions. Okay, so where does all this information ultimately show up? On the U.S.

shareholders' income tax return. And we're focusing largely on 1120, is not on individuals. So the U.S. shareholder's pro rata share, of all its CFCs' subpart F income net of properly applicable and apportionable expenses should be reported on lines 16a through 16c of the Form 1120 Schedule C. The U.S. shareholders GILTI inclusion from its Form 8992 should be reported on line 17 of Schedule C. Then each CFC's subpart F income net of properly applicable and apportionable expenses should be reported on lines 1a through h of its Form 5471 Schedule I. And then, the total of all CFCs' lines 1a through h should generally reconcile to the total of the U.S. shareholders Form 1120 Schedule C, lines 16a through c. So they all sort of tie back to each other. Now, next I want to talk about line 2b of Schedule I-1, and line 19 of Schedule G, the last two items on this slide. And they both deal with subpart F items. Now, line 2b of Schedule I is the subpart F income of the CFC, which is excluded from tested income. And more specifically, line 2b is the gross income that's taken into account in determining subpart F income of the CFC. Line 19 of Schedule G generally includes the gross income that is not reported as subpart F income, because of an exclusion, exception, deduction or other provision. So then shifting gears just a little bit again, Part I of Schedule J, which deals with accumulated E&P, or earnings and profits, of a CFC was covered just a few minutes ago. And now, I want to draw your attention to Part II, which was newly added as part of the revisions for Tax Cuts and Jobs Act. And Part II deals with non-previously-taxed earnings and profits, subject to recapture as subpart F income under Section 952(c)(2). Now, taxpayers have always been expected to maintain records with respect to earnings and profits that are subject to recapture in subsequent years as subpart F income. And now, with this addition of Part II to Schedule J, it's simply that requirement simply becomes reported on the face of the return. So, Phil, hopefully, we still have time for one more polling question. If so, I will turn it over to you. Philip Yamalis: Excellent. Thank you, Georgia. Great job in walking us through that. We do have a fifth and final polling question. And again, it's a survey question. So we're going to get a feel of what you think. Here's the question. Have you found the instructions to the Form 5471 to be helpful? That's the instructions to the Form 5471. So your choices here are: A, mostly yes; B, partially yes, but there needs to be more guidance included in the instructions; C, no, not really; or D, not applicable to my duties. Please take a minute, review the question, and click on the radio button that best describes your personal experience with the Form 5471 instructions. Okay. I will give you a few more seconds to make your selection.

All right. Let's go ahead and stop the polling now. Thanks for responding. We'll share the response that most of you selected on the next slide. Again, there's no correct answer. Let's see how most of you did here. Okay. Most of you answered, B, partially yes, but there needs to be more guidance included in the instructions. Ladies and gentlemen, thank you so very much for your feedback. This will be very, very helpful as we continue. Now, I know our speakers definitely appreciate your responses. So before we conclude our program today, Georgia, I believe you have some resources that you want to share. Georgia LaFontaine: I do and they are listed on Slide 142. And so, as we have mentioned earlier, the Form 5471 and accompanying schedules are available for you to download from the materials tab. And you can also find them on IRS.gov. And so, we encourage you to review the form itself, the Form 5471, which is the information return of U.S.

persons with respect to certain foreign corporations; the Schedule E and E-1, which again with the income or profits and excess profits taxes paid or accrued; the Schedule I-1, which is the information for Global Intangible Low-Taxed Income or GILTI; the Schedule J, the accumulated earnings and profits or E&P of a controlled foreign corporation; and the Schedule P, the previously taxed earnings and profits or PTEP of U.S. shareholders of certain foreign corporations. And so, we encourage you, especially in light of your responses, that additional guidance in the instructions would be helpful. We encourage you to review these forms and the accompanying instructions and give us that feedback about what additional clarification you would like to see. So we would appreciate that. So, Philip, that's all I have. I will turn it back over to you. Thank you. Philip Yamalis: Thank you, Georgia. Absolutely phenomenal, appreciate it.

Ladies and gentlemen, it's me again, Philip Yamalis. And I will be moderating now the Q&A session.

Before we start the question-and-answer session, I do want to add my thanks to everyone for attending today's presentation, Overview of the Revised 5471. Again, earlier we mentioned several times that we want to know what questions you have for our presenters. This is still your opportunity. So if you haven't input your questions. There is still some time. Go ahead, click on the drop-down arrow next to ask question, type your question in the field and simply click Send.

Now, remember, before you click Send, don't put any private taxpayer-specific taxpayer information in the box. Just go ahead and send it to us as a general question. Our speakers are staying on with us to answer your questions. We have a few that have come in already. One thing before we start, we probably will not have time to answer all the questions submitted. However, let me assure you that we will answer as many as time allows in the next several minutes. So let's get started. So we have time to get to as many questions as possible. So here we go. Our producer is sending me one that came in already. And, Brian, it looks like this question should come to you. It says, How would you like to see earnings and profits under Section 962, as both taxable and excludable, reported on Schedules E, J and P? Should Schedule E be left blank for an individual or non-corp.orate U.S. shareholder, since foreign tax is paid by the controlled foreign corporation, are not applicable to the individual with regards to the foreign tax credit? Brian? Brian Sheba: Yeah, thank you for that question, Phil. Well, the answer is there is no distinction in reporting on the 5471 based on whether a taxpayer is made or not made a Section 962 election. Remember, Category 2 and 3 filers do not need to file the Schedule E. So keep in mind, the Schedule E is relevant as individuals make that 962 election or have 965 PTEP distributions with direct withholding tax that would be subject to the 965 haircut. So it's possible that this information would be relevant.

