5471 Filing Requirements
Form 5471 provides the IRS with a record of US citizens and residents who have ownership in foreign corporations. The IRS is therefore able to prevent people from hiding foreign assets. As Form 5471 is informational, it typically does not affect your tax payments – only when you fail to file Form 5471, in which case you will have to pay penalties.
What is Form 5471?
Form 5471, otherwise known as the Information Return of US Persons with Respect to Certain Foreign Corporations, is an information return, rather than a tax return. This information return is used by US taxpayers with an interest in certain foreign corporations; including those considered to be officers, directors, or shareholders in these corporations.
As Form 5471 is informational, it typically does not affect your tax payments – only when you fail to file Form 5471, in which case you will have to pay penalties.
What is the difference between Form 5471 and Form 5472?
While Form 5471 is filed by a US taxpayer, Form 5472 is filed by any foreign corporation engaged in US trade, business, or corporation that is 25% foreign owned.
Who needs to file Form 5471?
Figuring out whether you are required to file Form 5471 can be complicated. To put it simply, any US citizen, corporation, partnership, trust, or estate who has at least 10% ownership of a foreign corporation, is generally required to file Form 5471 at least once, any many have to file Form 5471 every year.
It doesn’t matter if the individual is a US citizen with dual nationality or a Green Card holder, it’s highly likely that they need to file Form 5471 when they own 10% or more of a non-US company.
The categories of U.S. persons potentially liable for filing Form 5471 include:
- U.S. citizen and resident alien individuals,
- U.S. domestic corporations,
- U.S. domestic partnerships, and
- U.S. domestic trusts.
What are the different categories of people who need to file Form 5471?
There are five categories of individuals or entities who are required to file Form 5471:
- GILTI (Global Intangible Low-Taxed Income) which applies to US shareholders who own 10% of a controlled foreign corporation (CFC).
- A US person with control in a CFC for 30 days.
- An owner of 10% or more of a CFC, who owns stock for an uninterrupted period of 30 days or more during the tax year. They also must have owned that stock on the last day of the year.
- Officers or directors when there have been changes of certain 10% in ownership by a US person.
- US shareholders with certain 10% ownership changes in their own holdings, those who become US persons at the time they reach 10% stock ownership, or individuals treated as US shareholders under section 952(c).
More information on the categories of who needs to file can be found on the IRS website. The schedules you are required to fill out depend on the category you fit in, and within each category there are subcategories. You will need to do thorough research into the corporation you hold stock or ownership in to determine the instructions specific to your situation. The IRS website provides detailed instructions, but we recommend speaking to a tax professional.
How to determine your company structure:
Even if you are familiar with US business terminology, you shouldn’t assume that your foreign business is not a corporation if it is not called such. The IRS’ definition of corporation (in relation to who must file Form 5471) includes international business companies and foreign limited liability companies (LLCs).
When determining whether the foreign company will be considered a corporation, consider the liability of the foreign company. Company structures that provide the owner(s) with limited or no liability will likely be considered a corporation by the IRS. However, some foreign companies have the option to elect “disregarded entity” status by filing Form 8832 within 75 days of the company’s formation to avoid the Form 5471 annual filing requirement.
In the UK these are often called PLC (Private Limited Compay) or just LTD (Limited) and in Australia they’re known as Pty Ltd (Propriatory Limited). The important similarity here is that the companies are “limited”.
Dormant corporations must also be included on Form 5471.
IRS Revenue Procedure 92-70 provides seven conditions in order for a foreign corporation to be considered dormant:
- The foreign corporation conducted no business and owned no stock in any other corporation other than another dormant foreign corporation
- No shares of the foreign corporation (other than the directors’ qualifying shares) were sold, exchanged, redeemed, or otherwise transferred, nor was the foreign corporation party to a reorganization
- No assets of the foreign corporation were sold, exchanged, redeemed, or otherwise transferred, except for minimis transfers described in 4 and 5 below
- The foreign corporation received or accrued no more than $5,000 of gross income or gross receipts
- The foreign corporation paid or accrued no more than $5,000 of expenses
- The value of the foreign corporation’s assets as determined pursuant to the US generally accepted accounting principles (but not reduced by any mortgages or other liabilities) did not exceed $100,000
- No distributions were made by the foreign corporation; and
The foreign corporation either had no current or accumulated earnings and profits or had only de minimis changes in its beginning and ending accumulated earnings and profits balances by reason of income or expenses specified in 4 or 5 above
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What information do I need to provide when filing Form 5471?
