Form 5471 Instructions and Basics

The Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is in an information return that must be filed by U.S. citizens and U.S. residents who are officers, directors, or shareholders in certain foreign corporations to report the activity of the foreign corporation.  The form is very complex and requires a tax professional to review and prepare.

Form 5471 Filing Requirements: The filing requirements for Form 5471 relate to persons who have a certain level of control in certain foreign corporations. Form 5471 is required to be filed in the following situations:

  • U.S. person becomes a director or officer of a foreign corporation
  • U.S. person acquires an ownership interest in a foreign corporation in excess of the prescribed limits
  • U.S. person disposes of stock in a foreign corporation that reduces his or her interest in the foreign corporation to less than the prescribed limits
  • U.S. person is in control of a foreign corporation for an uninterrupted period of at least 30 days in a year
  • U.S. person is a 10% or more shareholder in a foreign corporation that is a “controlled foreign corporation” for an uninterrupted period of at least 30 days in a year and that person owns that stock on the last day of the year.

In determining the ownership interest, the complex rules of direct, indirect, and constructive ownership come in to play as well. Not only that, the category of filers can get confusing, The categories are used to determine which schedules, statements and/or other information must be included as part of the Form 5471 filing.

Form 5471 Filing Deadline:

The Form 5471 filing is attached to your individual income tax return and is to be filed by the due date (including extensions) for that return.

IRS Form 5471 Penalties:

Penalties for the failure to file a Form 5471 can be very high. If you fail to file the form and were required to file the form you can be subject to an AUTOMATIC penalty $10,000 or more for each year.

Additional penalties of up to $50,000 are charged for instances of continued failure. Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit. The IRS may waive penalties if the failure to file was due to reasonable cause. On the other hand, willful reporting violations may be subject to criminal penalties, which may be imposed in addition to asset forfeiture or civil penalties.

Last, if the form is not filed, your Form 1040 would be considered to be non-filed by the IRS leaving your individual return open for audit and penalties indefinitely.

U.S. persons with unreported foreign corporation are increasingly at risk of the IRS and the US Department of Justice identifying those accounts due to the implementation of the Foreign Account Tax Compliance Act. FATCA, enacted in 2010 and implemented on July 1, 2014, requires foreign financial institutions worldwide to perform in-depth due diligence and to collect information to identify any U.S. account holders or U.S. beneficial owners of financial assets abroad, and to automatically disclose account information annually to the IRS.