Revised form 5471.

Comments on Revised Form 5471

Tax Executives Institute is concerned about the recent revision of Form 5471 (Information Return of U.S. Persons with respect to Certain Foreign Corporations) and, in particular, about the requirement that the revised form be used by corporations in filing their 1990 tax returns.

Background

As you know, TEI has worked closely over the years with the IRS's Tax Forms and Publications Division in developing and refining Form 5471. Earlier this year, the Institute was provided with a draft revision of Form 5471 for review and on August 10 submitted detailed comments on the proposed revisions.

In our comments, the Institute stated that Treas. REg. [section] 1.6030-2(g) requires a foreign corporation to submit certain information concerning its income, balance sheet, and surplus "prepared in conformity with generally accepted accounting principles and in such form and detail as is customary for the corporation's accounting records." The instructions to the draft Form 5471 we reviewed essentially mirrored this regulatory requirement, stating generally that "in lieu of completing these schedules [C through G], the information requested in any of these schedules may be submitted in the form of statements that are in conformity" with GAAP principles. This statement, however, was deleted from the final Form 5471 released by the IRS on October 26, 1990. Our specific concerns are two-fold: (i) the revised form requires the submission of information that may be inconsistent with GAAP principles; and (ii) the revised form imposes substantial administrative burdens on taxpayers by requiring them the information be submitted on the actual Form 5471.

Ability to Attach U.S. GAAP

Financial Statements

The prior form permitted financial information for the various schedules of Form 5471 to be prepared in conformity with generally accepted accounting principlies (GAAP). The revised instructions have deleted all specific references to the submission of book financial records that are in conformity with GAAP, as well as specifically stating that the attachments may not be used in lieu of filing out the schedules. The requirements of the revised form conflict (or at least are not consistent) with Treas. Reg. [section] 1.6038-2(g), relating to the required elements of the financial satements of foreign corporations.

In 1986, the IRS signalled its desire to revise Form 5471, but relented when faced with the clear language of the regulation. At that time, an IRS representative announced the IRS's intention to amend the regulations with respect to future years. the regulation, however, remains unchanged. TEI submits that the deletion of the reference to the use of GAAP statements is contrary to Treas. Reg. [section] 1.6038-2(g). In addition, the requirement to provide the information on the Form 5471 imposes considerable administrative burdens on taxpayers. We believe that the IRS should immediately announce that the txpayers may submit GAAP financial statements in lieu of filling out the information required on Schedules C through G.

Use of the Revised Form

in Filing 1990 Returns

The revised form is to be used with respect to all returns filed for years ending after December 15, 1990. Thus, the Form must be used by calendar-year taxpayers in filing their 1990 returns. This effective data poses substantial administrative and compliance problems.

The gathering of the necessary information from foreign affiliates (especially those that are not 100-percent owned by the taxpayer) is not something that can be quickly accomplisehed. Taxpayers must begin the process well in advanced of the time their returns are to be filed. With respect to 1990 returns, large taxpayers have already begun the complicated and time-consuming process of collecting tax return information from their foreign affiliates; "tax packages" were sent by many corporations to such affiliates before the revised form was made available. As a practical matter, therefore, the form was released too late for many corporations to use in gathering the information needed from foreign affiliates for preparing and filing 1990 returns.

TEI strongly recommends that the Internal Revenue Service immediately announce that use of revised Form 5471 for 1990 is optional with the taxpayer. We note that when Form 5471 was revised in early 1986, the IRS made a similar announcement about the optional use of the form in respect of 1985 returns.

Conclusion

Tax Executives Institute appreciates this opportunity to supplement our comments on the Form 5471. If you have any questions, please do not hesitate to call Ralph J. Weiland, chair of TEI's IRS Administrative Affairs Committee, at [phone] or the Institute's professional staff (Timothy J. McCormally or Mary L. Fahey) at [phone].