The Tax Cuts and Jobs Act (TCJA), signed into law in December 2017, made significant changes to the tax laws governing foreign corporate shareholders. The law prompted the creation of two new IRS tax forms, Form 8992 and Form 8993, as well as the revision of Form 5471. In this article, we will go over the most recent Form 5471 filing instructions and requirements, who needs to file, penalties for noncompliance, and tax tips to help reduce stress during tax season.
Form 5471 Filing Instructions: Key Takeaways
- Form 5471 filers are classified into five major categories. Filers include US persons with 10% or more ownership in a foreign partnership and US citizens and residents who serve as officers, directors, or shareholders in specific foreign corporations.
- The taxpayers must submit Form 5471 along with their tax returns by the return filing deadline, including extensions.
- A taxpayer who fails to file Form 5471 or report all the required information is subject to a $10,000 penalty, plus $10,000 for each thirty days or portion thereof that the failure continues after 90 days from the date the IRS mailed the notice of failure.
- The filing requirements vary depending on the filer’s category and relationship to the foreign corporation.
What is Form 5471?
Certain US taxpayers with an interest in particular foreign corporations must file Form 5471, formally referred to as the Information Return of U.S. Persons with Respect to Certain Foreign Corporations. This form functions as an information statement or return. Unlike a tax return, an information return does not compute tax liability. Instead, it simply provides information to the IRS.
Who has to file Form 5471?
Generally, any US citizen, corporation, partnership, trust, or estate with at least 10% ownership in a foreign corporation must file Form 5471.
Certain U.S. citizens and residents who serve as officers, directors, or shareholders in specific foreign corporations use Form 5471. The form and its corresponding schedules are used to fulfill the reporting obligations stipulated in U.S. tax code sections 6038 and 6046 and other relevant regulations.
See the instructions for Form 5471 for more information on the five categories of filers.
When is Form 5471 due?
Include Form 5471 with your income tax return and file both by the deadline (including extensions) for that return. Your tax return’s due date depends on your business’s structure. Partnership and S-corp tax returns are due by the 15th day of the third month following the end of the tax year. C-corps must file by the 15th day of the fourth month following the end of the tax year. If you need more time to complete your return, you can file an extension to delay the deadline by up to six months.
Where is Form 5471 filed?
File Form 5471 with your federal income tax return. Follow the IRS’s instructions to determine the address where you should mail your return or file it online.
Where do I find the newest version of Form 5471?
You can view and download the newest version of Form 5471 from the IRS website.
How do I find the instructions for Form 5471?
For detailed instructions and tax code information for Form 5471, visit the IRS website.
Why is it important to file Form 5471?
The purpose of Form 5471 is to help the IRS prevent tax cheats from hiding assets overseas. Form 5471 informs the IRS about which US citizens and residents own foreign corporations and where they are located.
Form 5471, like Form 1120 (a corporate income tax return in the United States), requires many of the same information and disclosures. However, because Form 5471 is an information return, it won’t affect how much you must pay in taxes.
In addition, it’s important to file Form 5471 because failure to do so can result in costly penalties.
Are there penalties for mistakes made when filing Form 5471?
For each of the foreign corporation’s annual accounting periods, you could be hit with a $10,000 penalty if you do not file the information return on Form 5471 on time. You may be required to pay up to $60,000 if you fail to file your tax return within 90 days of receiving a notice from the IRS. The maximum allowable additional penalty is $50,000.
Which documents are required to file Form 5471?
The requirements of Form 5471 depend on the filer and their relationship with the overseas business. They may be minimal—needing only the identification of the US shareholder and the name and address of the foreign corporation—or they can be extensive. Some filers must submit comprehensive financial statements converted from multiple foreign currencies into US dollars and in compliance with U.S. Generally Accepted Accounting Principles (GAAP).
Are there secret deductions that can be taken on Form 5471?
Form 5471 is an information return used to alert the IRS of a U.S. person’s involvement in a foreign corporation. Because it is not used to calculate tax liability, Form 5471 cannot be used to take deductions (secret or otherwise!).
Do I need to file Form 5471?
You must file Form 5471 if you or your business own at least 10% of a foreign corporation.
How long does it usually take to prepare Form 5471?
Generally, preparation of Form 5471 takes 4-6 weeks, with review taking 2-3 weeks.
What are common errors seen on Form 5471?
Incorrectly and incompletely prepared foreign corporation financial statements can result in errors on Form 5471, prompting IRS scrutiny. Misunderstanding who needs to file Form 5471 and when additional tax documents and financial statements are needed can result in costly filing mistakes, such as omitting Form 5471 altogether. Other common errors include missing the filing deadline, not filing Form 7004 to request an extension, and filing under the wrong category.
Can I get a refund by filing Form 5471?
No, Form 5471 is for reporting information only. This form cannot be used to calculate or claim a tax refund.
Can Cleer Tax help me file Form 5471?
Absolutely! Cleer specializes in helping business owners like you take care of their tax requirements stress-free. Our Foreign Subsidiary Package with Form 5471 includes everything you need to meet your requirements without any hassle or overhead. Even better, our packages are designed to meet the needs of every business, regardless of its size or stage of growth. Get started today to team up with a dedicated, expert accountant and secure your business’s financial future.
If you have further questions or need assistance, feel free to contact us.
