Who Should File IRS Form 5471?

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Who Should File IRS Form 5471?

Form 5471, Infor­ma­tion Return of U.S. Per­sons With Respect to Cer­tain For­eign Cor­po­ra­tions, is an inter­na­tion­al infor­ma­tion return that may be required to be filed with the U.S. Inter­nal Rev­enue Ser­vice (“IRS”) by U.S. cit­i­zens and U.S. res­i­dents (includ­ing Green Card hold­ers) who are offi­cers, direc­tors, or share­hold­ers in cer­tain for­eign cor­po­ra­tions. Form 5471 and its attached sched­ules are used to meet the report­ing require­ments of Inter­nal Rev­enue Code (“IRC”) Sec­tions 6038 and 6046 and the cor­re­spond­ing Trea­sury reg­u­la­tions. Although Form 5471 is only an infor­ma­tion return, com­plet­ing it accu­rate­ly and com­plete­ly is essen­tial, as it is an impor­tant tool for the IRS to deter­mine whether indi­vid­u­als or com­pa­nies are com­ply­ing with the Sub­part F regime (an anti-defer­ral tax regime). Form 5471 is required to be filed by U.S. per­sons (U.S. cit­i­zens, U.S. res­i­dents and Green card hold­ers) who have a spe­cif­ic lev­el of own­er­ship (includ­ing direct, indi­rect or con­struc­tive own­er­ship) or con­trol in cer­tain for­eign cor­po­ra­tions, includ­ing:
  • U.S. cit­i­zens or res­i­dents who are offi­cers, direc­tors of a for­eign cor­po­ra­tion;
  • U.S. domes­tic cor­po­ra­tions;
  • U.S. domes­tic part­ner­ships; and
  • U.S. domes­tic trusts.
The Instruc­tions to Form 5471 have sev­er­al cat­e­gories of fil­ers.  A deter­mi­na­tion of who falls with­in a spe­cif­ic fil­er cat­e­go­ry (some­times, more than one) is com­plex and not always straight­for­ward.  Tax­pay­ers should care­ful­ly review the instruc­tions to Form 5471 or talk to their qual­i­fied U.S. tax pro­fes­sion­als.  Ide­al­ly, tax­pay­ers should find some­one knowl­edge­able about U.S. inter­na­tion­al tax.

Filing Guidelines For IRS Form 5471

When do I need to file? Form 5471 must be attached to the taxpayer’s tax return and filed by the tax return fil­ing due date (includ­ing exten­sions). For exam­ple, Form 1040, U.S. Indi­vid­ual Income Tax Return for the 2017 tax year will be gen­er­al­ly due by April 17, 2018. What do I need to pro­vide? In the instruc­tions to Form 5471, depend­ing on the cat­e­go­ry of the fil­er, the tax­pay­er will need to pro­vide the fol­low­ing infor­ma­tion to the IRS (note that penal­ties equal­ly apply for sub­stan­tial­ly incom­plete forms):
  • Iden­ti­fy­ing infor­ma­tion for the U.S. share­hold­er and the for­eign cor­po­ra­tion;
  • The corporation’s income state­ment;
  • Bal­ance sheet;
  • Com­pu­ta­tion of earn­ings and prof­its;
  • Details of any Sub­part F income;
  • Infor­ma­tion on div­i­dends paid;
  • Trans­ac­tions between the cor­po­ra­tion and U.S. share­hold­ers, and oth­er relat­ed per­sons; and
  • Detail of any orga­ni­za­tion or reor­ga­ni­za­tion of the corporation’s stock.
A sim­pli­fied fil­ing of Form 5471 is allowed for cer­tain dor­mant for­eign cor­po­ra­tions. The finan­cial infor­ma­tion required by the IRS must be pre­sent­ed using the U.S. gen­er­al­ly accept­ed account­ing prin­ci­ples (“U.S. GAAP”) which may dif­fer from the account­ing prin­ci­ples used to pro­duce for­eign finan­cial state­ments; there­fore, the tax­pay­er is required to con­vert any finan­cial state­ments to U.S. GAAP.

Penalties for Not Filing IRS Form 5471

The penal­ties for not fil­ing Form 5471 are sub­stan­tial.  Impor­tant­ly, the IRS assess­es them auto­mat­i­cal­ly.  It is impor­tant to ensure that Form 5471 is time­ly filed and sub­stan­tial­ly com­plete because the tax­pay­er may be sub­ject to a US $10,000 penal­ty for each year the tax­pay­er is required to file, but failed to file or filed late.  The amount of penal­ties may be high­er, depend­ing on the num­ber of forms. Addi­tion­al penal­ties of up to US $50,000 are assessed for instances of con­tin­ued fail­ure to file after the IRS mailed the Tax­pay­er a notice and non-com­pli­ance con­tin­ues. A per­son who fails to report the required infor­ma­tion time­ly may be sub­ject to a reduc­tion of 10 per­cent of the for­eign tax­es avail­able for cred­it under IRC Sec­tions 901, 902 and 960. Con­tin­ued cas­es of fail­ure are also sub­ject to an addi­tion­al reduc­tion of 5 per­cent for each three-month peri­od. Crim­i­nal penal­ties may also apply for fail­ure to file the required infor­ma­tion.

Who Should File Form 5471?

