not alerted to 5471

Technical topics regarding tax preparation.
#1
zl28  
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have a client that is in a partnership

that partnership did not footnote on my client's k-1 that the partnership had an interest in a foreign entity.

my client owns a large amount of the us partnership

there's no taxable income from the overseas entity.

if i file a 5471 now, any recommendations how to avoid being penalized for a late 5471?

can i use reasonable cause as i wasn't informed of this situation on the k-1
 

#2
sjrcpa  
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Include the reasonable cause statement with the filing.
At an AICPA conference, the international speakers said to do this. Contrary to everything else where it does no good to include the attachment with the return.
 

#3
zl28  
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thank you.

the accountant of the partnership offered to amend the 5471 he filed and include my client's entity and my client in the section showing 'person(s) on whose behalf the information return is filed...thoughts on if that would be prefereable?
as of right now, 6 years of 5471's haven't been filed.
 

#4
sjrcpa  
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Amending the partnership's 5471 to include your client would be preferable.
 

#5
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If the client doesn't directly own any interest in the foreign corporation and the US partnership files a 5471, the client doesn't need to file a 5471.
 

#6
zl28  
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i thought the directions said direct and indirect
 

#7
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See the exception at the bottom of page 5 and the top of page 6 of the instructions.
 

#8
zl28  
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This would be great - thank you! I'm looking through the rules.
 

#9
RightOn  
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I think I just happen to have a case with a similar situation.

The K-1 of a client this year came with a 60 pages long Form 5471. :shock:

How do I determine whether the client is required to file a Form 5471 in her personal tax return or not?
 

#10
zl28  
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does it say how much the k-1 entity owns of the overseas entity?

let's say it's 100%

my take is that if your client owns over 10% of the US k-1 entity, he has a filing obligation
 

#11
zl28  
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Thank you dellpaul - appears you are correct.

I didn't love the instructions on the 5471 b/c they used the word 'constructive'

i'm dealing with 'indirect' which to me is different, I thought my client had to file b/c of attribution

from bottom of page 5 top of page 6 form 5471 instructions - Certain constructive owners not need to file if a category 1,3,4,5, if

1. The shareholder does not own a
direct interest in the foreign corporation.
2. The shareholder is required to
furnish the information requested solely
because of constructive ownership (as
determined under Regulations section
1.958-2, 1.6038-2(c), or 1.6046-1(i)) from
another U.S. person.
3. The U.S. person through which the
shareholder constructively owns an
interest in the foreign corporation files
Form 5471 to report all of the required
information.
No statement is required to be attached
to tax returns for persons claiming the
constructive ownership exception.

if reference the code, the language is a pinch different

1 Reg § 1.6046-1(e)(4)(iii) . PERSONS EXCEPTED FROM FILING
2 Reg § 1.6046-1(e)(4)(iii)(a) .
3 Reg § 1.6046-1(e)(4)(iii)(b) .
4 Reg § 1.6046-1(e)(4)(iii)(c) .

in the code, they use the word 'attribution' - that's why i was looking for

(iii) Return required by reason of attribution rules. Notwithstanding paragraph (b) or (c) of this section, any person required to make a return under such paragraph with respect to a foreign corporation need not make such return, if:

(a) Such person does not directly own an interest in the foreign corporation,

(b) Such person is required to furnish the information solely by reason of attribution of stock ownership from a U.S. person under paragraph (i) of this section, and

(c) The person from whom the stock ownership is attributed furnishes all of the information required under paragraph (b) or (c) of this section of the person to whom such stock ownership is attributed.
 

#12
zl28  
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Does Attribution mean constructive ownership? like Joe Smith needs to file a 5471, and b/c of the 1.6046-1(e)(4)(iii)
his wife does not?

or

Does Attribution mean indirect ownership.....If LLC X owns 100% of a Foreign Corp Y, then does 1.6046-1(e)(4)(iii) exempt the partners through rules of attribution from having to file a 5471?
 

#13
zl28  
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In the end, my research shows if there is an indirect owner of a CFC, that effectively has a 10% interest, that US person needs to file a 5471.

example a US partnership owns a CFC.
Partners owning over 10% of the US Partnership effectively own 10% of the CFC
Those individuals need to look to file a 5471.
 

#14
deniz  
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A 10% US partner is the indirect owner of the CFC which is owned by the US partnership - File the 5471. Constructive can be thought of as a deemed ownership.
 

#15
zl28  
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Agree..thank you!
 

#16
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deniz wrote:A 10% US partner is the indirect owner of the CFC which is owned by the US partnership - File the 5471. Constructive can be thought of as a deemed ownership.


Would this be the same for an S or C corporation that owns a CFC? The 10% shareholders of the corporation are indirect owners of the CFC and need to file 5471s?
 

#17
deniz  
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Yes, assuming US Corp is 100% owner of CFC. (Its 10% shareholder of the CFC, not of the US Corp).
 

#18
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deniz wrote:Yes, assuming US Corp is 100% owner of CFC. (Its 10% shareholder of the CFC, not of the US Corp).


How does this conclusion reconcile with post 11 above:

"from bottom of page 5 top of page 6 form 5471 instructions - Certain constructive owners not need to file if a category 1,3,4,5, if

1. The shareholder does not own a
direct interest in the foreign corporation.

2. The shareholder is required to
furnish the information requested solely
because of constructive ownership (as
determined under Regulations section
1.958-2, 1.6038-2(c), or 1.6046-1(i)) from
another U.S. person.
3. The U.S. person through which the
shareholder constructively owns an
interest in the foreign corporation files
Form 5471 to report all of the required
information.

No statement is required to be attached
to tax returns for persons claiming the
constructive ownership exception.


As I read this it sounds like if the US partnership which owns 100% of the foreign corp files the 5471, the US partner has no additional disclosure requirement.

Is this correct?
 

#19
JAD  
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That's my understanding. In my experience, the K-1 includes a statement that clearly states that the partnership has filed the form and therefore the partner does not have to file. Do not assume that the partnership has done so if not clearly stated.
 

#20
zl28  
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mhall see response #13

in your question, partners owning over 10% of the US Partnership need to file under your scenario

Or, likely, the Partnership can file on their behalf on Line H
 

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