Form 5471
Contents
- 1 What is Form 5471?
- 2 Purpose of Form 5471
- 3 Form 5471 Ownership Pre-dated Becoming a US Person
- 4 What is a Per Se Corporation?
- 5 Form 5471 is Filed when the Tax Return Due
- 6 How to File a 5471 Extension
- 7 No 7004 Extension Required
- 8 Multiple People Reporting the Same Corporation
- 9 GILTI
- 10 Subpart F
- 11 Penalties
- 12 Reasonable Cause and Amnesty
- 13 Common Form 5471 Examples
- 14 Relocated to the United States
- 15 Company Formation (Disregarded Entity/Per Se Corporation)
- 16 Increased or Reduced Ownership
- 17 PFIC/CFC Crossover
- 18 GILTI and Subpart F Exceptions
- 19 The Tip of the Iceberg
- 20 Late Filing Penalties May be Reduced or Avoided
- 21 Current Year vs. Prior Year Non-Compliance
- 22 Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
- 23 Need Help Finding an Experienced Offshore Tax Attorney?
- 24 Golding & Golding: About Our International Tax Law Firm
What is Form 5471?
Internal Revenue Service (IRS) Form 5471 is required by US Person Shareholders, Directors, and Officers of International/Foreign Corporations who have an ownership interest or control in the entity. The requirements for reporting foreign corporations and other entities fall under Internal Revenue Code sections 6038 and 6046 — and are summarized in the Form 5471 instructions. There are five (5) main categories of filers with ownership in a foreign corporation — and it is not limited to Controlled Foreign Corporations either — which is another common misconception. The reporting is not determined by whether any income was generated or if the business turned a profit. Unlike other international reporting forms such as the FBAR and Form 8938, Form 5471 is a very comprehensive international tax form. The form is complicated and requires a firm understanding of tax and accounting principles such as assets, liabilities, income, and equity, as well as Subpart F and other more complicated international tax components — such as GILTI and FDII. The IRS strictly enforces reporting compliance and routinely issues penalties for non-compliance. We summarize the basics of the 5471 IRS Form below for you. * For taxpayers seeking a shortened summary, we have our ‘5 Facts to Know About Form 5471,’ (Published by Golding & Golding in 2021, Updated in 2024) and other articles on specific issues such as Form 5471 threshold filing requirements, exceptions, and penalties.Purpose of Form 5471
Any U.S. person who meets the threshold requirements for reporting is required to file the form — but usually, only one form per corporation (per category) is required. So if there are multiple U.S. shareholders, they can all be listed on the same 5471 (usually).IRC 6038
IRC 6038 refers to: “Information reporting with respect to certain foreign corporations and partnerships.“IRC 6046
IRC 6046 refers to: “Returns as to organization or reorganization of foreign corporations and as to acquisitions of their stock.”Form 5471 Ownership Pre-dated Becoming a US Person
One common situation we come across is when a U.S. person had ownership or interest in a foreign corporation before they became a U.S. person and therefore believe it is not required to be disclosed — but this is inaccurate. For example, a foreign person owned a 20% ownership in a foreign corporation before becoming a US person. Then, in 2024, they became a U.S. person — in 2018 they may have to file a Form 5471, falling under categories 2 or 3 for “acquiring” an interest.What is a Per Se Corporation?