The IRS Form 5471, Infor­ma­tion Return of U.S. Per­sons With Respect to Cer­tain For­eign Cor­po­ra­tions, is an inter­na­tion­al infor­ma­tion return that may be required to be filed with the U.S. Inter­nal Rev­enue Ser­vice (“IRS”) by U.S. cit­i­zens and U.S. res­i­dents (includ­ing Green Card hold­ers) who are offi­cers, direc­tors, or share­hold­ers in cer­tain for­eign cor­po­ra­tions. Form 5471 and its attached sched­ules are used to meet the report­ing require­ments of Inter­nal Rev­enue Code (“IRC”) Sec­tions 6038 and 6046 and the cor­re­spond­ing Trea­sury reg­u­la­tions. Although Form 5471 is only an infor­ma­tion return, com­plet­ing it accu­rate­ly and com­plete­ly is essen­tial, as it is an impor­tant tool for the IRS to deter­mine whether indi­vid­u­als or com­pa­nies are com­ply­ing with the Sub­part F regime (an anti-defer­ral tax regime). Form 5471 is required to be filed by U.S. per­sons (U.S. cit­i­zens, U.S. res­i­dents and Green card hold­ers) who have a spe­cif­ic lev­el of own­er­ship (includ­ing direct, indi­rect or con­struc­tive own­er­ship) or con­trol in cer­tain for­eign cor­po­ra­tions, includ­ing:
  • U.S. cit­i­zens or res­i­dents who are offi­cers, direc­tors of a for­eign cor­po­ra­tion;
  • U.S. domes­tic cor­po­ra­tions;
  • U.S. domes­tic part­ner­ships; and
  • U.S. domes­tic trusts.
The Instruc­tions to Form 5471 have sev­er­al cat­e­gories of fil­ers.  A deter­mi­na­tion of who falls with­in a spe­cif­ic fil­er cat­e­go­ry (some­times, more than one) is com­plex and not always straight­for­ward.  Tax­pay­ers should care­ful­ly review the instruc­tions to Form 5471 or talk to their qual­i­fied U.S. tax pro­fes­sion­als.  Ide­al­ly, tax­pay­ers should find some­one knowl­edge­able about U.S. inter­na­tion­al tax.

Filing Guidelines For Form 5471

When do I need to file? Form 5471 must be attached to the taxpayer’s tax return and filed by the tax return fil­ing due date (includ­ing exten­sions). For exam­ple, Form 1040, U.S. Indi­vid­ual Income Tax Return for the 2017 tax year will be gen­er­al­ly due by April 17, 2018. What do I need to pro­vide? In the instruc­tions to Form 5471, depend­ing on the cat­e­go­ry of the fil­er, the tax­pay­er will need to pro­vide the fol­low­ing infor­ma­tion to the IRS (note that penal­ties equal­ly apply for sub­stan­tial­ly incom­plete forms):
  • Iden­ti­fy­ing infor­ma­tion for the U.S. share­hold­er and the for­eign cor­po­ra­tion;
  • The corporation’s income state­ment;
  • Bal­ance sheet;
  • Com­pu­ta­tion of earn­ings and prof­its;
  • Details of any Sub­part F income;
  • Infor­ma­tion on div­i­dends paid;
  • Trans­ac­tions between the cor­po­ra­tion and U.S. share­hold­ers, and oth­er relat­ed per­sons; and
  • Detail of any orga­ni­za­tion or reor­ga­ni­za­tion of the corporation’s stock.
A sim­pli­fied fil­ing of Form 5471 is allowed for cer­tain dor­mant for­eign cor­po­ra­tions. The finan­cial infor­ma­tion required by the IRS must be pre­sent­ed using the U.S. gen­er­al­ly accept­ed account­ing prin­ci­ples (“U.S. GAAP”) which may dif­fer from the account­ing prin­ci­ples used to pro­duce for­eign finan­cial state­ments; there­fore, the tax­pay­er is required to con­vert any finan­cial state­ments to U.S. GAAP.

Penalties for Not Filing IRS Form 5471

The penal­ties for not fil­ing Form 5471 are sub­stan­tial.  Impor­tant­ly, the IRS assess­es them auto­mat­i­cal­ly.  It is impor­tant to ensure that Form 5471 is time­ly filed and sub­stan­tial­ly com­plete because the tax­pay­er may be sub­ject to a US $10,000 penal­ty for each year the tax­pay­er is required to file, but failed to file or filed late.  The amount of penal­ties may be high­er, depend­ing on the num­ber of forms. Addi­tion­al penal­ties of up to US $50,000 are assessed for instances of con­tin­ued fail­ure to file after the IRS mailed the Tax­pay­er a notice and non-com­pli­ance con­tin­ues. A per­son who fails to report the required infor­ma­tion time­ly may be sub­ject to a reduc­tion of 10 per­cent of the for­eign tax­es avail­able for cred­it under IRC Sec­tions 901, 902 and 960. Con­tin­ued cas­es of fail­ure are also sub­ject to an addi­tion­al reduc­tion of 5 per­cent for each three-month peri­od. Crim­i­nal penal­ties may also apply for fail­ure to file the required infor­ma­tion.

If you are unsure if Form 5471 is applicable to you, speak with our trusted U.S. Tax Advisors today to avoid potential penalties.

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