1 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) is used by U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations.
1 is similar to a U.S. corporate income tax return but for foreign corporations and requires reporting of much of the same information, such as an income statement and balance sheet. Form 547 1 contains important disclosure information and, in many cases, includes relevant information to determine the current U.S. tax liability of the U.S. shareholder of the foreign corporation.
The purpose of Subpart F is to deny a tax deferral for ‘movable’ income earned through a foreign corporation. Under Subpart F, certain types of income (such as dividends, interest, rents, and royalties) earned by a foreign corporation are taxable to the CFC’s U.S. shareholders in the year earned even though the corporation does not distribute the income to its shareholders. Subpart F operates by treating the shareholders as if they had actually received the income. The undistributed income of a CFC that is taxable to its U.S. shareholders under the Subpart F rules is referred to as “Subpart F income.”
A foreign corporation is corporation (or other type of corporate entity) that is formed outside of the United States. A corporation incorporated in the United States is not a foreign corporation.
Any U.S. “person” (individual, entity (corporation, partnership, trust, or estate)) who owns more than 10% (vote or value) of a foreign corporation will likely be required to file Form 547
1. The form is filed as part of the U.S. person’s tax return (Form 1040, 1065, 1120, etc.) and is due when the income tax return is due including any extensions. A separate Form 547 1 filing is required for each applicable entity interest, based on the category of filer. The filing requirements are assigned to five categories of filers.
Certain U.S. persons (officers, directors, or shareholders in certain foreign corporations) are required to file Form 547
1. The rules are very complex. When in doubt, seek legal counsel due to high penalties for non-filing. In many cases, filing is strongly recommended.
GILTI stands for global intangible low-taxed income. GILTI is intended to currently tax earnings in foreign corporations that were subject to a low tax rate rather than allow deferral of tax on that income. Despite the name, GILTI is not necessarily limited to taxing income from intangible assets. Essentially, the GILTI tax regime is a worldwide minimum tax on overseas earnings resulting in a current U.S. tax on U.S. shareholders of controlled foreign corporations (CFCs) to the extent those earnings exceed a 10 percent return on tangible assets of the CFC (plus certain interest expense.) For certain shareholders, a 50% deduction is available which results in a net effective corporate tax rate of 10.5% on GILTI income.
In Form 547
1 is Tested income is the excess of the corporation’s gross income over its allocable deductions. Certain types of gross income are excluded as tested income.
Constructive Ownership means ownership of Shares by a Person, whether the interest in the Shares is held directly or indirectly (including by a nominee), and shall include interests that would be treated as owned through attribution of ownership (see the application of Section 318(a) of the US Tax Code).
A foreign corporation requires an EIN number from the IRS if it has reportable US income or required to file tax forms with the IRS.
1 is the Information Return of U.S. Persons With Respect to Certain Foreign Corporations, whereas Form 5472 is the Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. They are totally different forms serving entirely different purposes.