Internal Revenue Code:Sec. 6038. Information reporting with respect to certain foreign corporations and partnerships
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Location in Internal Revenue Code
TITLE 26 - INTERNAL REVENUE CODE
Subtitle F - Procedure and Administration
CHAPTER 61 - INFORMATION AND RETURNS
Subchapter A - Returns and Records
PART III - INFORMATION RETURNS
Subpart A - Information Concerning Persons Subject to Special
Provisions
Statute
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).
Sources
(Added Pub. L. 86-780, Sec. 6(a), Sept. 14, 1960, 74 Stat. 1014;
amended Pub. L. 87-834, Sec. 20(a), Oct. 16, 1962, 76 Stat. 1059;
Pub. L. 88-554, Sec. 4(b)(6), Aug. 31, 1964, 78 Stat. 764; Pub. L.
94-455, title X, Sec. 1031(b)(5), title XIX, Sec. 1906(b)(13)(A),
Oct. 4, 1976, 90 Stat. 1623, 1834; Pub. L. 97-248, title III, Sec.
338(a)-(c), Sept. 3, 1982, 96 Stat. 631; Pub. L. 99-514, title XII,
Sec. 1202(c), 1245(b)(5), Oct. 22, 1986, 100 Stat. 2530, 2581; Pub.
L. 101-239, title VII, Sec. 7712(a), Dec. 19, 1989, 103 Stat. 2393;
Pub. L. 101-508, title XI, Sec. 11701(f), Nov. 5, 1990, 104 Stat.
1388-508; Pub. L. 104-188, title I, Sec. 1704(f)(5)(A), (t)(40),
(46), Aug. 20, 1996, 110 Stat. 1880, 1889; Pub. L. 105-34, title
XI, Sec. 1142(a)-(e)(2), Aug. 5, 1997, 111 Stat. 981-983; Pub. L.
105-206, title VI, Sec. 6011(f), July 22, 1998, 112 Stat. 818.)
Miscellaneous
PRIOR PROVISIONS
A prior section 6038 was renumbered section 6040 of this title.
AMENDMENTS
1998 - Subsec. (a)(2). Pub. L. 105-206, Sec. 6011(f)(1), struck
out ''by regulations'' before ''prescribe''.
Subsec. (a)(3). Pub. L. 105-206, Sec. 6011(f)(2), substituted
''the Secretary has prescribed the furnishing of such information
on or before the first day of such annual accounting period.'' for
''such information was required to be furnished under regulations
in effect on the first day of such annual accounting period.''
Subsec. (e)(4). Pub. L. 105-206, Sec. 6011(f)(3), substituted
''such foreign business entity'' for ''such corporation'' in two
places.
1997 - Pub. L. 105-34, Sec. 1142(a), inserted ''reporting'' after
''Information'' and ''and partnerships'' after ''corporations'' in
section catchline.
Subsec. (a). Pub. L. 105-34, Sec. 1142(a), reenacted heading
without change.
Subsec. (a)(1). Pub. L. 105-34, Sec. 1142(a), reenacted heading
without change and amended text generally. Prior to amendment,
par. (1) consisted of subpars. (A) to (E) relating to general
requirements of information with respect to foreign corporations.
Subsec. (a)(2), (3). Pub. L. 105-34, Sec. 1142(e)(1)(A),
substituted ''foreign business entity'' for ''foreign corporation''
in pars. (2) and (3).
Subsec. (a)(5). Pub. L. 105-34, Sec. 1142(d), added par. (5).
Subsec. (b). Pub. L. 105-34, Sec. 1142(c), (e)(1)(B), substituted
''foreign business entity'' for ''foreign corporation'' in par.
(1), substituted ''$10,000'' for ''$1,000'' in pars. (1) and (2),
and substituted ''$50,000'' for ''$24,000'' in par. (2).