And unless Category 2 or 3 filer, the reporting on Schedule E is necessary. Thank you. Philip Yamalis: Thank you, Brian. Appreciate that answer. And let me turn this next question over to you. Can an S corporation own more than 50% of foreign subsidiaries, and therefore, be required to file Form 5471? That's an S corporation. Ann? Ann Ng: Thank you, Phil. So, yes, an S corporation is required to file the 5471 if it owns more than 50% of a foreign corporation on the last day of the taxable year. And there needs to be another question is that, If the S corporations fail to file the Form 5471, what would happen? Then the S corporation could be liable for the penalty, then potentially the shareholder of the S corporation, U.S. shareholder of the S corporation could be also liable for the penalty. Philip Yamalis: Excellent. Ann Ng: Thank you, Phil. Philip Yamalis: Appreciate that. Thank you. David, Global Intangible Low-Taxed Income, GILTI. I think this is my favorite acronym of the day, GILTI. Previously taxed earnings and profits, PTEP, are they reported on Schedule J, the tested income? Or is it the tested income minus 10% of QBAI. I forgot that acronym. So you have to fill it in for me. David Nachman: That's a really good question. And in fact, I'm really happy to hear it, because it means someone's really thinking about GILTI, which I do a lot of GILTI work. When I built my example, I very intentionally built the example without the complexity of QBAI. I simply said the CFC doesn't have QBAI. But the person is absolutely right. When you calculate GILTI, Global Intangible Low-Taxed Income, you take tested income, and then you subtract from it something called the deemed tangible income return, which sounds like a big fancy term, right? But all that is, is 10% of QBAI, minus something called specified interest expense. So the person is absolutely right, that when you actually calculate GILTI, because normally a CFC is going to have some sort of tangible assets.

It's going to have some sort of QBAI. And it's going to have some sort of interest expense. So, typically, there will be some sort of deemed tangible income return, that you'll be reducing the tested income by. But given that this presentation wasn't about GILTI, I avoided that complexity and but this person is absolutely right. When you calculate GILTI, you have to subtract 10% of QBAI. And back out also your specified interest expense. Philip Yamalis: Thank you, David. We've got a great audience here. Georgia, let me turn this next question over to you, because I think you talked about it in the presentation. If a taxpayer filed Form 5471 Schedule I-1, do they still need to file a Form 8992? Georgia LaFontaine: Okay, so that's a good question. And I'm guessing the person that asked it was probably thinking of a situation where a U.S.

shareholder only has one CFC in which they are a U.S. shareholder. But regardless of the number of CFCs in which you are a U.S. shareholder, you still need to file the 8992. So recall from our earlier discussion, the Form 5471 Schedule I-1 reports the information that's determined at the CFC level with respect to the amount used to compute the GILTI inclusion of the U.S. shareholder.

So then, the information of all the CFCs or in the case of only owning one, it will just be the similar information, but still gets reported by the U.S. shareholder. In the case of multiple CFCs that's compiled on Schedule A, otherwise you'll just have the 1 CFC listed on Schedule A of Form 8992, you might have a Schedule B instead of a Schedule A if you're a consolidated 1120 filer. And so, that information from Schedule A or Schedule B, as the case may be, that information is aggregated and flows to the front page of the 8992. And that's where you see the U.S. shareholder computation of its GILTI inclusion, based on all the CFCs of which it's a U.S. shareholder. So the I-1 is the CFC level information, but the Form 8992 is up at the U.S. shareholder level, actually computing the GILTI inclusion. So, yes, you still need to file that 8992. Philip Yamalis: Excellent. Now, the next question that came in, It seems that form 5471 doesn't cover ownership of foreign corporation with 10% to 50% of ownership, when no changes occurred during the tax year. For instance, a taxpayer with a 20% or even 50% ownership would not fall in any of the 5 categories, when no other changes occur. So therefore, there's no need to file Form 5471 in these situations. Is that correct? Jeff, I think that would be fair to ask you this question. Do you need it repeated? Jeffrey Johnson: No, no, that's great. Thank you. In this situation, the answer is it depends on whether or not the U.S. person is required to file Form 5471 on an annual basis. If I own more than 10%, but 50% or less of the stock of a foreign corp., if that foreign corporation is not a CFC, in other words, there are no other U.S. shareholders of that foreign corporation, then I only have to report in a year in which I acquire or dispose of stock that meets the 10% ownership requirement. So if I own 49% of the stock of a foreign corporation that is not a CFC, I file my Category 3 filing the year I acquire the stock. But if that foreign corp. is a CFC, because it has another U.S. shareholder, then I am required to file Form 5471 as a category 5 filer for every year that I own the stock, that I own more than 10% of the stock, I'm a U.S.

