TEI comments on Form 5471: October 18, 2002.
Tax Executives Institute appreciates the opportunity to provide comments on the proposed revision of Form 5471, Information Return of U.S. Persons with respect to Certain Foreign Corporations. TEI's 5,200 members are uniquely qualified to comment on this form since they are accountants, attorneys, and other business professionals who work for 2,800 of the largest companies in the United States, Canada, and Europe. Our members deal with compliance issues on a daily basis. We would be pleased to meet with you to discuss our recommendations.
TEI commends the IRS for undertaking a review of the information required on this form, which imposes considerable administrative burdens for taxpayers. Regrettably, despite previous efforts by the IRS to streamline it, the form requires the reporting of extraneous information that is unnecessary for the determination of a taxpayer's tax liability. Much of the information requested (such as on Schedules M and O) is redundant and can be found on other parts of the tax return. In addition, where particular information will not be used to select returns for audit (or where the taxpayer's return will be audited in any event), we believe the information required to be filed should be limited. Especially for companies that are continually audited, TEI recommends eliminating individual filings for each controlled foreign corporation (CFC) and substituting a schedule of CFCs containing key information, including the balance in the earnings and profits (E&P) and tax pools.
The schedules are not uniform in the manner in which the information is to be presented. Several schedules require reporting in functional currency and conversion to U.S. dollar amounts (Schedules C and H). Others require the use of either U.S. dollar (Schedules F and M) or functional currency (Schedule J). TEI recommends that taxpayers be permitted to report the information solely in functional currency.
We also suggest eliminating the U.S. dollar income statement and balance sheet reporting, except for entities subject to DASTM or those using the U.S. dollar as their functional currency. E&P is generally calculated in functional currency and dividends (with the exception of subpart F) are translated at the spot rate on the date of payment. Alternatively, the requirement to "attach schedules" should be eliminated. These schedules are not system-generated and are time consuming to prepare. If upon audit an agent wishes additional information, he or she can request greater detail.
Schedule M generated more comments by our members than any other part of the Form 5471. Members noted that filling out the schedule is the most time consuming part of filing the form. The information can be found elsewhere on the form and is somewhat redundant in light of the contemporaneous documentation required for transfer pricing under section 6662. This data can always be requested by the auditors for subsidiaries in which they have an interest. We recommend that the schedule be eliminated. Alternatively, the schedule should be revised to require only the information relevant in computing additional U.S. tax.
TEI also recommends that Schedule O be eliminated. Again, the schedule is redundant because the majority of information is already required as part of the taxpayer's section 367 disclosures. For example, if a foreign subsidiary is liquidated under section 332, the taxpayer is already required to attach a statement outlining the transaction. Rather than completing Schedule O, the IRS should move to a system where the Form 5471 cross-references the reorganization statements submitted with the tax return. Data on stock purchases can easily be incorporated into a format that reports changes in stock ownership.
Our members often experience the greatest difficulty in obtaining information from non-controlled affiliates (so-called 10/50 companies) when the taxpayer has disposed of its interest in the affiliate (category 3 filers). We recognize that certain information and documentation is necessary to claim foreign tax credits, but that information is reported elsewhere on the return. If the taxpayer is not claiming a tax credit for the 10/ 50 subsidiary, no useful purpose is served by requiring the submission of detailed information. Optimally, the requirement to file the Form 5471 for non-CFCs should be eliminated. Alternatively, the IRS should eliminate the requirement for providing separate company financials or permit relief when the taxpayer has shown reasonable effort in attempting to gather the information.
Finally, we recommend that the de minimis thresholds for filing should be used and the filing threshold for dormant companies should be raised from $5,000 to $50,000. More detailed comments and recommendations submitted by TEI's members are enclosed.
Tax Executives Institute appreciates this opportunity to present its views on the proposed revision of the Form 5471. If you have any questions, please do not hesitate to call David L. Bernard, chair of TEI's IRS Administrative Affairs Committee, at 920.721.2230; Bruce R. Maggin, chair of TEI's International Tax Committee, at 914.765.4083; or Mary L. Fahey of the Institute's professional staff at 202.638.5601.
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|Date:||Nov 1, 2002|
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