5471 Enforcement – Are You at Risk for Higher Fines & Penalties? (Golding & Golding)
5471 Enforcement – Are You at Risk for Higher Fines & Penalties?
When a U.S. Person has a foreign corporation, they may have a U.S. Reporting Requirement with the IRS, on Form 5471. Unlike other international forms, the IRS has made enforcement of 5471 form reporting a key enforcement priority.
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5471 Enforcement
When a person fails to file the Information Return of U.S. Persons With Respect to Certain Foreign Corporation form timely, the IRS can issues penalties.
And even though the program is relatively new, the IRS is already taking U.S. persons to task, and issuing lopsided (exceedingly-high) penalties — even for relatively benign violations.
Loose Filed IRS Form 5471
As provided by the IRS:
Practice Area: Withholding & International Individual Compliance
Lead Executive: John Cardone, director of Withholding & International Individual Compliance
Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, must be attached to an income tax return (or a partnership or exempt organization return, if applicable) and filed by the return’s due date including extensions.
Some taxpayers are incorrectly filing Forms 5471 by sending the form to the IRS without attaching it to a tax return (or partnership or exempt organization return, if applicable).
If a Form 5471 is required to be filed and was not attached to an original return, an amended return with the Form 5471 attached should be filed. The goal of this campaign is to improve compliance with the requirement to attach a Form 5471 to an income tax, partnership or exempt organization return.
IRS Form 5471 Myths
Here are a few common myths and misconceptions about Form 5471:
No Income, No Reporting
False: Just because a person does not have income, that alone does not exempt them from reporting on Form 5471. The concept of “reporting” a foreign corporation is separate and distinct from earning income or having a tax liability from the same foreign business’ “income.”
In addition, even if income is not distributed, a person may still have:
- Subpart F Income
- Transition Tax
- GILTI
Result: A person mat still have to report Form 5471, even if they have no income.
No Tax Return, No Reporting
False: Just because a U.S. person may not have to file a U.S. Tax Return (because the taxpayer is below the threshold for filing a tax return) does not exempt the person from filing form 5471. In other words, if a person meets the threshold for filing Form 5471, they still have to file the form, even if the Taxpayer does not have to file a tax return.
Result: IRS Form 5471 is still required, even when a person does not have to file a U.S. Tax Return.
Only U.S. Citizens have to File Form 5471
False: Form 5471 is required by all U.S. Persons who meet the threshold requirements (and are not otherwise exempt). This includes persons who are Legal Permanent Residents (Green Card Holders) or otherwise meet the Substantial Presence Test.
IRS Does not Issue 5471 Penalties
False. The Taxpayer Advocate’s report from last year showcases how non-compliance with Form 5471 is one of the most commonly issued penalties for international reporting non-compliance (along with form 3520-A).
Penalties can reach the hundreds of thousands of dollars in a multi-year, and multi-business compliance audit (In addition to FBAR, FATCA and other international reporting penalties).
Getting Into IRS Offshore Compliance
It is human nature to want to avoid making a proactive submission to a government agency such as the IRS before the IRS ever discovers the non-compliance. But, typically that is best path forward.
Moreover, if you realize you are out of compliance and begin researching online, you may begin to feel as though it is hopeless. Some of these attorneys and CPAs make it appear that everyone with unreported assets or income is going to be severely penalized and shipped off to prison.
That is simply not the case.
You have options, and depending on the facts and circumstances of your situation, your options may include the streamlined program, reasonable cause, or the delinquency procedures – which may result in significantly reduced fines and penalties (and may even receive a penalty waiver).
Golding & Golding, A PLC
We have successfully represented clients in more than 1000 streamlined and voluntary disclosure submissions nationwide, and in over 70-different countries.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.