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IRS listens to practitioners.

In revenue procedure 91-55, the IRS clarified the scope of reporting requirements under Internal Revenue Code section 6038A. Now, a 25% foreign-owned U.S. corporation (reporting corporation) need disclose only its ultimate 25% shareholders, plus its direct 25% shareholders. Unless they have transactions with the reporting corporation, neither brother-sister nor intermediary corporations in a chain need be disclosed.

Previously, final regulations issued last June could have been interpreted as requiring a reporting corporation to use for 5472 to disclose what was, in effect, a worldwide organization chart in addition to information that, in most cases, would not be relevant for U.S. tax purposes.

It was unclear whether a reporting corporation was required to disclose identifying information, such as names or where tax returns are filed, for all direct and indirect 25% shareholders. Identifying information might have been required for brother-sister corporations even though they had no transactions with the reporting corporation.

For example, assume a foreign parent corporation owns 100 foreign subsidiaries, only 1 of which owns a U.S. corporation. The reporting corporation could have been required to disclose identifying information regarding all 100 subsidiaries.

Practitioners objected, saying the "full disclosure" requirement was overbroad. Disclosure of information about 25% foreign shareholders should have been limited to corporations that had transactions with the reporting corporation during the year. Revenue procedure 91-55 reflects these concerns. In the example given above, disclosure would be required for only the foreign parent and the foreign subsiadiary directly owning the stock of the reporting corporation.

Observation: Revenue procedure 91-55 provides welcome relief from the final regulations, which might have imposed an undue burden on taxpayers. It also demonstrates the IRS's cooperative attitude when it receives constructive comments on key issues.
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Author:Dionne, Marylouise
Publication:Journal of Accountancy
Date:Nov 1, 1991
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