Help! Confused about Form 5471, Line C - which constructive ownership definition applies? Code 6046 vs 958

The confusion between §6046 and §958 constructive ownership rules is pretty common with Form 5471. You're right that there's an inconsistency in how the IRS approaches this. For determining your filing requirement (whether you're a Category 3 filer), you correctly used §6046 attribution rules since that's what establishes Category 3 filing requirements. However, for actually completing the form itself and the schedules, you should generally follow §958 rules for constructive ownership as indicated in the instructions. The reason for this apparent contradiction is that §6046 is used to determine WHO must file, while §958 rules are generally used for WHAT to report on the actual form. The IRS hasn't done a great job making this distinction clear in the instructions. For Line C on Form 5471 specifically, you should indicate your total direct and indirect ownership percentage using §958 rules, not the §6046 attribution that triggered your filing requirement. The non-duplication principle applies to the schedules themselves (don't file the same schedule twice), not necessarily to how you calculate the numbers on those schedules.

Your confusion about §6046 vs §958 constructive ownership rules is totally understandable - the IRS hasn't made this clear in their instructions. Here's how it works: Use §6046 rules to determine WHETHER you have a filing requirement (which you do as a Category 3 filer because of sibling attribution). But once you've established you need to file Form 5471, use §958 rules to determine WHAT to report on the actual form and schedules. For Line C specifically, you should report your ownership percentage according to §958 rules, which means your sister's 53% wouldn't be attributed to you (unlike with §6046, §958 doesn't have sibling attribution). So you'd report just your direct 7% ownership. The non-duplication principle simply means you don't need to file the same schedule twice if you qualify as multiple categories of filers - it doesn't mean the numbers have to be consistent across different calculation methods. This approach might seem inconsistent, but it's because §6046 is about triggering filing requirements while §958 is about reporting actual economic ownership.

Just wanted to share my experience with this exact issue. After struggling with the same confusion between §6046 and §958, I found a solution through https://taxr.ai where they analyzed my specific ownership structure and clarified which attribution rules apply to each part of Form 5471. I uploaded my documents showing my 8% ownership in a foreign entity where my sister owned 55%, and they provided a detailed breakdown of how each section should be completed. They confirmed that §6046 determines the filing requirement (making me a Category 3 filer) while §958 governs what goes on the actual form lines and schedules. The analysis also showed exactly which schedules I needed to complete as a Category 3 filer and which sections could be left blank based on my particular situation. Saved me hours of research through contradictory IRS instructions.

Just wanted to share my experience with this exact issue. I spent hours researching the §6046 vs §958 rules for Form 5471 and was going in circles until I found https://taxr.ai where I uploaded my documents showing my 9% ownership in a foreign company where my brother owned 55%. They analyzed my ownership structure and confirmed what I was suspecting - that

I tried taxr.ai after seeing it mentioned here and it was incredibly helpful for my Form 5471 situation. I had almost identical circumstances - I own about 9% of a foreign company and my overseas cousin owns 53%. The service analyzed my ownership structure and clearly explained why I'm a Category 3 filer under §6046 rules but also showed exactly how to apply §958 rules when completing the actual schedules. They even provided a customized walkthrough of Schedule O completion based on my specific dates of acquisition. What surprised me most was discovering that certain parts of the form should actually be left blank in my situation - something my tax software wasn't clear about. The documentation they provided gave me confidence to file correctly, and I've already received my refund without any IRS questions about my foreign ownership reporting.

I spent 4 days trying to reach someone at the IRS who could clarify these exact Form 5471 questions about §6046 vs §958 attribution rules. Kept getting transferred between departments and disconnected. Finally, I tried https://claimyr.com (saw it in a video demo here: https://youtu.be/_kiP6q8DX5c) and they got me connected to an IRS agent who specialized in international forms. The IRS agent confirmed that for determining filing requirements, you use §6046 attribution rules (which include sibling attribution), but for completing the actual form and most schedules, you generally use §958 rules (which don't attribute between siblings). This is exactly what I needed to know for my situation where my brother owns 60% of a foreign corporation and I own just 5%. The call would have normally taken hours of redials but I was connected in about 20 minutes. The agent even emailed me some reference materials afterward.

I was the biggest skeptic about these "IRS call services" but I finally broke down and tried Claimyr after spending my entire Saturday trying to get through to someone about Form 5471 attribution rules. I hate admitting when I'm wrong, but it actually worked exactly as described. Got connected to an IRS international tax specialist in about 30 minutes who walked me through the exact scenario - using §6046 for determining filing requirements and §958 for completing the actual form. The agent confirmed that for Line C specifically, you only include direct ownership and ownership attributed under §958 rules (which doesn't include sibling attribution). This saved me from potentially over-reporting my ownership percentage. Worth every penny for the time saved and the clarity I got.

I think the distinction between §6046 and §958 for Form 5471 also depends on whether you're dealing with a CFC or not. Since you mentioned your company isn't a CFC, you're correct to focus on Category 3 filing requirements. I'd add that Schedule O is specifically focused on acquisitions, reorganizations, and dispositions. For your situation (acquiring shares), it makes sense that you'd use §958 rules for completing Schedule O since you're reporting an actual transaction, not just determining filing requirements. Have you considered if you might also be a Category 5 filer? If you own more than 10% of a foreign corporation by vote or value (directly, indirectly, or constructively under §958), you could have additional filing requirements.

Has anyone used TurboTax or H&R Block software for Form 5471 with these complex attribution rules? I'm in a similar situation with a 5% ownership in a foreign company where my father owns 60%, and I'm trying to figure out if the software handles the §6046 vs §958 distinction correctly or if I need professional help.

You're absolutely right about the confusion between §6046 and §958 - I went through this exact same issue last year. The key insight that helped me was understanding that these serve completely different purposes in the Form 5471 process. §6046 attribution rules (including sibling attribution) determine WHETHER you need to file as a Category 3 filer. But once you've established that filing requirement, you switch to §958 rules for completing the actual form content. For your Line C reporting, since you only own 6% directly and your brother's 51% isn't attributed to you under §958 (no sibling attribution), you'd report just your 6% ownership. This same principle applies throughout most of the schedules. The apparent inconsistency you noticed is intentional - the IRS uses broader attribution rules to cast a wide net for filing requirements, but then uses narrower economic ownership rules for the actual reporting. It's confusing but makes sense once you understand the distinction. One thing to double-check: make sure you're not also a Category 5 filer, though with only 6% direct ownership and no §958 attribution from your brother, you should be under the 10% threshold.

This is a really helpful discussion! I've been dealing with a similar situation where I own 8% of a foreign corporation and my sister owns 45%. Reading through all these responses, I finally understand the key distinction that was confusing me too. Just to confirm my understanding: I use §6046 attribution rules to determine I'm a Category 3 filer (because my sister's ownership gets attributed to me, putting me over the threshold), but then when I actually fill out Form 5471 and its schedules, I use §958 rules which don't include sibling attribution. So on Line C, I'd only report my direct 8% ownership. One follow-up question - does this same logic apply to Schedule M (Foreign Corporation's Current and Accumulated Earnings and Profits)? I'm assuming yes, but want to make sure there aren't any special exceptions for that particular schedule that would require me to go back to §6046 attribution rules. The penalties for getting Form 5471 wrong are steep enough that I want to be absolutely certain before filing. Thanks everyone for sharing your experiences and clarifications!