IRS Form 5471 (Schedule E) – If you’re a U.S. taxpayer with ownership or control in a foreign corporation, navigating IRS Form 5471 can be complex, especially when it comes to reporting foreign taxes. Schedule E of Form 5471 specifically focuses on income, war profits, and excess profits taxes paid or accrued by the foreign entity. This guide breaks down everything you need to know about IRS Form 5471 Schedule E, including its purpose, filing requirements, key sections, and recent updates for the 2025 tax year. Whether you’re dealing with controlled foreign corporations (CFCs) or claiming foreign tax credits, understanding this schedule is crucial for compliance and optimizing your tax strategy.
What Is IRS Form 5471?
IRS Form 5471, titled “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” is an informational filing required for U.S. persons who own or control certain foreign corporations. It’s not a tax return itself but provides the IRS with details about the foreign entity’s operations, income, and taxes to ensure proper U.S. taxation under rules like Subpart F and Global Intangible Low-Taxed Income (GILTI). Failure to file can result in hefty penalties, often starting at $10,000 per form.
Form 5471 includes various schedules, each addressing specific aspects of the foreign corporation’s activities. Schedule E is one of these, dedicated to reporting foreign taxes that may qualify for U.S. foreign tax credits under sections 901 and 960.
Overview of Schedule E (Form 5471)
Schedule E reports foreign income taxes, including income, war profits, and excess profits taxes paid or accrued by the foreign corporation. Its primary purpose is to detail taxes eligible for foreign tax credits, those deemed paid under section 960(b), and taxes disallowed for credits (e.g., under sections 901(j)-(m) or 909). This schedule helps reconcile foreign taxes with U.S. tax obligations, ensuring credits are claimed appropriately while tracking carryovers and adjustments. It must be compared to the income tax expense reported on Schedule C and Schedule H of Form 5471.
The form is structured with a header for filer and corporation details, followed by Parts I-III and the attached Schedule E-1 for cumulative tax balances. You can download the latest PDF version of Schedule E here: https://www.irs.gov/pub/irs-pdf/f5471se.pdf.
Who Needs to File Schedule E?
Not every Form 5471 filer completes Schedule E—it’s required only if you’re claiming deemed paid taxes under section 960 or need to report foreign taxes for credit purposes. Key filers include:
- Category 1 Filers: U.S. shareholders of CFCs (1a), those with foreign-controlled section 965 specified foreign corporations (SFCs) or CFCs claiming credits (1b), and conditional filers (1c).
- Category 4 Filers: U.S. persons acquiring significant stock in a foreign corporation.
- Category 5 Filers: Domestic corporations with foreign subsidiaries (5a), foreign-controlled SFCs/CFCs (5b), and conditional filers (5c).
- Noncorporate U.S. shareholders making a section 962 election for Subpart F or GILTI inclusions.
File a separate Schedule E for each foreign corporation and income category (e.g., general, passive, section 901(j)). If multiple categories apply, include an aggregating “TOTAL” schedule. Attachments to Form 5471 are required, and amendments must be filed for prior-year changes like tax refunds under section 905(c).
Key Components of Schedule E
Schedule E is divided into parts and sections for detailed reporting. Here’s a breakdown:
Part I: Taxes for Which a Foreign Tax Credit Is Allowed
This part covers creditable taxes, split into two sections.
Section 1: Taxes Paid or Accrued Directly by the Foreign Corporation
Report taxes paid or accrued by the foreign corporation, pass-through entities, or branches (QBUs). Use a table format for multiple entries:
| Column | Description |
|---|---|
| (a) | Name of payor entity |
| (b) | EIN or reference ID of payor |
| (c) | Check if taxes were suspended under section 909 but unsuspended this year |
| (d) | Country code (separate line per country) |
| (e) | Foreign tax year of payor |
| (f) | U.S. tax year of payor |
| (g) | Income subject to tax in foreign jurisdiction |
| (h) | Check if paid on U.S. source income |
| (i) | Local currency code |
| (j) | Tax in local currency |
| (k) | Exchange rate to U.S. dollars |
| (l) | Tax in U.S. dollars (j divided by k) |
| (m) | Tax in functional currency |
Totals appear on lines 5 (U.S. dollars) and 6 (functional currency). Allocate taxes to income groups per regulations like Treas. Reg. §1.904-6(a).
