FORM 5471
Form 5471 Information Return of U.S. Persons With Respect To Certain Foreign Corporations
What triggers a Form 5471 requirement?
Form 5471 is required to be filed by certain owners of foreign companies. If the company is a limited liability company, it is considered a corporation in the eyes of the IRS and may require Form 5471 disclosure.
If an individual owns, directly, indirectly, and constructively, more than 10% of a foreign company Form 5471 rules should be reviewed to ascertain whether a filing requirement exists.
Who needs to file Form 5471?
There are two groups of taxpayers who need to file Form 5471 – those who require filing on a transactional basis, and those who are required to file on an annual basis.
Transactional basis filers would only be including the Form in the tax years:
a. They exceed 10% ownership
b. They go below 10% ownership
c. They are a director in a foreign company in which a US persons acquired interest exceeding 10%
Annual basis taxpayers must include the Form 5471 every year in which US-owned interest exceeds 50%. In cases such as this, the foreign corporation triggers CFC (Controlled Foreign Company) rules.
What is the deadline for filing Form 5471?
Form 5471 is an informational form that is attached to the annual tax return for the taxpayer. As such, it follows the filing deadline of the annual tax return. For example – if the taxpayer is an individual who files Form 1040 on a calendar year basis, and who has a filing deadline of 15 October, the deadline for Form 5471 will also be 15 October.
Unfortunately, the requirement to file Form 5471 is independent of the annual tax return requirement. As such, if the taxpayer triggers an annual Form 5471 requirement, but not an annual tax return requirement, we will still suggest a tax return be submitted to facilitate the submission of Form 5471.
The penalty for failure to file Form 5471 is $10,000 per form, per year. Failure to file the form includes late filing, incomplete form submission, and significant errors on the form and schedules.
There are three modes of ownership – direct, indirect, and constructive.
Direct – own interest in own name
Indirect – own interest via an intermediary (i.e., own interest in a partnership that owns shares in the foreign company)
Constructive – assumed to own shares owned by related parties
Constructive ownership rules vary depending on the ownership percentages, and US status of the person or entity from which attribution is taken. For instance, a nonresident alien spouse’s ownership will be attributable for the annual filing requirement trigger, but not to fall under CFC reporting requirements.
What do I do if I have never filed Form 5471?
Currently the IRS is offering the Streamlined Filing Procedure which offers penalty protection for the years filed under the procedure. Many individuals can utilize this procedure to backfile the last three years’ worth of returns and continue forward filing with the IRS. There are also abatement procedures available for those who have been assessed with penalties related to Form 5471.
We have an expert team on hand who have handled numerous foreign corporation situations and can provide tailored advice based on your specific situation. Our fee for a Form 5471 preparation is $300. If you also require preparation of Form 8992 (GILTI), our fee is also $300. For additional information regarding our fees – see our pricing. We provide expat tax services to expats around the world. To learn more about how we can help you, contact us.
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