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of Form 5471, using the average exchange inclusions would alternatively In this case, William Musselwhite,
rate for the CFC inclusion year of the be reported in column (e)(v) a personal injury attorney, in 2012
CFC (see Regs. Sec. 1.951A-5(b)(3)). rather than in column (e)(ix). was distributed real property from his
That being said, where would the ● Schedule P: passthrough entity, DS & EM Invest-
GILTI inclusion be reported on Sched-  U.S. shareholder inclusions ments LLC. Less than four months
ules J and P? We know from Regs. Sec. identified as Sec. 1248 and later, Musselwhite sold the lots at a loss.
1.951A-5(b) that only tested income Sec. 245A(e)(2) must be DS & EM’s principal business ac-
CFCs should experience a reclassifica- tracked using column (i), tivity was reported on its partnership
tion of post-2017 E&P not previ- which represents PTEP at- returns as investment. In years where
ously taxed: tributable to Sec. 1248 and there was activity from the sale of real
■ Schedule J: Sec. 245A(e)(2). property, the amounts were reported on
● CFC income identified as Sec.  If it is identified that any Schedule D, Capital Gains and Losses,
951A income under GILTI must income under Sec. 1248 or attached to Form 1065, U.S. Return of
be reclassified from post-2017 Sec. 245A(e)(2) also is subject Partnership Income. From the company’s
E&P not previously taxed to Sec. 956 as income related inception in 2005 to 2011, real property
(column (a)) to column (e)(viii), to investments in U.S. property, that was capitalized on Schedule L, Bal-
which represents PTEP attribut- any PTEP attributable to these ance Sheets per Books, and subsequently
able to Sec. 951A inclusions. inclusions would alternatively sold was classified by the taxpayer as
■ Schedule P: be reported in column (e) “other investments” and not as inventory.
● CFC income identified as Sec. rather than in column (i). The real property that was classified as
951A GILTI income should be other investments had characteristics
reported under Sec. 951A PTEP Many nuances similar to the real property at issue
in column (h), which represents The U.S. international tax compliance and that, beginning in 2011, was classified
PTEP attributable to Sec. 951A reporting obligations for U.S. sharehold- as inventory. No amended returns were
inclusions under GILTI. ers of CFCs have become increasingly filed to correct the classification of these
Other inclusions under Sec. burdensome and complex, largely attribut- lots for the years prior to 2011. Regard-
1248 and Sec. 245A: E&P amounts able to the TCJA and the overall global ing the lots designated as inventory,
identified as inclusions to U.S. share- trend toward greater transparency with although improvements were made to
holders under Sec. 1248, sale of stock respect to international operations and them up until 2009 and a development
in a CFC, and Sec. 245A(e)(2), hybrid transactions. Therefore, it is critical that plan was in place, the plan was ulti-
dividends, are calculated at the CFC U.S. shareholders of CFCs have advisers mately discarded, and no improvements
level. Column (e)(ix) and column (i) of who understand the nuances associated took place from 2009 on.
Schedules J and P, respectively, are used with the categories of income inclusions To determine whether the taxpayer’s
to track any PTEP related to inclusions for CFCs as well as how to properly track classification and treatment were correct,
under Secs. 1248 and 245A(e)(2). and maintain CFCs’ tax attributes on the Tax Court looked to Sec. 1221(a)(1).
● Schedule J: Schedules J and P of Form 5471. Under Sec. 1221(a)(1), a capital asset
 U.S. shareholder inclusions From Robin H. Park, J.D., LL.M., does not include “stock in trade of the
identified as Sec. 1248 and Los Angeles, and Daniel Jay Trousdale, taxpayer or other property of a kind
Sec. 245A(e)(2) must be re- CPA, Atlanta that would properly be included in the
classified from post-2017 E&P inventory of the taxpayer if on hand at
not previously taxed (column the close of the taxable year, or property
(a) of the form) to column Gains & Losses held by the taxpayer primarily for sale to
(e)(ix), which represents PTEP customers in the ordinary course of his
attributable to Sec. 1248 and Real property losses are trade or business.” The term “primar-
Sec. 245A(e)(2). capital, not ordinary, Tax Court ily” as used here has been defined by
 If it is identified that any holds the Supreme Court to mean “of first
income under Sec. 1248 or In Musselwhite, T.C. Memo. 2022-57, the importance” or “principally” (Malat
Sec. 245A(e)(2) also is subject Tax Court held that a taxpayer’s losses v. Riddell, 383 U.S. 569, 572 (1966)),
to Sec. 956 as income related from the sale of four lots (real property) and the burden of proof lies with the
to investments in U.S. property, were ordinary in nature, as opposed taxpayer. The court used the following
any PTEP attributable to these to capital. factors formulated in Graves, 867 F.2d

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