QUESTION: If a U.S. individual owns a foreign corporation, and that
corporation has income from U.S. sources, are both Form 5471 and Form
1120-F required?

On www.offshorepress.com, two different "Who Must Use This Form?"
sections seem to provide contradictory answers.

First, http://www.offshorepress.com/AICPA/form5471.htm implies both
forms are needed: "However, if a foreign corporation has any U.S.
source income it will be required to pay corporate taxes on that
income, using Form 1120-F ."

Then, http://www.offshorepress.com/AICPA/form1120f.htm implies only
Form 5471 is needed: "This form is to be used by a foreign corporation
(other than a foreign corporation controlled by U.S. shareholders)
that has income that is "effectively connected" with a U.S. trade or
business."

I am puzzled by the "other than a foreign corporation controlled by
U.S. shareholders" portion of the 1120-F explanation. To me, that
quotation implies these forms are "either/or"; however, I have not
found any other hint of this "exception" to filing Form 1120-F in
reading IRS requirements (such as the form instructions themselves).

REPLY: I appreciate your finding this contradiction and bringing it
to my attention. I wrote that description a few years ago and don't
recall why I said that the Form 1120F is not required for a foreign
corporation controlled by U.S. shareholders. Whatever the reason, my
present thinking is that ANY foreign corporation with U.S. source
income derived from a trade or business in the U.S. is required to
file a Form 1120-F to report that income and to pay any tax that may
be due, as if the corporation were a U.S. corporation.

In addition, if that foreign corporation has U.S. officers, directors
or shareholders who meet the filing requirements (in the instructions
to the Form 5471), then the U.S. officers, directors or shareholders
must also file the Form 5471.

Vern
http://www.offshorepress.com/AICPA/form1120f.htm