The IRS has deemed some foreign corporations to be per se corporations. When a corporation is a per se corporation, then the individual cannot disregard the entity. Rather the foreign entity must remain a corporation under US tax law, such as a sociedad anonima.Form 5471 is Filed when the Tax Return Due
Form 5471 is due to be filed at the same time the taxpayer files their tax return.How to File a 5471 Extension
If a taxpayer requires an extension of filing Form 5471, then they would file an extension on Form 4868 for their regular tax return and then the 5471 will go on extension as well.No 7004 Extension Required
Some forms require the taxpayer to file Form 7004 in order to request an extension. For example, one common form for international taxpayers that requires Form 7004 is the 3520- A. Form 5471 does not require a 7004 to be filed.Multiple People Reporting the Same Corporation
Generally, when a person files Form 5471, the form can be filed as one form per corporation to include all the US shareholders on that form. There are some limitations to using it by multiple people, but for the most part, it can be used to reflect all shareholders in the corporation. *You should speak with your tax professional to determine whether all filers should (or can) submit a copy of it before using this strategy.GILTI
GILTI refers to Global Intangible Low-Taxed Income. The GILTI rules require certain US persons with foreign corporations to pay tax on certain money that they would not otherwise have to pay tax on, prior to the implementation of the TCJA. GILTI applies to CFC and Forms 8992 and schedule I-1 of the Form 5471 are applicable to reporting.Subpart F
The Subpart F tax regime is used to ensure that certain passive income and other income generated from Controlled Foreign Corporations is taxed in the US. US shareholders may have to pay a tax on their prorated share of current year earnings and profit despite none of the income being distributed to the taxpayer.Penalties
The penalties for not filing Form 5471 correctly can be tough. They begin at $10,000 and go up exponentially from there — depending on how many Form 5471s a taxpayer may have to file, how late in the year they file, and how many years they are non-compliant. It should be noted that Form 5472 which is primarily for foreign persons with an interest in US corporations, started at a $10,000 penalty and a few years back jumped up to a $25,000 minimum penalty — so enforcement is on the rise. In recent years, the Internal Revenue Service has also taken to issuing automatically assessed penalties for the failure to file Form 5471. Taxpayers will usually receive a CP-15 notice that identifies the code section and the amount of the penalty. Generally, the taxpayer has 30 days to submit the initial penalty protest.Reasonable Cause and Amnesty
Just because a person is out of compliance for not filing Form 5471 does not mean they will be penalized. The Internal Revenue Service has developed various offshore voluntary disclosure tax amnesty programs to assist non-willful taxpayers with safely getting into compliance before penalties are issued. Some taxpayers may qualify for a complete penalty waiver, while other taxpayers are required to pay a much reduced 5% penalty. If a taxpayer cannot qualify as non-willful, they may still qualify for the voluntary disclosure program although the penalties can be significantly higher.Common Form 5471 Examples
Unlike other international information reporting forms such as the FBAR, Form 8938, and Form 3520, Form 5471 typically requires a significant amount of detail — especially when the Taxpayer is a shareholder in a Controlled Foreign Corporation. And, with the creation of the Tax Cuts and Jobs Act (TCJA), the introduction of the Expatriation Tax Act (Section 965), and GILTI (Global Intangible Low Tax Income) an already complicated IRS tax form became even more complex and convoluted. It is also important to note that in addition to the main form and main form schedules, Taxpayers may also have to prepare additional separate schedules — depending on whether issues such as Subpart F and GILTI apply. Let’s work through some common examples. *For all examples, please note that the Taxpayers are U.S. persons for tax purposes who have not made any treaty elections to be treated as a Non-Resident Alien (NRA). Also, these examples are for illustrative purposes only and Taxpayers should consult with a Board-Certified Tax Law Specialist if they have specific questions about their reporting requirements and not rely on this article for legal advice.Relocated to the United States
Moving to the United States can be a catalyst for filing Form 5471 — although which category(s) they have to file for may depend on several factors, such as whether or not the Taxpayer is only coming to the United States for the first time or whether they are returning to the United States when they were previously U.S. persons. Further complicating the matter is whether the business was in existence before the current year, what percent ownership the Taxpayer has — and whether the company is a Controlled Foreign Corporation:-
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Example: Sam became a U.S. person and is a 100% owner of a foreign company. The company is considered a controlled foreign corporation since Sam is a U.S. shareholder and U.S. shareholders in total own more than 50% of the company. Sam may have to file a form 5471.
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Example: Samantha became a U.S. Person but still has family members overseas. Her grandma decided to distribute shares of her foreign company to her grandchildren and Samantha receives a 14% ownership in the foreign company. Samantha may have to file a Form 5471.
