Looking for Clarity from the IRS Regarding Foreign Activities? Be Careful What You Wish For!

If you own a foreign entity or joint venture, you’re likely familiar with the associated IRS reporting requirements (if not, contact your tax advisor IMMEDIATELY!).

It was about 10 years ago that the IRS started enforcing required reporting for controlled foreign entities. The passing of the TCJA in 2017, meanwhile, resulted in significant changes in the taxation of foreign investments, and the IRS is now catching up with expanded reporting requirements.

Over the years, I’d often thought how helpful it would be to have tracking schedules for Forms 5471, 8865 and foreign tax credit forms. Well, wish granted! For 2020 reporting, the IRS created several new schedules for Form 5471. The current form can now be more than 20 pages of separate schedules and information. Draft forms for foreign partnerships were also released to provide guidance on how to report items on international relevance. These new schedules, K-2 and K-3, are 20 and 22 pages long, respectively. So, thanks.

Foreign-owned companies aren’t spared from information reporting, and the IRS has also expanded the definition of reportable transactions for foreign-owned entities (Form 5472) to include all monetary, nonmonetary and less-than-full consideration transactions between the U.S. entity and the related foreign corporation. 

What does this all mean? That reporting is not the end of the story. The burden on U.S. taxpayers with foreign operations and investments continues to increase, and enforcement actions are sure to follow. Undoubtedly the IRS will use the information provided in future tax audits in determining potential areas of abuse. Because penalties for noncompliance are high, a thorough understanding of the reporting requirements and timely compliance is crucial. Be sure to contact your Schneider Downs tax advisor if you have any questions.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2024 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Tax, Tax Policy BY Kirk Mitchell
Summary of President Biden’s 2025 Revenue Proposals Released in Treasury’s Greenbook
The Importance of Certified Business Valuation Professionals
Tax, Tax Impact BY Jared Sofranko
IRS Tax-Exempt and Governmental Entity New Compliance Programs
Tax BY Brianna Lundy
Employee Retention Credit: IRS’s Voluntary Disclosure Program Expiring on March 22, 2024
Pillar Two is Here; Is Your Company Ready?
Not-for-Profit, Tax BY Sarah Piot
Not-For-Profit Tax Credit Opportunities Included in the Inflation Reduction Act
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×