You must file Form 5471 annually if you own more than 10% of the stock in a foreign corporation (directly, indirectly, or constructively). Form 5471 is one of the more complex international reporting forms, and this article covers an overview.
Form 5471 is an information return that must be filed with the IRS for certain U.S. citizens, residents, and businesses who are owners, directors, or officers of a foreign corporation. This information return is an important tax compliance tool and must be completed in full and on time in order to avoid penalties and interest. Aside from being an informational return, the 5471 is a very important form because it records the ownership interests of U.S. persons who own foreign corporations and is used to help prevent U.S. persons from hiding their assets abroad.
The form is similar to a U.S. corporate income tax return (Form 1120), but for foreign corporations, so it has the same reporting requirements. However, it is much more complex because multiple schedules, statements, and other information must be included in the form. These requirements are often complex and intimidating to non-tax professionals sometimes.
There are also certain circumstances in which you can elect to be treated as a per se corporation and therefore avoid the Form 5471 filing requirement. You can do this by filing Form 8832 within 75 days of the creation of your foreign corporation. Another important aspect to consider is the penalties that may be imposed for failure to file Form 5471. These forfeitures start at $10,000 and rise to $25,000 if you are found guilty of noncompliance.
How To File Form 5471?
The purpose of Form 5471 is to ensure that the IRS has a complete record of all U.S. persons who own or have a financial interest in foreign corporations. The Instructions for Form 5471 are quite complex and intimidating to most individuals. They make it difficult to know what filing category a person falls under.
In most cases, the only people who have an obligation to file Form 5471 are those who own 10% or more ownership in a Controlled Foreign Corporations (CFC). This includes U.S. citizens, corporations, partnerships, trusts, and estates with at least 10% ownership of a foreign corporation. Those with less than 10% may not have an obligation to file Form 5471, but it is still a good idea to check. The IRS uses Form 5471 to catch people who have been hiding their assets from the IRS.
Form 5471 Sections
Information Return of U.S. Persons With Respect to Certain Foreign Corporations
Page 1: General Information
- Schedule A: Stock of the Foreign Corporation
- Schedule B: Shareholders of Foreign Corporation
- Part I: U.S. Shareholders of Foreign Corporation
- Part II: Direct Shareholders of Foreign Corporation
- Schedule C: Income Statement
- Schedule F: Balance Sheet
- Schedule G: Other Information
- Schedule I Summary of Shareholder’s Income From Foreign Corporation