Form 5471 master guide, part d: Subpart F and NCTI

Two separate anti-deferral regimes run through Form 5471, and they do not overlap. Subpart F has been part of the Code since 1962 and targets specific categories of passive and related party income. The regime introduced by the 2017 Tax Cuts and Jobs Act, originally called global intangible low-taxed income (GILTI) and renamed Net CFC Tested Income (NCTI) by the OBBBA for tax years beginning after December 31, 2025, is broader and newer, designed to catch active business income left offshore that Subpart F was never built to reach. Schedule I reports the first. Schedule I-1 reports the second. Nothing gets counted on both.

Schedule I: reporting subpart F income

Schedule I reports, in U.S. dollars, the U.S. shareholder’s pro rata share of the foreign corporation’s income under Subpart F, plus certain other amounts realized from a corporate distribution. A separate Schedule I must be filed by or for each Category 4, 5a, or 5b shareholder, and a copy goes to each of them to help with their own return.

Line 1 is the entry point for Subpart F income itself, drawing on sections 245A, 951, 952, and 964(e). A useful detail buried in the instructions: certain current year deficits within the same chain of corporations can reduce Subpart F income under section 952(c)(1)(C), so a loss elsewhere in a corporate group is not necessarily irrelevant to this number.

Four sub-lines capture specific adjustments before the general categories:

• Line 1a: the foreign source portion of Subpart F inclusions from a CFC’s sale or exchange of stock in another foreign corporation, where that portion qualifies for the section 245A dividends received deduction under section 964(e)(4). Corporate shareholders only; noncorporate shareholders leave this blank.

• Line 1b: Subpart F inclusions attributable to tiered hybrid dividends, where a CFC receives a dividend from another CFC that is a hybrid dividend under section 245A(e).

• Line 1c: inclusions from tiered extraordinary disposition amounts under Regulations section 1.245A-5(d).

• Line 1d: inclusions from tiered extraordinary reduction amounts under Regulations section 1.245A-5(f).

Lines 1e through 1h pull from Worksheet A, lines 53, 57, 61, and 67, covering the core Subpart F income categories: adjusted net foreign base company income, adjusted net insurance income, adjusted net related person insurance income, international boycott income, and illegal bribes, kickbacks, and similar payments. If a prior year’s Subpart F income was reduced by the current earnings and profits limitation, any later year’s E&P in excess of that year’s Subpart F income has to be recaptured and folded into line 1h, per Regulations section 1.952-1(f).

Line 2 reports the section 956 amount, the mechanism that taxes a CFC’s investment in U.S. property even without an actual dividend, computed on the separate Worksheet B. Line 4 covers factoring income under section 864(d)(1), relevant only where the de minimis rule kept Subpart F income off line 1a of Worksheet A entirely.

These four lines flow straight onto the shareholder’s own return: for a corporate shareholder, line 1a goes to Form 1120, Schedule C, line 16a, line 1b to line 16b, and everything else on lines 1c through 1h, 2, and 4 to line 16c. For a noncorporate shareholder, everything lands on Schedule 1 (Form 1040), line 8n.

Lines 5a through 5e cover actual dividends received, split by character: line 5a for amounts eligible for the section 245A deduction, 5b for extraordinary disposition amounts, 5c for extraordinary reduction amounts, 5d for hybrid dividends, and 5e for anything left over. Line 6 captures foreign currency gain or loss recognized under section 986(c) when previously taxed earnings and profits (PTEP) get distributed, computed per Regulations section 1.986(c)-1. Line 9 tracks hybrid deduction accounts, relevant where a domestic corporate shareholder needs to reflect foreign tax benefits the CFC received on instruments that are stock for U.S. purposes but debt for foreign law purposes.

Worksheet A: the mechanics behind the Subpart F number

Worksheet A is where the actual Subpart F computation happens before the results move to Schedule I. It builds up foreign base company income category by category: foreign personal holding company income under section 954(c) (dividends, interest, royalties, rents, and annuities, along with several more technical items like income equivalent to interest and notional principal contract income), foreign base company sales income, foreign base company services income, and insurance income under section 953.

A long list of statutory exclusions and elections can pull specific income out of these categories before the total is struck, everything from the high tax exception, to same country dividend and interest exclusions, to the section 954(c)(6) CFC look through rule, to active financing and active insurance exceptions. Schedule G’s line 14 cross references twenty three of these categories directly, each with its own code (for example, DM for the de minimis rule, HT for high tax income, LT for the look through rule), which is a useful map if you are trying to work out which exclusion applies to a specific fact pattern.

