Who Has a 5471 Filing Requirement?

Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is a disclosure document required by the Internal Revenue Service (IRS). It is an informational return designed to satisfy reporting requirements under the U.S. tax code. The form’s purpose is to provide the IRS with visibility into the activities of foreign corporations owned or controlled by U.S. persons. This allows the agency to monitor compliance with international tax provisions, such as Subpart F income and Global Intangible Low-Taxed Income (GILTI), which can prevent the deferral of U.S. income tax on certain foreign earnings.

Determining Your Filing Obligation

A filing obligation for Form 5471 hinges on several definitions and filer categories. A “U.S. person” includes U.S. citizens, resident aliens, and domestic partnerships, corporations, estates, or trusts. A “foreign corporation” is any corporation not organized in the United States. A “U.S. shareholder” is a U.S. person who owns 10% or more of the vote or value of a foreign corporation.

When U.S. shareholders collectively own more than 50% of the vote or value of a foreign corporation, that entity becomes a “Controlled Foreign Corporation” (CFC). This CFC status is a trigger for Form 5471 reporting for multiple filer categories.

Category 1 Filer

A Category 1 filer is a U.S. shareholder of a foreign corporation designated as a Specified Foreign Corporation (SFC). An SFC is any CFC, with some exceptions for corporations organized in U.S. possessions.

Category 2 Filer

A Category 2 filer is a U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. person has acquired stock. This filing requirement is triggered if the acquisition results in the U.S. person owning 10% or more of the corporation’s stock or acquiring an additional 10% or more. The U.S. person acquiring the stock may have a filing obligation under a different category.

Category 3 Filer

A Category 3 filer is a U.S. person who acquires stock in a foreign corporation, which results in them meeting the 10% stock ownership threshold. This category also applies when a person disposes of stock to reduce their interest below the 10% threshold or becomes a U.S. person while meeting the 10% ownership requirement.

Category 4 Filer

A Category 4 filer is a U.S. person who had “control” of a foreign corporation during the corporation’s annual accounting period. Control is defined as owning stock with more than 50% of the total voting power or more than 50% of the total value of shares. This filing requirement applies even if control was held for only a brief period during the year.

Category 5 Filer

A Category 5 filer is a U.S. shareholder who owns stock in a foreign corporation that is a CFC at any time during the year. The filer must have owned that stock on the last day of the year that the foreign entity was a CFC.

Understanding Constructive Ownership Rules

Determining a Form 5471 filing requirement extends beyond direct stock ownership due to constructive ownership rules. These rules treat a person as owning stock that is actually owned by a related person or entity. This attribution of ownership can cause a U.S. person who holds no shares directly to become a U.S. shareholder and trigger a filing obligation.

Under family attribution rules, an individual is considered to own the stock owned by their spouse, children, grandchildren, and parents. For example, if a U.S. citizen owns 5% of a foreign corporation and their spouse owns 6%, the citizen is treated as owning 11%. This would make them a U.S. shareholder and could create a filing requirement.

Ownership can also be attributed from entities. Stock owned by a partnership or estate is considered owned proportionately by its partners or beneficiaries, and stock owned by a trust is attributed to its beneficiaries. For corporations, a shareholder who owns 50% or more of a corporation is treated as owning a proportionate share of any stock it holds. An exception may apply if the U.S. person from whom the stock ownership is attributed properly files a complete Form 5471.

Information and Schedules Required for Form 5471

Filers must collect the foreign corporation’s legal name, address, principal business activity, and annual accounting period. The corporation’s financial information must be presented in accordance with U.S. Generally Accepted Accounting Principles (GAAP), with amounts stated in U.S. dollars. The specific schedules a person must complete depend on their filer category.

• Schedule A tracks the stock of the foreign corporation, detailing the classes of stock and the number of shares outstanding.
• Schedule B identifies the U.S. shareholders of the foreign corporation, requiring their names, addresses, and ownership percentages.
• Schedule C is the foreign corporation’s income statement, reporting its revenues, deductions, and net income or loss.
• Schedule F is the balance sheet, which details the corporation’s assets, liabilities, and equity.
• Schedule J tracks the accumulated earnings and profits (E&P) of the foreign corporation.
• Schedule M reports transactions between the CFC and its shareholders or other related parties.

Filing Procedures and Due Dates

The completed Form 5471 and all its required schedules must be attached to the filer’s annual income tax return. For an individual, this means attaching it to Form 1040. For a corporation, it is attached to Form 1120, and for a partnership, to Form 1065.

The due date for Form 5471 is the same as the due date for the income tax return to which it is attached, including any extensions. If an individual taxpayer files an extension for their Form 1040, the due date for filing Form 5471 is automatically extended as well.

Penalties for Non-Compliance

Failing to file Form 5471, or filing an incomplete or inaccurate form, can lead to penalties. The IRS imposes a base penalty of $10,000 for each annual accounting period of each foreign corporation for which a filing failure occurs. A U.S. person with interests in multiple foreign corporations could face a separate $10,000 penalty for each entity.

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

Other penalties can also apply. A failure to file can result in a 10% reduction of the foreign tax credits available to the taxpayer. Most importantly, a failure to file Form 5471 keeps the statute of limitations open indefinitely for the taxpayer’s entire income tax return, allowing the IRS to audit that tax year at any point. In cases of willful failure, criminal penalties may be considered.

The IRS’s authority to assess these monetary penalties has been subject to legal challenges. In 2023, the Tax Court ruled that the IRS lacked direct authority to assess these penalties, but a federal court of appeals reversed that decision in 2024, affirming the IRS’s power. The legal landscape is not fully settled, as the Tax Court has maintained its initial reasoning in cases outside the jurisdiction of that specific appellate court.