Who this is for
- US C corporations that directly own a foreign operating corporation
- US parent companies whose owners live outside the United States
Not covered here
- The founders' personal tax filings
- The foreign country's tax and exchange-control rules for the restructuring
- Detailed transfer-pricing or foreign tax credit calculations
Does the Delaware parent file Form 5471 for the foreign operating company?
Yes. A US corporation controlling a foreign corporation attaches Form 5471 to Form 1120 each year, even with a loss or no dividend (IRS instructions).
If the subsidiary is disregarded for US tax, file Form 8858 instead.
Which Form 5471 filer categories apply to a wholly owned subsidiary?
A sole parent is normally Category 4 and 5a; Category 3 can apply when it acquires shares (IRS Form 5471 instructions).
| Category | Why it applies |
|---|---|
| 4 | A US person controls more than 50% of the foreign corporation's vote or value. |
| 5a | A US shareholder owns stock in a controlled foreign corporation. |
| 3 | The parent first reaches 10% ownership, or acquires a new block that itself meets that threshold. |
File one Form 5471. For Categories 4 and 5a, check only Category 4; also check Category 3 for a reportable acquisition. The sole-owner example includes Schedule M. Category 3 requires Schedule O, Part II, and a statement listing specified related-person debt, subscriber identities, and subscribed shares.
Is the subsidiary a controlled foreign corporation if the founders live abroad?
Yes, if the Delaware parent directly owns all its shares. A US corporation is a US person regardless of its owners' residence; a foreign corporation is a CFC when US shareholders own more than 50% of its vote or value (sections 951(b) and 957(a)). Foreign founders do not erase the parent's direct ownership.
Personal ownership by a US citizen or resident needs a separate analysis.
Is the subsidiary's tested income taxed before it pays a dividend?
It can be. Section 951A makes the US parent include net controlled foreign corporation tested income as the subsidiary earns it, even without a dividend (section 951A). For tax years beginning after 2025, the former GILTI calculation no longer subtracts a return on tangible assets. A fiscal-year return ending in 2026 can still use earlier rules. For years beginning after 2025, ownership on any day can create an inclusion, so acquisition and sale dates matter.
Report the inclusion on Form 8992, claim any deduction on Form 8993, and calculate any credit on Form 1118. For tax years beginning after 2025, it may deduct 40% of the inclusion and related section 78 amount added to income, subject to a taxable-income limit (section 250). The remaining taxable amount faces the 21% federal corporate rate (section 11). A credit may cover 90% of qualifying subsidiary taxes, subject to limits (section 960(d)). Foreign tax may not erase the US charge.
A high-tax election may exclude qualifying income. The controlling domestic shareholders make it with a statement and required notices on timely original returns, or on amended returns within 24 months of the unextended due date.
Online Form 8992 instructions still use old GILTI rules. Follow the amended statute and final return-year forms.
Can passive or related-party income be taxed under subpart F?
Yes. Interest, dividends, some rents and royalties, and certain related-party sales or services can be subpart F income included by the US parent before a dividend (sections 951 and 954). Ordinary operating profit is not automatically subpart F income.
Classify receipts first: subpart F income is generally excluded from tested income (section 951A(b)).
Do dealings with the subsidiary also go on Form 5472?
Form 5472 is generally unnecessary for subsidiary dealings if Form 5471 Schedule M shows all reportable transactions (IRS instructions). Otherwise, check Form 5472.
Check foreign founders and other related parties separately. If a foreign person owns at least 25% of the parent by vote or value and has reportable dealings with it, Form 5472 may be required (IRS instructions). See the parent's other annual filings and the Canada-US pricing example.
Are dividends from the subsidiary taxed in the US?
A dividend can qualify for a deduction of its full foreign-source portion under section 245A, but the answer depends on its earnings, the parent's stock holding period, and special rules for hybrid dividends (sections 245A and 246). The stock generally must be held for more than 365 days within the prescribed 731-day period (section 246(c)(5)).
Earnings already included under subpart F or tested-income rules can instead be distributed without a second US income inclusion under the previously taxed earnings rules (sections 959 and 951A(d)). Trace earnings before claiming the deduction. Foreign tax on a dividend deducted under section 245A cannot be credited or deducted in the US (section 245A(d)).
When is Form 5471 due, and what does missing it cost?
