of this section, and even though the information required may not affect the amount of any tax due under the Internal Revenue Code. For criminal penalties for failure to file a return and filing a false or fraudulent return, see sections 7203, 7206, and 7207 of the Code.

(5) Illustrations. The provisions of this paragraph may be illustrated by the following examples.

Example (1). M, a domestic corporation owns 100 percent of the stock of N, a foreign corporation. Both M and N use the calendar year as a taxable year and annual ac

counting period, and all of the following events occur in or with respect to the 1980 taxable year. The dividend from N is the only dividend from a foreign corporation received by M during the taxable year, and the foreign taxes listed are the only foreign taxes paid or deemed paid by M and N for the taxable year. On March 15, 1981, M filed its income tax return and paid its income tax, but M did not file Form 2952 with respect to N's 1980 annual accounting period. On June 1, 1961, the district director mailed notice to M of M's failure to file Form 2952 with respect to N. On November 30, 1981, M filed a complete Form 2952 with respect to N's 1980 annual accounting period.

$100,000 40,000

6,000 34,000 45,000

100,000

60,000

25,500

M must include $25,500 in gross income as a dividend under the provisions of section 78 of the Code. This example illustrates that the reductions in foreign taxes paid by the foreign corporation provided under section 8038(c) are taken into account in determining the amount included in gross income of the domestic corporation under section 78 of the Code as foreign taxes deemed paid, but such reductions are not taken into account in computing accumulated profits for purposes of determining the portion of foreign taxes deemed paid with respect to a particular dividend. The dollar amount penalty imposed by section 8038 (b) and paragraph (k)(1) of this section does not apply with respect to information for annual accounting periods ending before September 4, 1982, and therefore does not apply to M with respect to M's failure to file Form 2952 in this example.

Example (2). The facts are the same as in example (1) except that all of the events occur in or with respect to the 1982 taxable year. On March 15, 1983. M filed its income tax return and paid its income tax, but M did not file Form 2952 or Form 5471 with re spect to N's 1982 annual accounting period. On June 1, 1983, the district director mailed notice to M of M's failure to file Form 2952 or Form 5471 with respect to N. On Novem ber 30, 1983, M filed a complete Form 5471 with respect to N's 1982 annual accounting period. Under paragraph (k)(1)(i) of this section, M is subject to a penalty of $1,000. Under paragraph (k)(1)(ii) of this section. that penalty is increased by $4,000 because the failure continued for 92 days (three full 30-day periods and a fraction of a fourth 30day period) after the end of the 90-day period following mailing of the notice by the district director, bringing M's dollar amount penalty under paragraph (kX1) of

this section to $5,000. For purpose of determining the foreign tax credit available to M, there may be imposed a reduction of foreign tax paid by N of $6,000, which would be the total of reductions under paragraph (k)(2) of this section with respect to M's failure to file under section 6038 for N's 1982 annual accounting period, before application of paragraph (k)(2)(vi) of this section. Under said paragraph (k)(2)(vi), the amount of the foreign tax reduction imposed is reduced by the amount of the dollar amount penalty, leaving a foreign tax reduction penalty of $1,000 which may be imposed in addition to the $5,000 dollar amount penalty. If imposed, the $1,000 tax reduction would then be applied in the calculation of taxes deemed paid by M under section 902 as in example (1), items (c), (d), and (h).

[T.D. 8040, 50 FR 30163, July 24, 1985]

§ 1.6038A-1 Information returns required of certain foreign-owned corporations. (a) Requirement of return—(1) In general. Every corporation which at any time during its taxable year is a reporting corporation (described in paragraph (b)(1) of this section) shall make a separate annual information return on Form 5472 with respect to each related corporation (described in paragraph (b)(4) of this section) with which such reporting corporation has had any transaction of the types listed in paragraph (c)(2) of this section during such taxable year.

