IRS Form 5471 Schedule M Transactions Between Controlled Foreign Corporation and Shareholders or Other Related Persons

Form 5471 Schedule M Instructions

Schedule M was developed to accompany IRS Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations. However, this schedule is supposed to be filled out only by a certain category of person stated above. The official instructions developed by the IRS for Form 5471 define U.S. persons in a certain way, which includes:

• Citizens and residents of the U.S.;
• Nonresident aliens for whom an election is in effect under section 6013 (g) to be treated as a resident of the United States;
• Individuals for whom an election is in effect under section 6013 (h), relating to nonresident aliens who become residents of the U.S. during the tax year and are married at the close of the tax year to a citizen or resident of the U.S.;
• Domestic partnerships;
• Domestic corporations;
• Estates and trusts that are not foreign estates and trusts as defined in section 7701 (a) (31).

Besides defining the U.S. persons, the instructions also provide information on stock possessions that are considered to be controlling of a foreign corporation. To file 5471 Schedule M a U.S. person must own (any of the mentioned below):

• More than 50% of the total combined voting power of all classes of stock of the foreign corporation entitled to vote;
• More than 50% of the total value of shares of all classes of stock of the foreign corporation.

The numbers refer to sections of the Internal Revenue Code , which can be found on the official IRS website.

Schedule M can be vaguely divided into two parts:

1. Identification Information. In the first part of the application a filer must enter their name, their identifying number (which can be presented by a social security number or employer identification number), name of the foreign corporation, a foreign corporation's employer identification number (if any), and the reference ID number. The reference ID number can be found on Form 5471.
2. Information about transactions. This is the biggest part of the form where an applicant must enter the totals for each type of transaction that took place between them and the foreign corporation.

The schedule includes information about different types of transactions, such as:

• Sales of stock in trade;
• Sales of property rights ;
• Compensation that was received for technical, construction, engineering, or similar services;
• Received rents, royalties, and license fees ;
• Received dividends;
• Received interests;
• Purchases of tangible property other than stock in trade;
• Premiums that were paid for insurance or reinsurance;
• Amounts loaned.