Category 3 Filer
Category 3 filers outline shareholders who may have met the 10% share ownership threshold of the foreign corporation under various scenarios, but the company may not have been considered a CFC (controlled foreign corporation) or SFC (specified foreign corporation) as pertains to categories 1 & 5, nor does the shareholder have control (over 50% ownership) of the foreing corporation as is for category 4.
This category 3 filers include U.S. persons who acquire stock in a foreign corporation which, when added to any stock owned on the date of acquisition, meets the 10% stock ownership requirement of the foreign corporation;
Here the definition of a U.S. person is the same as categories 1,2 and 5, being the 4 types as below:
- A citizen or resident of the United States,
- A domestic partnership,
- A domestic corporation, and
- An estate or trust that is not a foreign estate or trust as defined in section 7701(a)(31)
See Regulations section 1.6046-1(f)(3) for exceptions.
There are 4 scenarios that would determine if the U.S. person is a category 3 filer, are as:
- A U.S. person who acquires stock which, without regard to stock already owned on the date of acquisition, meets the 10% stock ownership requirement of the foreign corporation;
- A person who is treated as a U.S. shareholder under section 953(c) with respect to the foreign corporation;
- A person who becomes a U.S. person while meeting the 10% stock ownership requirement with respect to the foreign corporation; or
- A U.S. person who disposes of sufficient stock in the foreign corporation to reduce their interest to less than the 10% stock ownership requirement.
For more information, see section 6046 and Regulations section 1.6046-1.
As similar to category 2, the 10% stock ownership requirement and threshold for a U.S person is met if they have 10% or more of the total value or voting power of all classes of the foreign corporation’s stock.
Filing Requirements for Category 3 filers
The filing requirements and required schedules for category 3 filers are in the middle of the road, more than the basic schedules of category 2, but far less than shareholders who have control of the foreign corporation (category 4 filers).
The filing requirements are:
| No. | Category 3 |
|---|---|
| 1 | Information Section of Page 1 |
| 2 | Schedule A |
| 3 | Schedule B, Part 1 |
| 4 | Schedule B, Part 2 |
| 5 | Schedule C and F |
| 6 | Schedule G |
| 7 | Separate Schedule O, Part 2 |
In addition to the information section, Schedule A outlines the foreign corporations stock, Schedule B outlines the U.S. and director shareholders of the foreign corporation, Schedule C and F outline the income statement and balance sheet respectively, Schedule G covers other income and Separate Schedule O part 2 is about particular details of the U.S. shareholders.
Conclusion
After reviewing the definitions of Category 3 filers, you may be able to determine if you fall under this category and what possible form 5471 filing requirements you may have. Also, be sure to check out the exceptions from Filing Form 5471 to see if you fit any of these requirements to avoid this tax filing. Of course, it’s better to double confirm any results you have with a tax professional before making any final decisions on this tax filing. If you need more information about form 5471, contact us.
And if you need help managing your foreign company’s shares, check out this online share management software at Eqvista.
