What Is Federal Form 5471 and Who Must File?

Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” is an IRS disclosure document. It provides the government with financial information about foreign corporations owned or controlled by U.S. persons, helping the IRS monitor offshore activities and prevent tax deferral. The form is an informational return, meaning its submission does not create a tax liability by itself and is more like a detailed report than a tax bill. However, the information provided can have tax consequences, as data from Form 5471 is used to determine a shareholder’s tax liability under regimes like Global Intangible Low-Taxed Income (GILTI) and Subpart F income.

Determining Your Filing Requirement

The requirement to file Form 5471 depends on definitions and ownership thresholds in the Internal Revenue Code. A “U.S. Person” includes U.S. citizens and residents, as well as domestic entities like corporations, partnerships, and trusts. A “foreign corporation” is any corporation not organized under the laws of the U.S., a state, or the District of Columbia.

The IRS considers three types of ownership: direct, indirect, and constructive. Direct ownership refers to stock registered in the U.S. Person’s name. Indirect ownership applies when a U.S. Person owns stock through other foreign entities, such as owning a foreign holding company that in turn owns a foreign operating company.

Constructive ownership rules are more complex. Under these rules, an individual is treated as owning stock that is actually owned by certain family members, including a spouse, children, grandchildren, and parents. Ownership can also be attributed from entities to their owners, meaning a person might have a filing obligation without personally owning any shares.

These ownership concepts are applied across five distinct filer categories, and a person may fall into more than one.

• Category 1: A specialized category that applies to U.S. Shareholders of Specified Foreign Corporations (SFCs), a definition often overlapping with Controlled Foreign Corporation (CFC) status.
• Category 2: A U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. Person acquires an additional 10% or more of the stock.
• Category 3: A U.S. Person who acquires or disposes of stock to reach or fall below a 10% ownership threshold, or whose ownership changes by at least 10 percentage points.
• Category 4: A U.S. Person who had “control” of a foreign corporation for at least 30 days. Control is defined as owning more than 50% of the voting power or value of the stock.
• Category 5: A U.S. Shareholder who owns stock in a Controlled Foreign Corporation (CFC) for at least 30 days and on the last day of the year. A CFC is generally a foreign corporation where U.S. Shareholders own more than 50% of it.

Information Required for Form 5471 Completion

Completing Form 5471 requires detailed financial information about the foreign corporation, similar to a U.S. corporate tax return. The specific schedules a person must complete depend on their filer category. The first page of the form requires general information about the filer and the foreign corporation, including names, addresses, tax identification numbers, the date of incorporation, and the exchange rate used to translate financial figures into U.S. dollars.

Schedule J, Accumulated Earnings & Profits (E&P) of Controlled Foreign Corporations, is used to calculate E&P under U.S. tax principles. E&P is an accounting measure that determines if a corporate distribution is a taxable dividend. The schedule tracks the beginning and ending balances of E&P, separating it into categories like previously taxed E&P (PTEP) and untaxed E&P.

Schedule M, Transactions Between the Controlled Foreign Corporation and Shareholders or Other Related Persons, is for Category 4 filers. It requires disclosing transactions between the foreign corporation and the filer or related parties to ensure they are conducted at “arm’s length.” Information required includes the value of inventory sales, payments for rents and royalties, compensation for services, loans, and dividends.

The Global Intangible Low-Taxed Income (GILTI) regime introduced Schedule I-1, Information for Global Intangible Low-Taxed Income. This schedule computes the foreign corporation’s “tested income” or “tested loss,” a component in the shareholder’s overall GILTI calculation on Form 8992. The calculation starts with the corporation’s gross income and subtracts certain items to arrive at the tested income figure.

Schedule R, Distributions from a Foreign Corporation, must be filed by certain filers to report any distributions received. For each distribution, the filer must provide a description, its tax treatment, the date, and the amount in the foreign corporation’s functional currency. This allows the IRS to verify the tax consequences of amounts paid to shareholders.

Filing Procedures 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 or Form 1120 for corporations. The submission method follows the main return. If filing electronically, the form is included in the e-file package, and if filing by mail, a physical copy is attached.

The filing deadline for Form 5471 is synchronized with the due date of the income tax return, including any extensions. For most individual filers and C corporations, the initial deadline is April 15. An extension, such as one filed with Form 4868 for individuals, moves the deadline to October 15, while U.S. citizens residing abroad may have an automatic extension to June 15.

The form’s acceptance is tied to the processing of the main tax return, and the IRS does not send a separate confirmation for Form 5471. Filers should maintain complete copies of the form and all supporting documents for their records.

Penalties for Non-Compliance

Failing to file Form 5471, or filing an incomplete or inaccurate one, leads to significant penalties. These can be imposed even if no tax is due, as they relate to the failure to disclose information.

The baseline penalty for failing to file Form 5471 on time is $10,000. This penalty applies for each annual accounting period of each foreign corporation for which a filing was required. For a person with interests in multiple foreign corporations, this penalty can multiply quickly.

If the IRS sends a notice of the failure to file and the taxpayer does not provide the form within 90 days, a continuation penalty begins. This additional penalty is $10,000 for each 30-day period that the failure continues, capped at a maximum of $50,000 per return. This brings the potential total monetary penalty for a single failure to $60,000.

Non-compliance can also result in a 10% reduction of the foreign taxes available for credit under sections 901 and 960. If the failure persists for more than 90 days after an IRS notice, this reduction increases by an additional 5% for each 3-month period the failure continues.

A failure to file Form 5471 also keeps the statute of limitations open indefinitely for the entire tax return under Internal Revenue Code section 6501. This means the IRS can audit and assess tax on any item on that return, not just those related to the foreign corporation, many years after it was filed.