(2) Consolidated returns. If a reporting corporation is a member of an affiliated group of corporations filing a consolidated income tax return, it may join in filing information returns on Form 5472 on a consolidated basis. A consolidated Form 5472 shall be filed by the common parent corporation and shall be accompanied by a copy of the group's Form 851 (Affiliations Schedule), indicating which members listed thereon are reporting on the Form 5472. A member is not required to join in filing a consolidated Form 5472 merely because other members of the group choose to file one or more Forms 5472 on a consolidated basis.

(3) Exception. Notwithstanding paragraph (a)(1) of this section, a reporting corporation is not required to make a return of information on Form 5472 with respect to a related corporation for a taxable year for which a U.S. person that controls the reporting corporation makes a return of in

formation on Form 5471 that is required under section 6038 and § 1.6038-2, if that return contains information required under § 1.6038-2 (f)(11) with respect to the transactions between the reporting corporation and the related corporation for that taxable year.

(b) Definitions—(1) Reporting corporation—.(i) In general. For purposes of section 6038A and this section, a corporation is a reporting corporation if—

(A) It is a domestic corporation or is a foreign corporation engaged in a trade or business within the United States, and

(B) It is a controlled (as defined in paragraph (b)(2) of this section) by a foreign person.

(ii) Exceptions. Notwithstanding paragraph (b)(1)(i) of this section, a corporation is not a reporting corporation if

(A) It has had no transactions of the types listed in paragraph (c)(2) of this section during the taxable year with any related corporation,

(B) It has no gross income (determined without reference to losses) for the taxable year subject to United States taxation, other than a withholding tax under section 881 of the Code, or

(C) Its sole trade or business in the United States is a banking, financing, or similar business, as defined in § 1.864-4(c)(5)(i).

(iii) Consolidated returns. For purposes of paragraph (c)(1)(iv) of this section only, in the case of a group of reporting corporations filing a consolidated information return under this section the term "reporting corporation" means the common parent corporation (as shown on Form 851).

(2) Control (i) Generally. A corporation shall be deemed to be controlled by a foreign person if at any time during that corporation's taxable year such foreign person owns stock possessing at least 50 percent of the total combined voting power of all classes of outstanding stock of the corporation entitled to vote, or stock possessing at least 50 percent of the total value of outstanding shares of all classes of stock of the corporation. A corporation that is controlled (by this same test) by another corporation, which in

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turn, is controlled by a foreign person, is also treated as being controlled by such foreign person. The provisions of this paragraph (b)(2)(i) are illustrated by the following example:

Example F, a foreign person, owns 50 percent of the voting stock of X, a domestic corporation. X owns 50 percent of the total value of shares of all classes of stock of Y, also a domestic corporation. Y is controlled by F for purposes of section 6038A and this section. Thus, control is attributed directly under section 6038A (c)(1) and this section, rather than proportionately (as is stock ownership under section 318(a)(2) and paragraph (b)(2)(ii) of this section).

(ii) Attribution rules. For the purpose of determining ownership of stock of domestic or foreign corporations under section 6038A and this section, the constructive ownership rules of section 318(a) shall apply, except that section 318(a)(2)(C) shall be applied by substituting the phrase “10 percent" for the phrase "50 percent".

(3) Foreign person. For purposes of section 6038A and this section, a foreign person is—

(i) Any individual who is not a citizen or resident of the United States, but not including any individual for whom an election under section 6013 (g) or (h) is in effect;

(ii) Any individual who is a citizen of any possession of the United States but is not otherwise a citizen of the United States and is not a resident of the United States;

(iii) Any partnership, association, company, or corporation which is not created or organized in the United States or under the law of the United States or any State thereof:

(iv) Any foreign trust or foreign estate, as defined in section 7701(a)(31); or

(v) Any foreign government (or agency or instrumentality thereof).

(4) Related corporation. For purposes of section 6038A and this section, a related corporation is any corporation which is a member of the same controlled group (as defined in paragraph (b)(5) of this section) as the reporting corporation. The term "member" shall include any component member, excluded member, or additional member (as defined in section 1563(b)) of the controlled group.

