What Are the Form 5471 Filing Requirements?

Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” is an informational return the IRS uses to gather data from U.S. taxpayers with interests in foreign corporations. Its function is to monitor the activities of U.S. persons involved with overseas corporations, ensuring compliance with American tax laws.

The form provides the IRS with a detailed look at the financial and ownership structures of these foreign entities. It does not calculate a tax liability but serves as a disclosure tool, with significant consequences for failure to file.

Determining Your Filing Obligation

A filing obligation for Form 5471 applies to any “U.S. person,” which includes U.S. citizens, residents, domestic partnerships, corporations, and certain estates or trusts. An individual or entity meeting this definition may need to file if they have a specified relationship with a foreign corporation. The requirements are organized into distinct categories of filers based on ownership levels or roles.

• Category 1: Applies to U.S. shareholders of a “Specified Foreign Corporation” (SFC), which is often a Controlled Foreign Corporation (CFC) or a foreign corporation with at least one U.S. corporate shareholder.
• Category 2: Applies to U.S. citizens or residents who are an officer or director of a foreign corporation when a U.S. person acquires stock that meets a 10% ownership threshold.
• Category 3: Pertains to U.S. persons who acquire or dispose of stock, causing their ownership to cross the 10% threshold, or who become a U.S. person while meeting that ownership level.
• Category 4: Applies to a U.S. person who had “control” of a foreign corporation, defined as owning more than 50% of the stock by vote or value, for an uninterrupted period of at least 30 days.
• Category 5: Involves U.S. shareholders of a CFC. A foreign corporation becomes a CFC when U.S. shareholders, each owning at least 10% of the stock, collectively own more than 50% of it.

A concept in determining ownership percentages is “constructive ownership,” where stock owned by certain family members or related entities is attributed to the U.S. person. For instance, stock owned by a spouse, child, grandchild, or parent is treated as owned by the individual. This means a person might have a filing requirement even if they do not directly own any shares, but a close relative does.

Required Information and Schedules

Once a filing obligation is established, filers must gather extensive data for Form 5471 and its schedules. The specific schedules required depend on the filer’s category. All filers must provide identifying information for themselves and the foreign corporation on the form’s first page.

A central component is the presentation of the foreign corporation’s financial statements. Schedule C requires a complete income statement detailing items like gross receipts and deductions, while Schedule F demands a comprehensive balance sheet. For both schedules, the financial data must be prepared according to U.S. Generally Accepted Accounting Principles (U.S. GAAP). The data must also be translated into U.S. dollars.

Schedule J calculates the foreign corporation’s accumulated earnings and profits (E&P), which is different from retained earnings under U.S. GAAP. E&P is a tax-specific calculation that determines the extent to which distributions to shareholders are treated as taxable dividends. The calculation requires adjusting the corporation’s net income for various items as prescribed by U.S. tax law.

Transactions between the foreign corporation and its U.S. shareholders are reported on Schedule M. This schedule requires reporting any loans, sales, service fees, or other payments to monitor for transfer pricing issues. Any distributions made from the foreign corporation are reported on Schedule R, which details the amounts paid to U.S. shareholders.

The Filing Process and Deadlines

Form 5471 is not filed as a standalone document but must be attached to the filer’s annual income tax return, such as a Form 1040 for individuals, Form 1120 for corporations, or Form 1065 for partnerships. The due date for Form 5471 aligns with the deadline for the main tax return. For most individual filers, this is April 15, while for corporations it is generally the 15th day of the fourth month after their tax year ends.

If a filer receives an extension for their income tax return, that extension also applies to Form 5471. An individual filing Form 4868 for an automatic six-month extension will have until October 15 to submit their return. A corporation filing Form 7004 will also receive additional time. An extension to file is not an extension to pay any tax due.

Penalties for Non-Compliance

Failing to file Form 5471 on time or submitting an incomplete form can lead to significant penalties. The IRS imposes a base penalty of $10,000 for each annual accounting period of each foreign corporation for which a filing was required. This penalty applies even if no tax is owed, as the violation is the failure to provide information.

If non-compliance continues after the IRS issues a notice, the consequences escalate. A filer who fails to provide the information within 90 days of an IRS notice is assessed an additional penalty of $10,000 for each 30-day period the failure persists. This continuation penalty is capped at a maximum of $50,000 per return.

A failure to file Form 5471 also affects the statute of limitations. Normally, the IRS has three years from the date a tax return is filed to assess additional tax. However, if a required Form 5471 is not filed, the statute of limitations for the taxpayer’s entire income tax return can remain open indefinitely. This allows the IRS to audit any item on the return years later.

Other penalties can also apply, including a 10% reduction of the filer’s available foreign tax credits. If the failure to file is determined to be willful, the consequences can be more severe. These may include criminal penalties.