Subsec. (c)(1). Pub. L. 105-34, Sec. 1142(e)(1)(C), (2),
substituted ''foreign business entity'' for ''foreign corporation''
in introductory provisions and inserted ''in the case of a foreign
business entity which is a foreign corporation,'' after ''(B)'' in
subpar. (B).
Subsec. (c)(2). Pub. L. 105-34, Sec. 1142(e)(1)(C), substituted
''foreign business entity'' for ''foreign corporation'' in
introductory provisions and in subpar. (B).
Subsec. (d). Pub. L. 105-34, Sec. 1142(e)(1)(D), substituted
''foreign business entity'' for ''foreign corporation''.
Subsec. (e). Pub. L. 105-34, Sec. 1142(b), added pars. (1) and
(3), redesignated former pars. (1) and (2) as (2) and (4),
respectively, inserted ''of corporation'' after ''Control'' in par.
(2) heading, and substituted ''foreign business entity'' for
''foreign corporation'' in two places in par. (4).
1996 - Subsec. (a)(1)(E), (F). Pub. L. 104-188, Sec.
1704(f)(5)(A), substituted period for '', and'' at end of subpar.
(E) and struck out subpar. (F) which read as follows: ''such
information as the Secretary may require for purposes of carrying
out the provisions of section 453C.''
Subsec. (e). Pub. L. 104-188, Sec. 1704(t)(40), redesignated
subsec. (e), relating to cross references, as (f).
Subsec. (e)(2). Pub. L. 104-188, Sec. 1704(t)(46), made technical
amendment to directory language of Pub. L. 101-508. See 1990
Amendment note below.
Subsec. (f). Pub. L. 104-188, Sec. 1704(t)(40), redesignated
subsec. (e), relating to cross references, as (f).
1990 - Subsec. (e)(2). Pub. L. 101-508, as amended by Pub. L.
104-188, Sec. 1704(t)(46), in subsec. (e) relating to definitions,
inserted at end of par. (2) ''In the case of a specified foreign
corporation (as defined in section 898), the taxable year of such
corporation shall be treated as its annual accounting period.''
1989 - Subsec. (a)(1). Pub. L. 101-239, Sec. 7712(a)(2), inserted
before period at end ''or which the Secretary determines to be
appropriate to carry out the provisions of this title.''
Subsec. (a)(4). Pub. L. 101-239, Sec. 7712(a)(1), added par. (4).
1986 - Subsec. (a)(1)(B). Pub. L. 99-514, Sec. 1202(c)(1),
amended subpar. (B) generally. Prior to amendment, subpar. (B)
read as follows: ''the accumulated profits (as defined in section
902(c)) of such foreign corporation, including the items of income
(whether or not included in gross income under chapter 1),
deductions (whether or not allowed in computing taxable income
under chapter 1), and any other items taken into account in
computing such accumulated profits;''.
Subsec. (a)(1)(F). Pub. L. 99-514, Sec. 1245(b)(5), added subpar.
(F).
Subsec. (c)(4)(C). Pub. L. 99-514, Sec. 1202(c)(2), substituted
''post-1986 undistributed earnings'' for ''accumulated profits in
excess of income, war profits, and excess profits taxes''.
1982 - Subsec. (a)(1). Pub. L. 97-248, Sec. 338(c)(2),
substituted ''subsection (e)(1)'' for ''subsection (d)(1)''.
Subsec. (b). Pub. L. 97-248, Sec. 338(a), added subsec. (b).
Former subsec. (b) redesignated (c).
Subsec. (c). Pub. L. 97-248, Sec. 338(a), (b), (c)(1), (3),
redesignated former subsec. (b) as (c), substituted ''Penalty of
reducing foreign tax credit'' for ''Effect of failure to furnish
information'' in heading, inserted ''of such failure'' after ''90
days or more after notice'' in par. (1), added par. (3),
redesignated former par. (3) as (4), and in par. (4) inserted
reference to subsection (b) in subpar. (B). Former subsec. (c)
redesignated (d).