However, the term "related corporation" does not include any corporation filing a consolidated income tax return with the reporting corporation.

(5) Controlled group. For purposes of section 6038A and this section, the term "controlled group" has the meaning given to such term by section 1563(a), except that—

(i) Section 1563(a)(1) shall be applied by substituting the term "at least 50 percent" for the them "at least 80 percent" each time it appears;

(ii) Section 1563(a)(2)(B) shall be applied by substituting the term "at least 50 percent" for the term "more than 50 percent" each time it appears; and

(iii) Section 1563(a)(4), (b)(2)(C), and (e)(3)(C) shall not apply.

(c) Contents of return—(1) The related corporation. The return on Form 5472 shall contain such information as the form shall prescribe, with respect to each related corporation (whether foreign or domestic) with which the reporting corporation has had a transaction of the types listed in paragraph (c)(2) of this section during its taxable year, relating to:

(i) The name and address of the corporation;

(ii) The nature of the corporation's business or businesses and the principal place or places where conducted;

(iii) Each country in which the corporation treats itself as resident for purposes of the tax laws of the country; and

(iv) The relationship of the reporting corporation to the related corporation (such as reporting corporation controls related corporation, reporting corporation is controlled by related corporation, or reporting and related corporations are under common control).

(2) Transactions with related foreign corporations—(i) Transactions for which monetary consideration was paid or received. If the related corporation is a foreign corporation, the return on Form 5472 shall contain, with respect to transactions (other than transactions excepted by paragraph (c)(2)(iii) of this section) of the reporting corporation with the related corporation, in such form or manner as the form shall prescribe, a summary

showing a reasonable estimate of the total dollar amount of each of the following types of transactions for which monetary consideration (U.S. currency and/or foreign currency) was the sole consideration paid or received, during the taxable year of the reporting corporation:

(A) Sales and purchases of stock in trade:

(B) Sales and purchases of tangible property other than stock in trade;

(C) Rents and royalties paid and received (other than amounts reported under paragraph (c)(2)(i)(D) of this section);

(D) Sales, purchases, and amounts paid and received as consideration for the use of intangible property such as copyrights, designs, fomulas, inventions, models, patents, processes, trademarks, and other similar property rights;

(E) Consideration paid and received for the rendition of technical, managerial, engineering, construction, scientific, or like services;

(F) Commissions paid and received; (G) Amounts loaned and borrowed (except open accounts resulting from sales and purchases reported under other items listed in this paragraph (c)(2)(i) that arise and are collected in full in the ordinary course of business; (H) Interest paid and received);

(I) Premiums paid and received for insurance and reinsurance.

Amounts required to be reported under paragraph (c)(2)(i)(G) of this section shall be reported as monthly averages or outstanding balances at the beginning and end of the taxable year, as the form shall prescribe.

(ii) Transactions involving nonmonetary consideration or no consideration. If the related corporation is a foreign corporation, the return on Form 5472 shall contain a description of any transaction, or group of transactions, listed in paragraph (c)(2)(i) of this section (other than transactions excepted by paragraph (c)(2)(iii) of this section), of the reporting corporation with the related corporation, for which any consideration paid or received was other than monetary consideration described in paragraph (c)(2)(i) of this section, or for which no consideration was paid or received.

A description required under this paragraph (c)(2)(ii) shall include sufficient information from which to determine the substance and approximate size of the transaction or group of transactions, and should include—

(A) A description of all property (including monetary consideration), rights, or obligations transferred from the reporting corporation to the related corporation and from the related corporation to the reporting corporation,

(B) A description of all services performed by the reporting corporation for the related corporation and by the related corporation for the reporting corporation, and

(C) A reasonable estimate of the fair market value or a statement of the nature and importance of such property (other than money), rights, obligations, or services.

