The American Institute of Certified Public Accountants (AICPA) has reiterated its call for the U.S. Treasury Department and the Internal Revenue Service (IRS) to provide regulatory relief for foreign taxpayers.
Specifically, the AICPA is seeking penalty relief to any first-time filer of Form 5471, which is Information Return of U.S. Persons with Respect to Certain Foreign Corporations. The filing obligation results from the imposition of “downward attribution” created by the Tax Cuts and Jobs Act. Congress passed this Tax Cut and Jobs Act in December. “Downward attribution” permits stock owned by a foreign person to be attributed to a United States person for purposes of creating a Controlled Foreign Corporation (CFC), the AICPA explained.
In a letter to the IRS and Treasury, the AICPA explained that through this downward attribution, certain foreign corporations are treated as CFCs. Thus, a U.S. shareholder could unexpectedly own an interest in a specified foreign corporation, which will result in an income inclusion to the U.S. shareholder of a portion of the corporation’s accumulated post-1986 deferred foreign income.
“The AICPA believes that the income inclusion to the U.S. shareholder is inconsistent with the intent of Section 965 and the repeal of section 958(b)(4),” the AICPA’s letter stated.