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Example: Scott relocated to the U.S. and has 15% ownership in a foreign company owned more than 50% by U.S. persons. Scott had control of the company in the current year and the foreign corporation runs on the same tax year as Scott. He may have to file a Form 5471.
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Company Formation (Disregarded Entity/Per Se Corporation)
One common situation in which a U.S. Taxpayer may have to file Form 5471 is when a U.S. person forms a foreign corporation. This will depend on what type of foreign corporation it is, whether the Taxpayer makes any elections, and whether the company is a controlled foreign corporation:-
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Example: Peter is a U.S. citizen who formed a single member LLC equivalent in a foreign country. The foreign entity is disregarded abroad and for U.S. tax purposes would also be disregarded — under the default provisions for foreign entities. Peter may not have to file a Form 5471 and instead file Form 8858 (although he may need to attach certain Form 5471 schedules in addition to his 8858 filing).
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Example: Paul is a U.S. citizen who formed the Canadian corporation in order to manage his investments overseas. Even though Paul is the only owner of the Canadian corporation, since the corporation qualifies as a per se corporation, Paul is unable to disregard the entity and may have to file Form 5471.
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Example: Penelope is a U.S. citizen who formed a foreign corporation with several other members. It is not a Controlled Foreign Corporation, and Phil only owns 8% of the company (attribution and constructive ownership rules would not apply because no other family members have ownership of the foreign corporation). Penelope may not qualify to have to file a Form 5471 and instead would File a Form 8938 — the latter which is much simpler than the Form 5471.
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Increased or Reduced Ownership
If a Taxpayer increases or decreases their ownership in a foreign corporation, it may lead to having to file Form 5471. A key issue is whether or not the 10% threshold was met in either direction or not:-
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Example: Daniel recently became a lawful permanent resident and previously to becoming a U.S. person owned 16% of a foreign corporation. Since Daniel became a U.S. person while meeting the 10% stock ownership requirement, he may have to file Form 5471.
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Example: David is a U.S. citizen who previously owned 18% of a foreign corporation. In the current year, David decided to gift 9% of the company to his brother so that he now only owns 9% of the stock. Since David reduced his stock ownership to less than 10%, he may have to file a Form 5471 to report this reduction in ownership.
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Example: Drew is a U.S. person who was a 6% owner of a foreign corporation but in the current year received a 5% stock gift from his father so now he owns 11% of the foreign corporation. Drew may have to file a Form 5471 to report this increase in ownership.
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PFIC/CFC Crossover
As if the controlled foreign corporation rules are not complicated enough, the reporting and tax complexities can become infinitely more difficult when the foreign corporation that qualifies as a controlled foreign corporation also qualifies as a Passive Foreign Investment Company. This is because there are overlapping issues involving both Subpart F income and potential PFIC excess distribution calculations on the same income. The rules are very nuanced and Taxpayers who may have a PFIC that also qualifies as a CFC should be careful to review the rules carefully to determine if they meet any of the exceptions or exclusions. In general, the CFC rules will trump the PFIC rules.GILTI and Subpart F Exceptions
Some Taxpayers may not receive any distributions from a Controlled Foreign Corporation but may have income that qualifies as Subpart F income or Global Intangible Low Taxed Income – which may result in tax implication even though no income was received. Even if the Taxpayer has Subpart F income or GILTI, they may qualify for an exception, such as the high-tax jurisdiction exception.The Tip of the Iceberg
The goal of this article is to help clarify some of the basics of Form 5471 reporting. Reporting foreign assets to the U.S. tax authorities can be very complicated, especially when it involves additional items such as foreign life insurance policies, foreign corporations, foreign partnerships, and transactions between U.S. persons and foreign companies. Taxpayers should try to stay in compliance if they are already in compliance or should consider getting into compliance if they have not properly filed the necessary reporting forms if for no other reason than the fact that the IRS has made offshore compliance a key enforcement priority and has been issuing fines and penalties for non-compliance.