Two rules cap the whole computation. The de minimis rule keeps a CFC’s Subpart F income off the form entirely if the sum of its foreign base company income and gross insurance income for the year is less than the lesser of 5% of gross income or $1 million. The full inclusion rule does the opposite: if foreign base company income and gross insurance income exceed 70% of gross income, the entire amount is treated as foreign base company income, not just the portion that would otherwise qualify.

One new line for tax years affected by OBBBA: line 46, which reflects the Pro Rata Share Transition Rule covered in Part A, tracking dividends paid or deemed paid by the CFC that interact with section 951(a)(2)(B) during the transition period.

Schedule I-1: Net CFC Tested Income

Schedule I-1 is where the NCTI (formerly GILTI) computation happens, and unlike Schedule I it is completed once per applicable income category rather than once per shareholder relationship: general category income, passive category income, or both, with the code GEN or PAS entered at the top accordingly.

Line 1 is the CFC’s gross income, which can be a negative number in the unusual case where cost of goods sold exceeds gross receipts. Line 2 and its sub-lines strip out amounts that do not belong in the tested income computation: section 952(b) income effectively connected with a U.S. trade or business, Subpart F income already captured on Schedule I, income excluded under the section 954(b)(4) high tax exception, dividends from a related person under section 954(d)(3), and foreign oil and gas extraction income. What remains after those exclusions and the CFC’s allocable deductions is gross tested income, and the net result after full deductions lands on line 6 as tested income or, if deductions exceed income, tested loss.

Line 7 reports tested foreign income taxes, the foreign tax properly attributable to that tested income, and is left at zero if line 6 shows a loss instead.

Line 8 is where qualified business asset investment (QBAI) has historically been reported, the average adjusted basis of the CFC’s specified tangible depreciable property used to produce tested income, computed under the alternative depreciation system. QBAI fed into the net deemed tangible income return (NDTIR), a 10% deemed return on that asset base that used to be excluded from the GILTI computation entirely. Lines 9a through 9d and 10a through 10c compute the CFC’s tested interest expense and tested interest income, which further adjust the NDTIR calculation under Regulations section 1.951A-4.

What OBBBA changed, and a form lag worth watching

For tax years of foreign corporations beginning after December 31, 2025, OBBBA rewrote this regime in four ways. The QBAI and NDTIR mechanics described above for line 8 and lines 9 and 10 are eliminated entirely, meaning a CFC’s full tested income becomes taxable without the 10% tangible asset carveout. The section 250 deduction drops from 50% to 40%, pushing the pre-credit effective rate from 10.5% to 12.6%. The foreign tax credit haircut on NCTI improves, from an 80% allowance to a 90% allowance. And the pro rata share timing rule changed too, covered in Part A: a shareholder can now have an inclusion based on any day of ownership during the CFC’s tax year, not just ownership on the last day.

Here is the practical catch. The front matter of the December 2025 instructions specifies that Schedule I-1 itself is still the December 2021 revision, meaning the physical schedule has not yet been rebuilt to remove the QBAI and NDTIR lines that OBBBA eliminated. For a CFC tax year beginning after December 31, 2025, the first return using the new NCTI mechanics may still be filed on a schedule that structurally assumes the old GILTI computation. Check IRS.gov/Form5471 for a revised Schedule I-1 before preparing any return for an affected tax year, exactly as the instructions’ own Future Developments note advises.

Coming up in part e

Part E moves into ownership and transaction history: Schedule B’s shareholder reporting, Schedule J’s accumulated earnings and profits, Schedule O’s organizations and stock transactions, and Schedule P’s previously taxed earnings and profits tracking.

Sources for this article: IRS Instructions for Form 5471 (Rev. 12/2025), Schedule I, Worksheet A, and Schedule I-1 sections; IRC §§245A, 864(d)(1), 951, 951A, 952, 953, 954, 956, 964(e), 986(c); Treasury Regulations §§1.245A-5, 1.951A-2, 1.951A-4, 1.952-1(f), 1.986(c)-1; One Big Beautiful Bill Act, Public Law 119-21, §§70352-70354.

Form 5471 master guide: complete IRS filing reference for 2026, by Brolma Advisory

A six part Form 5471 guide built entirely from IRS instructions, the Internal Revenue Code, and Treasury Regulations. Filing categories, CFC ownership, Subpart F, NCTI, penalties, and more.

Part A: Who must file and when

Part B: Constructive ownership and CFC status

Part C: The financial schedules

Part D: Subpart F and NCTI

Part E: Ownership and transaction reporting

Part F: Penalties, corrections, and dormant corporations

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