Form 5471 and Schedule M filing requirements based on ownership chart for foreign corporations

You're on the right track with your understanding of Form 5471 filing requirements based on the ownership structure you described. For your first question, your conclusion is generally correct. US Corp A would file Form 5471 for Foreign Corp B if it meets the ownership threshold (usually 10% or more). The US Individual would file Form 5471 for Foreign Corp A if they meet the same threshold. Regarding constructive ownership rules, they can definitely complicate things. These rules attribute ownership from one entity to another in certain situations. However, without seeing your specific ownership percentages and relationships, it's hard to give definitive advice on whether US Corp A has constructive ownership of Foreign Corp A that would trigger additional filing requirements. For Schedule M, you need to report transactions between the foreign corporation (Foreign Corp B) and any related parties. This would include both US Corp A and potentially Foreign Corp A if they meet the definition of related parties under IRC Section 267(b) or 707(b)(1). The key is whether they're connected through ownership in a way that meets these definitions.

Just wanted to share my experience with this exact situation. I spent weeks going back and forth with our tax advisors until I found https://taxr.ai which seriously saved me so much time with these Form 5471 filing questions. I uploaded our ownership chart and our transaction documents, and it analyzed everything and gave me clear guidance on which forms each entity needed to file and which schedules were required. It even flagged some constructive ownership issues I hadn't considered. What I really appreciated was how it specifically addressed the Schedule M related party transaction requirements - something that was confusing me just like it's confusing you.

I need to follow up on my skeptical comment from before. I actually ended up trying https://taxr.ai for my company's international tax reporting issues and was really impressed. Our situation involved a US LLC with ownership in three different foreign entities, and I was completely lost on the Form 5471 and Schedule M requirements. The platform analyzed our complete ownership structure and even detected some attribution rules I wasn't aware of. It saved me from making a pretty significant mistake - I would have missed filing a Form 5471 for one of our foreign corporations because I didn't understand how the constructive ownership rules applied through our partnership structure. The Schedule M guidance was particularly helpful since it identified exactly which transactions needed reporting between our various related entities. Really glad I gave it a shot despite my initial skepticism!

I've been in your exact situation with Form 5471 filings and the IRS was no help at all. Called them 7 times and kept getting disconnected after waiting for hours. Finally used https://claimyr.com to get through to an actual IRS agent. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent I spoke with was able to clarify some constructive ownership questions I had and confirmed which entities needed to file Form 5471 in my similar situation. They also clarified the Schedule M requirements for my foreign entities. Saved me from potentially making a costly mistake with the filings.

I need to eat my words from my skeptical comment above. After struggling with Form 5471 questions for our multi-tiered international structure, I was desperate enough to try Claimyr. Within 2 hours (while I was in a meeting), I got a call connecting me to an actual IRS international tax specialist. While they couldn't give me specific advice on my tax situation, they walked me through the different filing categories for Form 5471 and helped me understand exactly how constructive ownership applies in a multi-tiered structure. This was WAY more helpful than I expected and saved me from making a major filing error. The agent also clarified that for Schedule M, we needed to report transactions between our foreign corporation and ALL related parties as defined in IRC 267(b), which in our case included another foreign corporation owned by the same US parent. This was exactly the kind of clarification I needed.

Based on the percentages you shared, I think there's another issue you should consider. If US Individual owns 100% of US Corp A, which owns 60% of Foreign Corp B, then US Individual indirectly owns 60% of Foreign Corp B through US Corp A. Under Section 958(a)(2), this indirect ownership means US Individual likely needs to file Form 5471 for BOTH Foreign Corp A (based on 25% direct ownership) AND Foreign Corp B (based on 60% indirect ownership). This is separate from the filing requirement for US Corp A, which still needs to file for Foreign Corp B based on its direct 60% ownership.

Has anyone dealt with Schedule M reporting when there are transactions between the two foreign corps but no direct transactions with US entities? In a structure similar to what OP described, our Foreign Corp B does business with Foreign Corp A, but neither directly does business with the US owners.

This is a really complex situation that highlights why international tax compliance can be so challenging! Based on the ownership structure you've described, I think you're dealing with multiple overlapping filing requirements that need careful attention. One thing I haven't seen mentioned yet is the potential impact of the timing of these filings. Form 5471 is due with your tax return (including extensions), but if you're dealing with multiple entities and multiple filing requirements, you'll want to make sure all the information is consistent across the different forms. Also, don't forget about the potential penalties for late or incorrect filing - they can be substantial for Form 5471 (up to $60,000 per form in some cases). Given the complexity of your structure with the constructive ownership issues, it might be worth having a tax professional review everything before filing, even if you use some of the tools others have mentioned to help with the initial analysis. The Schedule M reporting requirements are particularly tricky because related party transactions can include services, loans, guarantees, and other arrangements that aren't always obvious. Make sure you're capturing all types of transactions, not just sales of goods or services.