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Internal Revenue Code Section 6038:
Information reporting with respect to certain foreign corporations and partnerships

Location in U.S. Code: Title 26F, Chapter 61-A, Part III-A


Sec. 6038. Information reporting with respect to certain foreign
corporations and partnerships

(a) Requirement
(1) In general
Every United States person shall furnish, with respect to any
foreign business entity which such person controls, such
information as the Secretary may prescribe relating to -
(A) the name, the principal place of business, and the nature
of business of such entity, and the country under whose laws
such entity is incorporated (or organized in the case of a
partnership);
(B) in the case of a foreign corporation, its post-1986
undistributed earnings (as defined in section 902(c));
(C) a balance sheet for such entity listing assets,
liabilities, and capital;
(D) transactions between such entity and -
(i) such person,
(ii) any corporation or partnership which such person
controls, and
(iii) any United States person owning, at the time the
transaction takes place -
(I) in the case of a foreign corporation, 10 percent or
more of the value of any class of stock outstanding of such
corporation, and
(II) in the case of a foreign partnership, at least a
10-percent interest in such partnership; and
(E)(i) in the case of a foreign corporation, a description of
the various classes of stock outstanding, and a list showing
the name and address of, and number of shares held by, each
United States person who is a shareholder of record owning at
any time during the annual accounting period 5 percent or more
in value of any class of stock outstanding of such foreign
corporation, and
(ii) information comparable to the information described in
clause (i) in the case of a foreign partnership.
The Secretary may also require the furnishing of any other
information which is similar or related in nature to that
specified in the preceding sentence or which the Secretary
determines to be appropriate to carry out the provisions of this
title.
(2) Period for which information is to be furnished, etc.
The information required under paragraph (1) shall be furnished
for the annual accounting period of the foreign business entity
ending with or within the United States person's taxable year.
The information so required shall be furnished at such time and
in such manner as the Secretary shall prescribe.
(3) Limitation
No information shall be required to be furnished under this
subsection with respect to any foreign business entity for any
annual accounting period unless the Secretary has prescribed the
furnishing of such information on or before the first day of such
annual accounting period.
(4) Information required from certain shareholders in certain
cases
If any foreign corporation is treated as a controlled foreign
corporation for any purpose under subpart F of part III of
subchapter N of chapter 1, the Secretary may require any United
States person treated as a United States shareholder of such
corporation for any purpose under subpart F to furnish the
information required under paragraph (1).
(5) Information required from 10-percent partner of controlled
foreign partnership
In the case of a foreign partnership which is controlled by
United States persons holding at least 10-percent interests (but
not by any one United States person), the Secretary may require
each United States person who holds a 10-percent interest in such
partnership to furnish information relating to such partnership,
including information relating to such partner's ownership
interests in the partnership and allocations to such partner of
partnership items.
(b) Dollar penalty for failure to furnish information
(1) In general
If any person fails to furnish, within the time prescribed
under paragraph (2) of subsection (a), any information with
respect to any foreign business entity required under paragraph
(1) of subsection (a), such person shall pay a penalty of $10,000
for each annual accounting period with respect to which such
failure exists.
(2) Increase in penalty where failure continues after
notification
If any failure described in paragraph (1) continues for more
than 90 days after the day on which the Secretary mails notice of
such failure to the United States person, such person shall pay a
penalty (in addition to the amount required under paragraph (1))
of $10,000 for each 30-day period (or fraction thereof) during
which such failure continues with respect to any annual
accounting period after the expiration of such 90-day period.
The increase in any penalty under this paragraph shall not exceed
$50,000.
(c) Penalty of reducing foreign tax credit
(1) In general
If a United States person fails to furnish, within the time
prescribed under paragraph (2) of subsection (a), any information
with respect to any foreign business entity required under
paragraph (1) of subsection (a), then -
(A) in applying section 901 (relating to taxes of foreign
countries and possessions of the United States) to such United
States person for the taxable year, the amount of taxes (other
than taxes reduced under subparagraph (B)) paid or deemed paid
(other than those deemed paid under section 904(c)) to any
foreign country or possession of the United States for the
taxable year shall be reduced by 10 percent, and
(B) in the case of a foreign business entity which is a
foreign corporation, in applying sections 902 (relating to
foreign tax credit for corporate stockholder in foreign
corporation) and 960 (relating to special rules for foreign tax
credit) to any such United States person which is a corporation
