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Issue 40358

Form 5471 & Inst Schedule J & Subpart F income

Project Statement: Determine if the Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, and instructions clearly communicate appropriate guidance to the public.

Goal Statement: The goal of this project is to review and make recommendations to the IRS that will enhance customer service and improve the taxpayer’s experience.

TAP RECOMMENDATION

ID 1 Page 24, Line 6

Attach a statement detailing the nature and amount of any adjustments not accounted for in the E&P determined before reductions for distributions and inclusions (i.e., adjustments other than those listed on lines 2a through 5b). Do not include amounts reported on line 1b. Attach a statement detailing the nature and amount of any adjustments not accounted for in the E&P determined before reductions for distributions and inclusions (i.e., adjustments other than those listed on lines 2a through 5b, such as a merger). Do not include amounts reported on line 1b. As Schedule J was expanded to include accumulated E&P balances and line 6 for other adjustments, the instructions do not provide an example that would guide the taxpayer.

IRS Action:Not adopted

ID 1 Non-Adopt

Adjustments pertaining to mergers are not entered on Schedule J, line 6. Adjustments pertaining to mergers are entered on Schedule J, line 5a. It should be noted that Schedule J, line 6 is merely intended as a catchall. As indicated in the current instructions for Schedule J, line 6, a taxpayer enters an amount on line 6 only if the amount clearly doesn’t belong on lines 2a through 5 (according to the instructions for lines 2a through 5b). Line 6 is not a required field. Therefore, we believe that our current instructions are adequate, and we don’t feel that taxpayers need examples regarding an entry for this line.