Purpose of Form
IRS Form 5471 is used by certain U.S. persons who are officers, directors, or
shareholders in certain foreign corporations. Moreover, the form and schedules are used to satisfy the reporting requirements of sections 6038 and 6046, and the related regulations, as well as to report amounts related to section 965.
Who Must File
Generally, all U.S. persons described in the “Categories of Filers” briefly outlined below must complete the schedules, statements, and/or other information requested by the IRS and contained in IRS form 5471. You should read the information for each category carefully to determine which schedules, statements, and/or information apply.
If the filer is described in more than one filing category, do not duplicate
information. However, complete all items that apply. For example, if you are the sole owner of a CFC (i.e., you are described in Categories 4 and 5), complete all six pages of Form 5471 and separate Schedules E, H, I-1, J, M, and P. Furthermore, you must complete a separate IRS Form 5471 and all applicable schedules for each applicable foreign corporation.
This category includes a U.S. shareholder of a foreign corporation that is a section 965 specified foreign corporation (defined by code and regulations) at any time during any tax year of the foreign corporation, and who owned
that stock on the last day in that year on which it was an SFC, taking into account the regulations under section 965. However, there may be limitations pursuant to Category 1 and Category 5 Filers rules which may apply.
This category includes a U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. person (defined below) has acquired (in one or more transactions):
- Stock which meets the 10% stock ownership requirement (described below) with respect to the foreign corporation, or
- An additional 10% or more (in value or voting power) of the outstanding stock of a foreign corporation.
This category includes:
• A “U.S. person” who acquires stock in a foreign corporation which, when added to any stock owned on the date of acquisition, meets the 10% stock ownership requirement (described above) with respect to the foreign corporation;
• A U.S. person who acquires stock which, without regard to stock already
owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation;
• A person who is treated as a U.S. shareholder under section 953(c) with
respect to the foreign corporation;
• A person who becomes a U.S. person while meeting the 10% stock ownership requirement with respect to the foreign corporation; or
• A U.S. person who disposes of sufficient stock in the foreign corporation
to reduce his or her interest to less than the 10% stock ownership requirement.
This category includes a U.S. person who had “control” of a foreign corporation during the annual accounting period of the foreign corporation.
A U.S. person has control of a foreign corporation if, at any time during
that person’s tax year, it owns stock possessing:
- More than 50% of the total combined voting power of all classes of
- stock of the foreign corporation entitled to vote, or
- More than 50% of the total value of shares of all classes of stock of the foreign corporation.
A person in control of a corporation that, in turn, owns more than 50% of the combined voting power, or the value, of all classes of stock of another corporation is also treated as being in control of such other corporation.
This category includes a U.S. shareholder who owns stock in a foreign corporation that is a CFC at any time during any tax year of the foreign corporation, and who owned that stock on the last day in that year on which it was a CFC.
Penalties for Failure to File Form 5471
The IRS may assert penalties against you if you failto file information required by section 6038(a) (Form 5471 and
• A $10,000 penalty is imposed for each annual accounting period of each foreign corporation for failure to furnish the information required by section 6038(a) within the time prescribed. Furthermore, if the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is
charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.
• Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901, 902 (with respect to foreign corporate tax years beginning before January 1, 2018), and 960.
If the failure continues 90 days or more after the date the IRS mails notice of the failure to the U.S. person, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038(c) (2) for limits on the amount of this penalty.
If you have questions about the IRS form 5471, contact a tax attorney to discuss. Also, if you are being audited by the IRS, you should contact a tax attorney as soon as possible to discuss strategies for resolving the audit. Additionally, if you have a requirement to file 5471, you may also have a requirement to file an FBAR.