(or to any person who acquires from any other person any
portion of the interest of such other person in any such
foreign corporation, but only to the extent of such portion)
for any taxable year, the amount of taxes paid or deemed paid
by each foreign corporation with respect to which such person
is required to furnish information during the annual accounting
period or periods with respect to which such information is
required under paragraph (2) of subsection (a) shall be reduced
by 10 percent.
If such failure continues 90 days or more after notice of such
failure by the Secretary to the United States person, then the
amount of the reduction under this paragraph shall be 10 percent
plus an additional 5 percent for each 3-month period, or fraction
thereof, during which such failure to furnish information
continues after the expiration of such 90-day period.
(2) Limitation
The amount of the reduction under paragraph (1) for each
failure to furnish information with respect to a foreign business
entity required under subsection (a)(1) shall not exceed
whichever of the following amounts is the greater:
(A) $10,000, or
(B) the income of the foreign business entity for its annual
accounting period with respect to which the failure occurs.
(3) Coordination with subsection (b)
The amount of the reduction which (but for this paragraph)
would be made under paragraph (1) with respect to any annual
accounting period shall be reduced by the amount of the penalty
imposed by subsection (b) with respect to such period.
(4) Special rules
(A) No taxes shall be reduced under this subsection more than
once for the same failure.
(B) For purposes of this subsection and subsection (b), the
time prescribed under paragraph (2) of subsection (a) to furnish
information (and the beginning of the 90-day period after notice
by the Secretary) shall be treated as being not earlier than the
last day on which (as shown to the satisfaction of the Secretary)
reasonable cause existed for failure to furnish such information.
(C) In applying subsections (a) and (b) of section 902, and in
applying subsection (a) of section 960, the reduction provided by
this subsection shall not apply for purposes of determining the
amount of post-1986 undistributed earnings.
(d) Two or more persons required to furnish information with
respect to same foreign corporation
Where, but for this subsection, two or more United States persons
would be required to furnish information under subsection (a) with
respect to the same foreign business entity for the same period,
the Secretary may by regulations provide that such information
shall be required only from one person. To the extent practicable,
the determination of which person shall furnish the information
shall be made on the basis of actual ownership of stock.
(e) Definitions
For purposes of this section -
(1) Foreign business entity
The term ''foreign business entity'' means a foreign
corporation and a foreign partnership.
(2) Control of corporation
A person is in control of a corporation if such person owns
stock possessing more than 50 percent of the total combined
voting power of all classes of stock entitled to vote, or more
than 50 percent of the total value of shares of all classes of
stock, of a corporation. If a person is in control (within the
meaning of the preceding sentence) of a corporation which in turn
owns more than 50 percent of the total combined voting power of
all classes of stock entitled to vote of another corporation, or
owns more than 50 percent of the total value of the shares of all
classes of stock of another corporation, then such person shall
be treated as in control of such other corporation. For purposes
of this paragraph, the rules prescribed by section 318(a) for
determining ownership of stock shall apply; except that -
(A) subparagraphs (A), (B), and (C) of section 318(a)(3)
shall not be applied so as to consider a United States person
as owning stock which is owned by a person who is not a United
States person, and
(B) in applying subparagraph (C) of section 318(a)(2), the
phrase ''10 percent'' shall be substituted for the phrase ''50
percent'' used in subparagraph (C).
(3) Partnership-related definitions
(A) Control
A person is in control of a partnership if such person owns
directly or indirectly more than a 50 percent interest in such
partnership.
(B) 50-percent interest
For purposes of subparagraph (A), a 50-percent interest in a
partnership is -
(i) an interest equal to 50 percent of the capital
interest, or 50 percent of the profits interest, in such
partnership, or
(ii) to the extent provided in regulations, an interest to
which 50 percent of the deductions or losses of such
partnership are allocated.
For purposes of the preceding sentence, rules similar to the
rules of section 267(c) (other than paragraph (3)) shall apply.
(C) 10-percent interest
A 10-percent interest in a partnership is an interest which
would be described in subparagraph (B) if ''10 percent'' were
substituted for ''50 percent'' each place it appears.
(4) Annual accounting period
The annual accounting period of a foreign business entity is
the annual period on the basis of which such foreign business
entity regularly computes its income in keeping its books. In
the case of a specified foreign business entity (as defined in
section 898), the taxable year of such foreign business entity
shall be treated as its annual accounting period.
(f) Cross references
(1) For provisions relating to penalties for violations of
this section, see section 7203.
(2) For definition of the term ''United States person'', see
section 7701(a)(30).