Comments on proposal to exempt dormant subsidiaries from Form 5471 filing requirement.

On behalf of Tax Executives Institute, I am writing to respond to your request for the Institute's comments concerning the filing of the Forms 5471 (Information Return of U.S. Persons With Respect To Foreign Corporations). The Internal Revenue Service is considering the issuance of a revenue procedure that would exempt U.S. corporations from filing a Form 5471 with respect to "dormant subsidiaries." Specifically, you requested the Institute to comment on the efficacy of such a procedure, including a definition for the term "dormant subsidiary."

As we previously notified you by telephone, the Institute wholeheartedly endorses the issuance of a revenue procedure that would exempt U.S. parents from the requirement to file a Form 5471 for their inactive controlled foreign corporations (CFCs). Such a common sense approach to the Form 5471 filing requirement would benefit both taxpayers and the government by reducing the cost and administrative burden of filing what is essentially meaningless information.

An informal survey of the members of the Institute's International Tax Committee revealed that U.S. multinationals may own a substantial number of inactive CFCs. The survey showed that anywhere from 10 to 35 percent of a multinational's subsidiaries may be dormant. The companies generally retain the subsidiaries for several reasons: (1) the cost of liquidating the CFCs is prohibitive; (2) the liquidation of the company may take several years because of the complexities of foreign laws; (3) the shell corporation may protect the corporate name in a given country; or (4) companies may keep "shelf corporations" in some countries (such as Thailand and Malaysia) in case business activities are resumed in that country in the future. Of course, the inactivity notwithstanding, there are substantial costs involved with preparing and filing Forms 5471 with respect to such CFCs. That cost would be minimized under the dormant CFC proposal.

Specifically, in lieu of Form 5471, the Institute suggests that a U.S. corporation be permitted...