What is Tax form 5471?
The IRS tax form 5471 is an information return required for U.S. citizens and residents who are shareholders, officers or directors in certain foreign corporations.
With the increasing international transactions happening all over the globe and foreign ownership in companies, the IRS form 5471 was created to record as an information return of U.S. persons with respect to certain foreign corporations. This complicated yet crucial form underwent significant changes in 2010 from the FATCA (Foreign account tax compliance act) and also from the 2017 Tax Cut and Jobs Act.
What is IRS Form 5471?
The IRS tax form 5471 is an information return (not tax return) required for U.S. citizens/U.S residents who are shareholders, officers or directors in certain foreign corporations. This tax form (and additional schedules) records not only information about the foreign corporation and the U.S. persons shareholdings, but also it’s foreign earnings, assets, and other transactions happening outside of the US. Depending on the foreign transactions, the form 5471 filers may also be responsible to file other related tax forms, for instance form 1118, form 2255, form 5472, form 8938 and others.
The Form 5471 consists of 4 pages, with 7 different Schedules (A,B,C,F, G,I,E-1) and 7 separate Schedules (E-1, H, I-1, J, M, O, P), with the filing requirements depending on which category you fall under. This informational return is highly complex, with the IRS estimating approximately 38 hours to prepare one tax form 5471 (not including record keeping time and update of current tax laws/instructions). Thus it’s better to have a basic understanding of what this form 5471 is and whether or not you need to file it.
Who has to file a Form 5471?
A general rule of thumb is if the U.S. person (individual or entity (ie. Corporation, partnership, trust, estate) has more than 10% ownership (in voting power or value), they will most likely need to file form 5471. There may be other circumstances that lead to filing as well, such as being an officer/director of a controlled foreign corporation (CFC), with over 50% of the total value or voting power owned by U.S. shareholders. (Category 2). There are five different categories (Category 1-5) of U.S. persons and shareholders, which determine your filing requirements for this tax form.
We have developed an online form 5471 tool to help you determine if you need to file this informational tax form or not, and any exceptions to this as well.
How do I file Form 5471?
File form 5471 (and any additional schedules) together with the U.S. persons tax return (individual, corporation or partnership) when the tax return is filed, including extensions. This form should be attached to the regular tax return when filed to the IRS. If you own a significant part of a foreign corporation (over 10%) you will normally be required to file this form annually.
When it is due?
This form is due when the taxpayer is filing their federal income tax return, partnership return, exempt organization return or individual return, to be filed by the due date (including possible extensions) for the tax year.
Consequences if you don’t file Form 5471?
The possible penalties for non-filing or misfiling of form 5471 are quite severe. The minimum fine is $10,000, and can increase by $10,000 each month (after the initial 10 day period), for up to a total penalty of $50,000. That is why its important to first find out if you have to file this tax form, and if so, how to do so.
For late filers (mainly those not already contacted by the IRS for non/mis-filings), there are some relief options available to you with minimal penalties to be in compliance with the IRS. For those already contacted by the IRS, you would need to provide a reasonable cause to the IRS for your failure to file the form. If the reasons are accepted by the IRS, they would offer an abatement of the late penalty, however the success rate is low unless in exceptional circumstances.
You can explore these options and the requirements for each in order to lower your risk to the form 5471 penalties.
As you can see the tax form 5471 is no simple filing, and requires a substantial amount of information about your foreign owned corporation and its international transactions. You will need not only your company’s financial transactions, but also it’s ownership structure as well. Your first step would be to find out which category of filer you are and if you need to file it. If you need more information about form 5471, contact us.
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