Form 5471 is due with Form 1120 (IRS Form 5471 instructions). For tax years beginning in 2026, the regular deadline is 15th day of the fourth month after year-end (April 15, 2027 for a calendar-year parent). File Form 7004 by that date for a six months filing extension; a weekend or legal holiday moves the deadline to the next business day (IRS Form 7004 instructions; IRS Form 1120 instructions). A June year that began before 2026 still follows the former third-month rule.
A domestic parent that transacts business and keeps its books abroad can instead have until 15th day of the sixth month after year-end to file and pay. It attaches a qualifying statement to the return; Form 7004, line 4, can add four months to file (IRS Form 7004 instructions).
Missing required section 6038 information can trigger a $10,000 penalty per subsidiary year. If still missing more than 90 days after IRS notice, another $10,000 applies for each 30-day period or fraction, capped at $50,000 more. Foreign taxes available for credit can also fall by 10%, with further cuts if the failure continues (section 6038). The assessment period generally stays open until three years after the information is supplied; reasonable cause can limit that extension to related items (section 6501(c)(8)). See missed foreign-owner filings for past years.
Does the parent report the subsidiary's bank accounts on an FBAR?
Yes, if the aggregate value of its reportable foreign accounts exceeds $10,000 at any point in the calendar year. A parent has an FBAR interest in accounts of a corporation it owns by more than 50% of vote or value (31 CFR 1010.350; FinCEN).
File the FBAR separately by April 15 of the following year, with an automatic extension to October 15 (IRS FBAR guidance).
Example
Illustrative US dollars; actual tax depends on US-rule income and credits.
The subsidiary earns profit and pays foreign tax
A Delaware parent owns 100% of an Indian operating company. It earns $200,000 before tax and pays $50,000 of Indian income tax. Assume these match US tax figures, all income and tax qualify, no other deductions apply, and no high-tax election is made. Tested income is $150,000; the section 78 gross-up adds $50,000. The 40% deduction leaves $120,000, generating $25,200 federal tax at 21%. The 90% deemed-paid credit is $45,000, but its limit caps use at $25,200: no US tax remains on this inclusion. The unused credit cannot be carried to another year. Forms 5471 and 8992 remain due; a high-tax election could change the calculation.
The subsidiary loses money and pays no dividend
The subsidiary loses money and pays no dividend. Forms 5471 and 8992 remain due. Missing Form 5471 can start a $10,000 penalty for that subsidiary's year and keep the related US return open to assessment.
The subsidiary pays a dividend
The subsidiary pays the parent a $100,000 dividend. If the parent meets the holding period and the payment comes from qualifying foreign-source earnings that have not already been taxed to the parent, section 245A may allow a full deduction. Foreign withholding tax on the deducted dividend cannot be a US credit. If the distribution comes from previously taxed earnings, different exclusion and credit rules apply.
Different for you?
- The founders also transact with the parent: review foreign-owned C corporation filings for Form 5472 and the parent's own return.
- A US citizen or resident owns the foreign company personally: see US owners of foreign companies.
- Past Form 5471 or Form 5472 filings are missing: see missed foreign-owner filings.
- The parent pays the foreign team to build software: see deducting software development done abroad.
- The parent is managed from abroad: see US corporation run from abroad.