shareholder, and that foreign corporation is a CFC. That's an annual filing requirement for the Category 5. Philip Yamalis: Excellent. I think we have time for just one more question here, as they're telling me. If a controlled foreign corporation distributes a dividend to U.S.

shareholders, and the dividend is subject to withholding tax, does the withholding tax get reported on the Form 5471? Brian, would you like to take that? Brian Sheba: Yes, I would. And the quick answer is no, this is withholding tax, that's the legal liability of U.S. shareholder. So it would not be reported on the 5471. But, a few things to keep in mind. It could be the taxes reported on the Form 1118 or 1116, if we're talking about non-domestic corp.. So just paid in relation to 965 PTEP, it's important to track the 965 PTEP on Schedule E and J. Also, if it is PTEP related to 245A subsection D for hybrids, it's important to know that there might not be a foreign tax credit allowed in that case. And finally, if this is a dividend, that is from previously untaxed earnings, that is D-3 income, because of 245A, there's not going to be dividend inclusion. So in such case, there may not also be a foreign tax credit that's going to be available with it. But just to more simply and quickly get to the right answer here, as far as the 5471 reporting on that withholding tax at the U.S. shareholder level, the answer is no. Philip Yamalis: Thank you, Brian. Appreciate that. Ladies and gentlemen, I'm afraid that's all the time that we have for questions. We are compiling your questions however. I do want to thank Mr. John Hinding and Cindy Kim for their support and opening the webinar, introducing our presenters today.

A big thank you to our awesome, excellent speakers, subject matter experts and Chief Counsel representative for sharing their knowledge on the Form 5471 and its respective schedules today as well, for their expertise and for also staying on and answering some of your questions. Before we close the question-and-answer session, Cindy, what key points? Would you like the attendees to remember from today's webinar? Cindy Kim: Thanks, Philip. Very quickly, just some of today's main takeaways. Well, you heard all about the different categories of filers for the Form 5471. And we introduced a new term, named the specified foreign corporation, which relates to Section 965.

PTEP, as you now know, is very important. And the revised Form 5471 reflects PTEP. And the number of PTEP categories is now at 10. The Schedule J was expanded to better reflect our post-TCJA environment. And it is now reported by the separate categories of income, including the 10 different PTEP categories. Schedule P is a new schedule that reports PTEP and is completed for each U.S. shareholder. The Schedule E was expanded, and the new E-1 was created to track taxes by the separate categories of income, including the PTEP category. And then, finally, Schedule I-1 has been created to give U.S. shareholders the information they need to report and calculate GILTI on the Form 8992. And then, the next slide, just reminds everybody that we are interested to hear your suggestions for future webinar topics. The e-mail address is shown on the screen. So, please feel free to send suggestions for future training topics or any of your comments about today's event. Back to you, Philip. Philip Yamalis: Thank you, Cindy. Thank you very much. Ladies and gentlemen, we are indeed planning additional webinars throughout the year. Don't forget to register for upcoming webinars. Visit us at IRS.gov. Keyword search webinars and select Webinars for Tax Practitioners or Webinars for Small Businesses. Again, when appropriate, we'll be offering some CPE credit for upcoming webinars. You can also visit our video portal for more information or to watch archived videos that are on the IRSvideos.gov portal. Again, a big thank you to our speakers for a great webinar, for answering your questions. I also want to thank you, our audience for attending today's webinar on the overview of the revised Form 5471. Now, ladies and gentlemen, don't forget, if you attended today's webinar for at least 100 minutes after the official start time, you will receive a certificate of completion that you can use with your credentialing organization for 2 possible CPE credits. If you stayed on for at least 50 minutes, there'll be 1 CPE credit. Again, that time we spent chatting before the webinar doesn't really count towards the 50 or 100 minutes. If you're registered through the Continuing Education from the IRS and you registered your valid PTIN number, your credit will be posted in your PTIN account. We also have Continuing Education from the California Tax Education Council. Your credit will be posted to your CTEC account. And the Florida Institute of CPAs, your participation information will be provided directly to them. If you qualify, you have not received your certificate or credits by September 23, please e-mail us at the address that you see on this slide at CL.SL.Web.Conference.Team@IRS.gov.

If you're interested in finding out who your local Stakeholder Liaison is, you may send us an e-mail using the address shown on this slide, and we'll send you that information as well. Again, ladies and gentlemen, we certainly would appreciate it, if you would take a few minutes to complete a short evaluation before you exit. We want to hear your ideas. So it's been a pleasure to be here with you. On behalf of the Internal Revenue Service, our presenters, we would like to thank you for attending today's webinar. It's important for us to stay connected with all taxpayers, individuals, tax professionals, industry associations, along with other organizations.

You make our job a lot easier by sharing information that allows for proper tax reporting. Thanks again for taking time out of your busy day to attend this webinar. We hope you found this information presented today very helpful as I did. You may exit the webinar at this time. Have a great day.