Section 2: Taxes Deemed Paid (Section 960(b))
For taxes deemed paid on distributions from lower-tier foreign corporations involving previously taxed earnings and profits (PTEP):
| Column | Description |
|---|---|
| (a) | Name of lower-tier corporation |
| (b) | EIN or reference ID |
| (c) | Country code |
| (d) | PTEP group code (e.g., 965a, 951A) |
| (e) | Annual PTEP account year |
| (f) | PTEP distributed (functional currency) |
| (g) | Total PTEP in group (functional currency) |
| (h) | Total PTEP group taxes (USD) |
| (i) | Attributable foreign taxes not previously deemed paid (USD) |
Line 5 totals column (i).
Part II: Election
Indicate if an election under section 986(a)(1)(D) was made to translate taxes at the payment date exchange rate (Yes/No, with election date if applicable).
Part III: Taxes for Which a Foreign Tax Credit Is Disallowed
Report non-creditable taxes (e.g., under sections 901(j), 901(k)/(l)/(m), U.S. taxes, suspended under 909):
| Column | Description |
|---|---|
| (a) | Payor name |
| (b) | EIN/reference ID |
| (c) | Section 901(j) amount |
| (d) | Section 901(k)/(l) amount |
| (e) | Section 901(m) amount |
| (f) | U.S. taxes |
| (g) | Suspended taxes |
| (h) | Other |
| (i) | Total |
Line 4 totals in functional currency, with a U.S. dollar equivalent.
Schedule E-1: Cumulative Balance of Foreign Income Taxes
This attached schedule tracks taxes in USD across categories like Subpart F, tested income, residual, suspended, and various PTEP groups. Lines cover beginning balances, adjustments, additions from Schedule E, reductions for deemed paid taxes, and ending balances (which must zero out for certain columns).
How to Fill Out IRS Form 5471 Schedule E?
- Currency and Translation: Report in functional currency, translate to USD using section 986(a) average rates (divide-by convention to four decimal places).
- Allocations: Use Schedule Q for per-country allocations; attach statements for methods under OBBBA (e.g., Notice 2025-72).
- High-Tax Exceptions: Check boxes for Subpart F or GILTI high-tax exclusions and add excluded amounts to line 4.
- Attachments: Include explanations for adjustments, redeterminations, or elections.
- Filing: Attach to Form 5471; use U.S. GAAP or alternative info under Rev. Proc. 2019-40 if applicable.
Consult the official IRS instructions for detailed computations, such as worksheets for section 960(b) allocations.
Recent Updates for the 2025 Tax Year
The December 2025 revision includes updates under the Opportunity, Budget, and Balanced Budget Act (OBBBA, PL 119-21), repealing the one-month deferral for specified foreign corporations (effective post-Nov. 30, 2025). Schedule E, Part I, Section 1, column (j) now requires a statement on taxes allocated under OBBBA section 70352(c)(1)(C). Other changes involve expanded PTEP groups, clarified GILTI rules, and Pro Rata Share Transition Rule adjustments (Notice 2025-75).
Common Mistakes and Tips for Filing Schedule E
- Mistakes: Failing to file separate schedules per category, incorrect currency translations, or omitting disallowed taxes in Part III.
- Tips: Double-check against Schedules C and H for consistency. Use software for complex allocations. Amend prior returns for redeterminations. Seek professional tax advice for CFCs in high-tax jurisdictions.
Where to Find the Form and Instructions?
Download Schedule E from the IRS website: https://www.irs.gov/pub/irs-pdf/f5471se.pdf. Full instructions are available at https://www.irs.gov/instructions/i5471.
Staying compliant with IRS Form 5471 Schedule E ensures you maximize foreign tax credits while avoiding penalties. If your situation involves multiple foreign entities or complex income groups, consult a tax professional to navigate these requirements effectively.