How the Downward Attribution Rules Changed for Form 5471 for U.S. Citizens Married to Nonresident Aliens

What You Need to Know After the One Big Beautiful Bill Act (OBBBA)

If you are a U.S. citizen married to a nonresident alien (NRA) and your spouse owns shares in a foreign corporation, you may have wondered whether you need to file Form 5471. The answer depends on when you filed, because Congress has changed the rules more than once.

These shifts began with the Tax Cuts and Jobs Act (TCJA) in 2017 and have now been reversed by the One Big Beautiful Bill Act (OBBBA) in 2025. This blog explains how those changes affect Form 5471 for U.S. citizens married to nonresident aliens, what “downward attribution” means, and how to prepare for 2026 and beyond.

Understanding Downward Attribution and Form 5471

When the IRS determines who owns a foreign corporation for U.S. tax purposes, it looks beyond direct ownership. The law includes “attribution” and “constructive ownership” rules that can treat a person as owning shares held by certain related individuals or entities.

This matters for identifying a Controlled Foreign Corporation (CFC). A CFC is a foreign company more than 50% owned by U.S. shareholders, each holding at least 10%. U.S. shareholders of CFCs generally must file Form 5471 and may have to report certain income from the CFC on their U.S. tax return.

“Downward attribution” refers to a rule that can treat a U.S. person as owning shares actually held by a foreign person. For mixed-nationality couples, this could mean that shares owned by a nonresident alien spouse might be attributed to the U.S. spouse.

Understanding these downward attribution rules is key to determining whether Form 5471 for U.S. citizens married to nonresident aliens applies to you.

Before 2018: Downward Attribution Was Blocked

Before the TCJA, Section 958(b)(4) of the Internal Revenue Code blocked downward attribution from a foreign person to a U.S. person.

That meant that if your nonresident alien spouse owned a foreign corporation, you were not treated as owning those shares for purposes of determining whether the company was a CFC. You generally did not have a Form 5471 filing obligation unless you had your own ownership interest.

The TCJA Era (2018–2025): When Downward Attribution Was Allowed

The Tax Cuts and Jobs Act (TCJA) repealed Section 958(b)(4) effective for tax years of foreign corporations beginning after December 31, 2017.

This change allowed downward attribution from foreign persons to U.S. persons. For the first time, a U.S. citizen could be treated as owning shares in a foreign company held by a nonresident spouse or other foreign entity.

For example, if you owned a U.S. company and your nonresident spouse owned a foreign corporation, the IRS could treat your U.S. company as constructively owning the foreign company’s shares. That could make the foreign company a CFC and trigger Form 5471 for U.S. citizens married to nonresident aliens, even when there was no direct ownership [4][5]. 

This rule applied for the 2018–2025 tax years and caused many families abroad to unexpectedly face new reporting obligations.

The OBBBA (2026 and Beyond): Downward Attribution Repealed Again

In 2025, Congress addressed the confusion through the One Big Beautiful Bill Act (OBBBA). The OBBBA restored Section 958(b)(4), again blocking downward attribution from a foreign person to a U.S. person for purposes of determining CFC status [3].

The restoration is effective for tax years of foreign corporations beginning after December 31, 2025.

In other words, beginning with 2026 tax years, if your nonresident alien spouse owns a foreign corporation, you are no longer treated as owning those shares simply because of your marriage or because you own a U.S. entity. The foreign corporation will not be considered a CFC solely on that basis, and you generally will not need to file Form 5471 unless you have your own ownership interest [6].

Example: How the Downward Attribution Rules Affect You

Under TCJA Rules (2018–2025)
Maria is a U.S. citizen.
Her husband, Juan, is a nonresident alien who owns 100% of a foreign corporation.
Maria owns 100% of a U.S. company.

For tax years of the foreign corporation beginning between 2018 and 2025, the shares of Juan’s company held by Juan would be attributed to Maria, which would then be attributed to her U.S. company. The foreign company would be considered a CFC, and Maria both Maria and her U.S. company might have to file Form 5471 to report shares attributed.