Reporting requirements can vary from simply providing what percentage of stock you own and other company information, to reporting the corporation’s entire income from financial statements and balance sheets. A professional expat tax advisor will be able to guide you through the process and ensure you have filed everything necessary to avoid penalties.
All taxpayers filing Form 5471 will need to include their personal information as well as information about the foreign corporation. Depending on the applicable filing categories, an income statement, balance sheet and data with regards to transactions between the foreign corporation and its shareholders (such as loans, distributions, contributions, etc.) must be included.
Form 5471 Schedules:
There are 12 Schedules that you may or may not be required to fill out.
- Form 5471 Schedule A – Stock of the Foreign Corporation
- Form 5471 Schedule B – U.S. Shareholders of Foreign Corporations
- Form 5471 Schedule C – Income Statement
- Form 5471 Schedule E – Income, War Profits, and Excess Profits Taxes Paid or Accrued
- Form 5471 Schedule F – Balance Sheet
- Form 5471 Schedule G – Other information
- Form 5471 Schedule H – Current earnings and profits
- Form 5471 Schedule I – Summary of Shareholder’s Income from Foreign Corporation
- Form 5471 Schedule J – Accumulated earnings and profits of Controlled Foreign Corporations
- Form 5471 Schedule M – Transactions between controlled foreign corporation and shareholders or other related persons
- Form 5471 Schedule O – Organization or reorganization of foreign corporation, and acquisitions and dispositions of its stock (Part I to be completed by U.S. officers and directors, Part II to be completed by U.S. shareholders)
What happens if you don’t file Form 5471?
If you fail to file Form 5471 when you are required to, you could be hit with a $10,000 penalty for each annual accounting period of the foreign corporation. If you then don’t respond to the IRS’ notice from the IRS and file within 90 days, you could have to pay a maximum of $60,000.
If there are multiple foreign entities which you need to file for, you will receive penalties for each. Failing to file Form 5471 can therefore result in costly penalties, and you can even get audited up to 10-15 years back.
The IRS has put a lot of focus on US citizens living abroad being compliant with their US expat tax filing obligations. The IRS have recently entered into agreements with numerous foreign countries to exchange information regarding foreign activities. The IRS is likely to discover any noncompliance so If you believe you might be subject to Form 5471 filing requirements, it is recommended to become compliant sooner rather than later!
What is the deadline for filing Form 5471?
You must submit the form with your tax return, with a separate form completed for each foreign company. Inactive and formant corporations are not exempt from filing.
The US expatriate deadline is June 15th, as the IRS grants a two-month extension. You are also able to request a further extension until October 16th.
Will filing Form 5471 impact your tax liability?
Foreign corporations with US-sourced income will be subject to US taxes just as a US domestic company.
Sometimes, as a result of filing Form 5471 US owners of foreign corporations can be taxed on their dividends in the year of receipt – deferring any unpaid earnings and profits until they are distributed, or the company is liquidated.
Are there any exceptions for filing Form 5471?
In cases where there are multiple filers with the same information, one person is able to file Form 5471 and the applicable schedules for themselves and the other people. If you are required to provide the same information for the same foreign corporation for the same period as others, you can use a joint information return filed with one of yours tax returns. This is dependent on the different categories, check the IRS website for further information: Instructions for Form 5471 (Rev. January 2021) (irs.gov).
Another exception is in the case of domestic corporations. You are not required to file the 5471 information return for a foreign insurance company that has elected (under section 953(d)) to be treated as a domestic corporation and has filed a US income tax return for its tax year under that provision.
Can I get out of needing to file Form 5471?
If you are required to file Form 5471, it’s a lot less hassle to just file it.
To get out of the reporting requirement, you would need to renounce your US citizenship. If you want to remain a US citizen that operates offshore, you will just simply have to file Form 5471. However, it is possible to change the classification of the CFC from a corporation to a partnership or disregarded entity. However, you would then need to file Form 8865 for a non-US partnership or Form 8858 for a non-US disregarded entity. Both of these forms are just as complicated and burdensome as Form 5471.
What is a Controlled Foreign Corporation?
A foreign corporation will be considered a CFC if “more than 50 percent of its voting power or value is owned by U.S. Shareholders.”
What is Ten Percent Stock Ownership?
Ten percent stock ownership is calculated based on the total value of the corporation’s stock or the voting power of all the corporation’s classes of stocks combined.
If you believe you might need to file Form 5471, it is worth just doing it to avoid the penalties and audit. Make sure you thoroughly check which category you fall into and what information is required from you. IRS Form 5471 filing is complicated, and working with an advisor every step of the way is your best option. Tax professionals can help you to navigate the form and its instructions, in addition to reducing the likelihood of any penalties.
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