Tax season is coming to a close and if you share ownership in a foreign corporation, you’re probably starting to look through Form 5471. Form 5471 is a required tax form for those who share ownership of a corporation so the government can keep track of these individuals year after year. This form is one of the more difficult tax documents to fill out, especially if you’re not a seasoned tax professional. To help, the team at Evolution Tax and Legal is breaking down Form 5471: who needs to file it, how to file it, and what could happen if it is left unfiled.
What is Form 5471?
Form 5471 is an informational tax form that must be filled out each year by any U.S. taxpayer who has partial or total ownership of a foreign corporation. This form is officially referred to as the Information Return of U.S. Persons with Respect to Foreign Corporations. Similar to Form 1120, which is the U.S. Corporate Income Tax form, this form requires a lot of information and disclosures related to business dealings and assets from the ownership in a foreign corporation. This form is meant to help the IRS prevent U.S. taxpayers from hiding overseas assets from the government. While this form is relatively informational, it can be difficult to fill out and misinformation supplied on Form 5471 can lead to large monetary penalties, which is why we recommend seeking guidance from an international tax lawyer when filing this form.
Who Files Form 5471?
Any U.S. citizen, partnership, trust, or estate who has at least 10% ownership in a foreign corporation is required to file Form 5471 each year. There are 5 categories of filers, and each is required to submit different sections of Form 5471 when filing.
Category 1 Filer
Any U.S. taxpayer who is a shareholder in any Section 965 Specified Foreign Corporation. An SFC includes any foreign corporation with one or more U.S. shareholders or any Controlled Foreign Corporation, where U.S. shareholders own the majority of stock in the company.
Category 2 Filer
Any U.S. citizen or resident who is an officer or director of a foreign corporation in which any U.S. citizen owns 10% or more of stock in the corporation, or in which a U.S. citizen has acquired an additional 10% or more stake in the company, whether this is in voting power or stock value.
Category 3 Filer
Any U.S. person who owns 10% of stock in a foreign corporation, a person who becomes a U.S. citizen while holding 10% stock in a foreign corporation or any taxpayer who at one time throughout the fiscal year held more than 10% stock in a foreign corporation, and disposes of sufficient stock to fall below the minimum 10% ownership.
Category 4 Filer
Any U.S. taxpayer who had control of a foreign corporation throughout the accounting period being filed in regards to.
Category 5 Filer
Any U.S. taxpayer who owns any stock in a CFC at any time throughout the relevant accounting period.
Form 5471 Instructions
Form 5471 has different requirements and instructions for each type of filer, and within each category there are subcategories representing certain persons, as well as exceptions to each type of foreign corporation and stock ownership. Determining specific instructions for your unique situation involves thorough research on the foreign corporation you hold stock or ownership in, your current financial situation and the type of ownership you hold. If you are looking for the most specific instructions on filing Form 5471, the IRS website has detailed instructions.
The most streamlined way to determine your unique instructions is by speaking with a seasoned international tax professional. A professional is able to determine what you need to fill out, and how is the best way to do so. Form 5471 is made complicated by the schedules included within the form, which are detailed below.
Form 5471 Schedules
Within Form 5471, there are 12 different schedules that may or may not need to be filled out, depending on the category of filer you are classified as. The schedules are:
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.
Form 5471 Filing Requirements
Each category of filer has different filing requirements and schedules they must file completely when working with Form 5471. All filers must fill out initial identification information. The IRS provides a table that will allow you to determine which schedules are necessary to be filed, based on the type of ownership you hold in a foreign corporation. For example, Category 1 filers must fill out Schedule B Part II, Separate Schedule E and Schedule E-1, Schedule J, Schedule P and Schedule Q. Speaking with an experienced international tax professional will help you determine exactly which schedules to fill out, and they can assist in the filing of Form 5471.
When and Where to File Form 5471
Unlike other informational tax forms which have due dates separate from tax day, Form 5471 is due each year on the same day your income tax form is due: April 15. If April 15 falls on a Saturday, Sunday, or bank holiday, the filing is due the next available business day. Form 5471 can be attached to your income tax return and mailed to the following address:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
Form 5471 Penalties
Failing to file Form 5471 or filing incorrectly can lead to penalties. The penalty is a $10,000 fine for each accounting period of each foreign corporation’s failure to file the required Form 5471 information in a timely manner, and this penalty is increased by $10,000 per each 30 day period after the 90 initial days given to file and pay the penalty. Any individual who fails to file Form 5471 or supply all of the required information is subject to a reduction of 10% of the foreign tax credit available to them.
How Evolution Tax and Legal Can Help You File Form 5471
At Evolution Tax and Legal, our dual expertise in law and accounting makes us the perfect team to help you file Tax Form 5471. We are experts in international tax, understanding the intricacies necessary to file forms with no discrepancies, and no chance of penalties. If you need help filing your international taxes or Form 5471, contact the team at Evolution Tax and Legal today.