Under Restored OBBBA Rules (After 2025)
The facts are the same, but now the tax year begins in 2026.

Because Section 958(b)(4) has been reinstated, downward attribution is no longer allowed. Juan’s shares are not attributed to Maria or her U.S. company. The foreign corporation is not a CFC based solely on their marriage, and Maria would not need to file Form 5471 unless she has a direct or indirect ownership interest.

Important: The change is not retroactive. Maria and her U.S. company may need to report their attributed interest in Juan’s foreign corporation for the years 2017-2025.

What This Means for Families Abroad

For globally mobile families, the OBBBA change is a welcome relief. Between 2018 and 2025, many U.S. citizens married to nonresident aliens were required to file Form 5471 simply because of the attribution rules, not because of real ownership or control.

Starting in 2026, those families are no longer required to file Form 5471 solely on that basis. The OBBBA restores the original policy intent and simplifies compliance for expats with international family structures.

Still, direct or indirect ownership can trigger reporting. And while this blog does not focus on the new Section 951B, that provision may apply if the U.S. spouse owns more than 50% of a foreign corporation, so professional review is always recommended.

Reviewing Attribution and Constructive Ownership with a Professional

Attribution and constructive ownership rules are among the most technical and easily misunderstood areas of international tax compliance. Even a small change in structure—such as forming a U.S. entity, transferring shares within a family, or holding stock through a trust—can unexpectedly create a CFC or require Form 5471 for U.S. citizens married to nonresident aliens.

If you or your spouse have interests in a foreign company, holding structure, or U.S. entity connected to one, it is important to review your situation carefully. The rules differ significantly between 2018–2025 and the post-2025 period.

BNC Tax & Accounting specializes in cross-border family and business ownership structures. You can book a consultation with our advisory team to review your attribution exposure, confirm your compliance status, and plan confidently for 2026 and beyond.

Key Takeaways on Form 5471 for U.S. Citizens Married to Nonresident Aliens

Before 2018: Downward attribution was not allowed. No Form 5471 filing required based solely on a spouse’s ownership.
2018–2025 (TCJA period): Downward attribution was allowed. Many U.S. spouses had to file Form 5471 even without direct ownership.
After 2025 (OBBBA period): Downward attribution is again prohibited. U.S. citizens are not treated as owning their nonresident spouse’s foreign company for CFC purposes.
Effective dates: TCJA repeal effective for tax years of foreign corporations beginning after December 31, 2017. OBBBA restoration effective for tax years beginning after December 31, 2025.
Always consult a qualified U.S. tax advisor, especially if ownership is shared, indirect, or held through a U.S. business entity.

Citations

IRC §958 – Rules for determining stock ownership:
IRC §318 – Constructive ownership of stock:
P.L. 119-21 (OBBBA) – Sec. 70353 restoring §958(b)(4):
A Guide to Managing Downward Attribution for Determining CFC Status, Michael J. Bruno et al., Tax Notes (2019)
Repeal of the Limitation on Downward Attribution: Three Years Later, Amanda Varma & Lauren Azebu, Tax Notes (2021)
The Prodigal Return of the Downward Attribution Limitation, John L. Harrington, Tax Notes (2025)

Additional reading:
Traveling in Time: The Repeal of Downward Attribution and the New Section 951B, Tax Notes (2025)
Cleary Gottlieb, U.S. Congress Passes the One Big Beautiful Bill Act: Tax Aspects

Bottom Line

For U.S. taxpayers married to nonresident aliens, the rules on attribution and Form 5471 have now come full circle. Between 2018 and 2025, many were required to file solely because of attribution rules. Starting in 2026, that burden is lifted.

The OBBBA reinstates a fairer approach, recognizing that marriage alone should not create foreign reporting obligations. Still, attribution and constructive ownership remain complex.

If you are unsure how these rules apply to your structure or whether you must file Form 5471 for U.S. citizens married to nonresident aliens, reach out to BNC Tax & Accounting to schedule a consultation. A brief review today can prevent unnecessary filings, reduce penalties, and bring peace of mind for the 2026 tax season.