Subsecs. (d), (e). Pub. L. 97-248, Sec. 338(a), redesignated
former subsec. (c) as (d). Former subsec. (d), relating to
definitions, redesignated (e).
1976 - Subsecs. (a), (b). Pub. L. 94-455, Sec. 1906(b)(13)(A),
struck out ''or his delegate'' after ''Secretary'' wherever
appearing.
Subsec. (b)(1). Pub. L. 94-455, Sec. 1031(b)(5), substituted in
subpar. (A) ''section 904(c)'' for ''section 904(d)''.
Subsec. (c). Pub. L. 94-455, Sec. 1906(b)(13)(A), struck out ''or
his delegate'' after ''Secretary''.
1964 - Subsec. (d)(1). Pub. L. 88-554 substituted ''subparagraphs
(A), (B), and (C) of section 318(a)(3)'' for ''the second sentence
of subparagraphs (A) and (B), and clause (ii) of subparagraph (C),
of section 318(a)(2)'' in subpar. (A), and deleted ''clause (i)
of'' after ''in applying'' in subpar. (B).
1962 - Subsec. (a)(1). Pub. L. 87-834, among other changes,
substituted in introductory provisions ''Every United States person
shall furnish'' for ''A domestic corporation shall furnish'', in
subpar. (D)(i) ''such person'' for ''any foreign corporation
controlled by the domestic corporation'', in subpar. (D)(ii) ''any
other corporation which such person controls'' for ''any foreign
subsidiary of a foreign corporation controlled by the domestic
corporation'', in subpar. (D)(iii) ''any United States person
owning, at the time the transaction takes place, 10 percent or more
of the value of any class of stock outstanding of such foreign
corporation'' for ''the domestic corporation or any shareholder of
the domestic corporation owning at the time the transaction takes
place 10 percent or more of the value of any class of stock
outstanding of the domestic corporation'', and in subpar. (E)
''each United States person who is a shareholder'' for ''each
citizen or resident of the United States and each domestic
corporation who is a shareholder'', and struck out provisions
throughout the subsection which related to foreign subsidiaries.
Subsec. (a)(2). Pub. L. 87-834 substituted provisions requiring
the information to be furnished for the annual accounting period
ending with or within the United States person's taxable year for
provisions which required such information to be furnished for the
annual accounting period ending with or within the domestic
corporation's taxable year, and struck out provisions which related
to the furnishing of information in the case of foreign
subsidiaries.
Subsec. (a)(3). Pub. L. 87-834 struck out provisions which
related to foreign subsidiaries.
Subsec. (b). Pub. L. 87-834, among other changes, substituted
''If a United States person fails to furnish'' for ''If a domestic
corporation fails to furnish'' in the opening provisions, inserted
provisions relating to reduction of taxes in applying sections 901
and 960 of this title, to the maximum amount of reduction under
par. (1) for each failure to furnish information with respect to a
foreign corporation required under subsec. (a)(1), and making the
reduction provided by subsec. (b) inapplicable, in applying
subsecs. (a) and (b) of section 902 and subsec. (a) of section 960,
for purposes of determining the amount of accumulated profits in
excess of income, war profits, and excess profits taxes, and
eliminated provisions which related to the furnishing of
information with respect to foreign subsidiaries.
Subsec. (c). Pub. L. 87-834 substituted provisions empowering the
Secretary to provide for the furnishing of information by only one
person where two or more persons would be required to furnish
information under subsec. (a) with respect to the same foreign
corporation for the same period for provisions which required a
domestic corporation if at any time during its taxable year owned
more than 50 percent of the voting stock of a foreign corporation
to be deemed to be in control of such foreign corporation, and in
the case of a foreign corporation if at any time during its annual
accounting period owned more than 50 percent of the voting stock of
another foreign corporation, that such other corporation shall be
considered a foreign subsidiary of the corporation owning such
stock. The provisions relating to control are now contained in
subsec. (d) of this section.