A transaction for which the entire consideration paid or received by one party was monetary consideration is not required to be described under this paragraph (c)(2)(ii) even though the transaction involved the transfer of both tangible and intangible property, as long as the transfer of the intangible property was related and incidental to the transfer of the tangible property (e.g., a right to warranty services).

(iii) Exception. This paragraph (c)(2) shall not apply to any transaction if neither party to the transaction is a United States person (as defined in section 7701(a)(30)) and the transaction

(A) Does not give rise to any recognized income or gain which is from sources within the United States or which is effectively connected with the conduct of a trade or business within the United States, and

(B) Does not give rise to any expense, loss, or other deduction properly allocable or apportionable to such income.

(iv) Reasonable estimate defined(A) Estimate within 25 percent of actual amount. Any amount reported under this section is considered a reasonable estimate if such amount is at least 75 percent and not more than

125 percent of the actual amount to which the amount reported relates.

(B) Other estimates. If any amount reported under this section fails to meet the reasonable estimate of paragraph (c)(2)(iv)(A) of this section, the reporting corporation may, nevertheless, show that such amount is a reasonable estimate by making an affirmative showing of relevant facts and circumstances in a written statement containing a declaration that it is made under the penalties of perjury. The statement must be filed with the district director or the director of the service center where the reporting corporation's income tax return and the return on Form 5472 were filed. The district director or the director of the service center shall determine whether the amount reported was a reasonable estimate.

(v) Small amounts. If any actual amount required to be reported under this section does not exceed $66,667, the amount may be reported as "$50,000 or less."

(vi) Accrued payments and receipts. For purposes of this section, in the case of an accrual basis taxpayer, the terms "paid" and "received" shall include accured payments and receipts, respectively.

(d) Method of reporting. All statements required on or with the return on Form 5472 under this section shall be rendered in the English language. All amounts of consideration or value required to be reported under this section shall be expressed in terms of United States currency, with a statement of any exchange rates used.

(e) Time and place for filing returns-(1) In general. Returns on Form 5472 required under this section shall generally be filed with the reporting corporation's income tax return for the same taxable year, and the due date (including extensions) for filing that income tax return is the due date for filing Form 5472. However, if a reporting corporation's income tax return is not timely filed (including extensions), the return on Form 5472 shall be filed with the Internal Revenue Service Center with which the reporting corporation's income tax return is required to be filed, and shall be filed on or before the date required

by law (including extensions of time) for filing of such income tax return.

(2) Taxable years ending before July 24, 1985. Returns on Form 5472 required under this section for any taxable year ending before July 24, 1985 shall be filed either with the reporting corporation's income tax return or with the Internal Revenue Service Center or the district director with which the reporting corporation's income tax return has been filed. Returns on Form 5472 for such taxable years shall be filed on or before November 21, 1985, or, if later, with the reporting corporation's income tax return for the same taxable year on or before the date required by law (including extensions of time) for the filing of such income tax return.

(3) Duplicate filing required. The reporting corporation shall file a duplicate copy of each Form 5472 (at the same time as the original copy is filed) with the Internal Revenue Service Center, Philadelphia, PA 19255.

(f) Penalty for failure to furnish information—(1) In general. If a corporation required to file Form 5472 under section 6038A and this section fails to furnish any information required under paragraph (c) of this section with respect to any related corporation, within the time prescribed by paragraph (e) of this section, such corporation shall pay a penalty of $1,000 for each taxable year with respect to which such information is not timely reported. This penalty shall only be imposed on a reporting corporation once for each related corporation for each taxable year for which a failure to furnish information occurs. For purposes of this paragraph (f)(1), each member of a group of corporations filing a consolidated information return is a separate reporting corporation.

(2) Increase in penalty for continued failure after notification. If a failure described in paragraph (f)(1) of this section continues for more than 90 days after the date on which the district director mails notice of such failure to the reporting corporation, that corporation shall pay a penalty of $1,000, in addition to the penalty imposed by section 6038A(d)(1) and paragraph (f)(1) of this section, for each