- The flip or subsidiary's local taxes need review: foreign exchange-control, investment, and tax rules vary by country. Bring share-transfer records, subsidiary returns, intercompany accounts, and bank balances to corporate tax help.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Foreign corporation control threshold Ownership must be more than this share of voting power or value for Category 4 control or the general CFC test | 50% | US Code: section 957 Checked |
| Foreign corporation ownership threshold for a US shareholder Voting power or stock value; also the basic stock threshold used in Form 5471 Categories 2 and 3 | 10% | IRS: Instructions for Form 5471 Checked |
| Domestic corporation deduction for net CFC tested income Section 250 deduction percentage for net CFC tested income and related section 78 amount, subject to the taxable-income limit | 40% Tax year 2026 | US Code: section 250 Checked |
| US federal corporate income tax rate Flat rate on taxable income of domestic corporations; foreign corporations pay the same rate on effectively connected income (Instructions for Form 1120-F, Section II). | 21% | IRS: Instructions for Form 1120 Checked |
| Section 960(d) deemed-paid share of tested foreign income taxes Subject to the inclusion percentage and other foreign tax credit rules for domestic corporations | 90% Tax year 2026 | US Code: Section 960(d)(1) Checked |
| Amended-return window for CFC tested-income high-tax election From the unextended due date of the original return for the US shareholder inclusion year; coordinated amended filings also required | 24 months | eCFR: 26 CFR 1.951A-2(c)(7)(viii)(A)(2) Checked |
| Foreign ownership that makes a US corporation a Form 5472 reporting corporation At least this share of vote or value held by one foreign person, directly or indirectly, at any time in the tax year. A single-member LLC wholly owned by one foreign person is treated as such a corporation. | 25% | IRS: Instructions for Form 5472 Checked |
| Section 245A stock holding period Stock must be held for more than this number of days during the prescribed window | 365 days | US Code: Section 246(c)(5) Checked |
| Section 245A stock holding window Window used to test the more-than-365-day holding period | 731-day period | US Code: Section 246(c)(5) Checked |
| Regular Form 1120 filing deadline For C corporation tax years beginning in 2026 | 15th day of the fourth month after year-end Tax year 2026 | US Code: Section 6072(a) Checked |
| Calendar-year 2026 Form 1120 filing deadline Regular deadline before any valid extension | April 15, 2027 Tax year 2026 | US Code: Section 6072(a) Checked |
| Form 1120 Form 7004 filing extension Form 7004 must generally be filed by the regular due date; this does not extend the time to pay | six months Tax year 2026 | IRS: Instructions for Form 7004 Checked |
| Filing and payment deadline for qualifying domestic corporation with foreign business and records Requires business and books of account outside the United States and Puerto Rico, plus a statement attached to the return | 15th day of the sixth month after year-end | IRS: Instructions for Form 7004, Part II line 4 Checked |
| Additional Form 7004 filing extension after foreign-records deadline For a qualifying domestic C corporation; does not further extend payment | four months | IRS: Instructions for Form 7004, Part II line 4 Checked |
| Initial penalty for failure to file required Form 5471 information Per annual accounting period of each foreign corporation for information required by section 6038(a) | $10,000 | IRS: Instructions for Form 5471 Checked |
| Form 5471 continuation penalty notice period Penalty increases when the failure continues more than this period after IRS notice | 90 days | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty For each period or fraction after the notice waiting period, per subsidiary annual accounting period | $10,000 | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty interval Measured after the notice waiting period | 30-day period or fraction | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty increase cap Maximum additional section 6038(b)(2) penalty for the annual accounting period; initial penalty is separate | $50,000 | US Code: Section 6038(b)(2) Checked |
| Initial foreign tax credit reduction for missing Form 5471 information Section 6038(c) applies to specified foreign taxes; further reductions can apply after notice | 10% | US Code: Section 6038(c)(1) Checked |
| Assessment period after missing Form 5471 information is supplied The assessment period remains open until three years after required information is provided; reasonable-cause failures can limit this to related items | three years | US Code: Section 6501(c)(8) Checked |
| FBAR filing threshold Total maximum value of all foreign financial accounts at any time in the calendar year; an FBAR is required when the total is more than this | $10,000 | FinCEN: Report Foreign Bank and Financial Accounts Checked |
| FBAR ownership level for an entity's accounts You have a financial interest in the foreign accounts of a corporation, partnership or other entity you own more than this share of, directly or indirectly | 50% | eCFR: 31 CFR 1010.350, Reports of foreign financial accounts Checked |
| FBAR filing deadline Following the calendar year reported; an automatic extension applies | April 15 | IRS: Report of Foreign Bank and Financial Accounts Checked |
| Automatic FBAR extension deadline Following the calendar year reported; no extension request is required | October 15 | IRS: Report of Foreign Bank and Financial Accounts Checked |
Primary sources
- IRS: Instructions for Form 5471
- IRS: Instructions for Form 8858
- IRS: Instructions for Form 8992
- IRS: Instructions for Form 8993
- IRS: Instructions for Form 5472
- IRS: Instructions for Form 1120
- IRS: Instructions for Form 7004
- IRS: Instructions for Form 1118
- US Code: Section 951A
- US Code: Section 250
- US Code: Section 78
- US Code: Section 904
- US Code: Section 245A
- US Code: Section 6038
- FinCEN: Report Foreign Bank and Financial Accounts
- IRS: Report of Foreign Bank and Financial Accounts
- eCFR: 31 CFR 1010.350
- eCFR: 26 CFR 1.951A-2
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.