Subsec. (d). Pub. L. 87-834 added par. (1) which was formerly
covered in part by subsec. (c) of this section, designated existing
provisions as par. (2), and eliminated from par. (2) provisions
which related to the annual accounting period of a foreign
subsidiary.
Subsec. (e). Pub. L. 87-834 designated existing provisions as
par. (1) and added par. (2).
EFFECTIVE DATE OF 1998 AMENDMENT
Amendment by Pub. L. 105-206 effective, except as otherwise
provided, as if included in the provisions of the Taxpayer Relief
Act of 1997, Pub. L. 105-34, to which such amendment relates, see
section 6024 of Pub. L. 105-206, set out as a note under section 1
of this title.
EFFECTIVE DATE OF 1997 AMENDMENT
Amendment by Pub. L. 105-34 applicable to annual accounting
periods beginning after Aug. 5, 1997, see section 1142(f) of Pub.
L. 105-34, set out as a note under section 318 of this title.
EFFECTIVE DATE OF 1990 AMENDMENT
Amendment by Pub. L. 101-508 effective, except as otherwise
provided, as if included in the provision of the Revenue
Reconciliation Act of 1989, Pub. L. 101-239, title VII, to which
such amendment relates, see section 11701(n) of Pub. L. 101-508,
set out as a note under section 42 of this title.
EFFECTIVE DATE OF 1989 AMENDMENT
Section 7712(b) of Pub. L. 101-239 provided that: ''The
amendments made by subsection (a) (amending this section) shall
apply to returns and statements the due date for which (determined
without regard to extensions) is after December 31, 1989.''
EFFECTIVE DATE OF 1986 AMENDMENT
Amendment by section 1202(c) of Pub. L. 99-514 applicable to
distributions by foreign corporations out of, and to inclusions
under section 951(a) of this title attributable to, earnings and
profits for taxable years beginning after Dec. 31, 1986, see
section 1202(e) of Pub. L. 99-514, set out as a note under section
902 of this title.
Amendment by section 1245(b)(5) of Pub. L. 99-514 applicable to
taxable years beginning after Dec. 31, 1986, see section 1245(c) of
Pub. L. 99-514, set out as a note under section 6038A of this
title.
EFFECTIVE DATE OF 1982 AMENDMENT
Section 338(d) of Pub. L. 97-248 provided that: ''The amendments
made by this section (amending this section) shall apply with
respect to information for annual accounting periods ending after
the date of the enactment of this Act (Sept. 3, 1982).''
EFFECTIVE DATE OF 1964 AMENDMENT
Amendment by Pub. L. 88-554 effective Aug. 31, 1964, except that
for purposes of sections 302 and 304 of this title, such amendments
shall not apply to distributions in payment for stock acquisitions
or redemptions, if such acquisitions or redemptions occurred before
Aug. 31, 1964, see section 4(c) of Pub. L. 88-554, set out as a
note under section 318 of this title.
EFFECTIVE DATE OF 1962 AMENDMENT
Section 20(e)(1) of Pub. L. 87-834 provided that: ''The
amendments made by subsection (a) (amending this section) shall
apply with respect to annual accounting periods of foreign
corporations beginning after December 31, 1962.''
EFFECTIVE DATE
Section 6(c) of Pub. L. 86-780, as amended by Pub. L. 99-514,
Sec. 2, Oct. 22, 1986, 100 Stat. 2095, provided that: ''The
amendments made by subsection (a) (enacting this section and
amending section 902 of this title) shall apply to taxable years of
domestic corporations beginning after December 31, 1960, with
respect to information relating to a foreign corporation or a
foreign subsidiary described in section 6038(a) of the Internal
Revenue Code of 1986 (formerly I.R.C. 1954) (as added by subsection
(a)) for its annual accounting periods beginning after December 31,
1960.''
References
SECTION REFERRED TO IN OTHER SECTIONS
This section is referred to in sections 318, 901, 902, 964,
6046A, 6501 of this title.
