Are you a US citizen or resident and have a relationship (either as a shareholder, officer or director) or own 10% or more in a foreign corporation? If yes, then you might be obligated to file Form 5471 along with your tax return. Form 5471 is annual informational form that generally does not result in any tax due for the taxpayer. If you are a partner in a foreign partnership, you would file a Form 8865.
There are 5 filing categories for Form 5471. Category 1 has recently been repealed, but if you fall in any of the other four categories then filing this form becomes mandatory. Non filing of Form 5471 could amount to $10,000 penalty for each form not filed and there are separate penalties for late filing and inaccurate/incomplete information.
For all the categories, a U.S. person is defined as a citizen/resident of the U.S., a domestic partnership or corporation, or a domestic estate/trust.
Form 5471 Filing Categories:
- Category 2: Officer/Director of a foreign corporation of which at least 10% of the total voting stock/power is held by a U.S. person.
- Category 3: Any category 2 filer who had any of the following events in the tax year fall in this category –
- If you already held voting stock/rights and additional acquisition pushes you to own at least 10% voting stock/power,
- If you didn’t own any stock, the amount you acquire should be at least 10% of the total voting stock/power,
- If you got rid of any voting stock/power, the transaction puts you under the 10% threshold,
- If you become a U.S. person while owning the required voting stock/power or,
- If you’re treated as a U.S. shareholder in regards to the foreign corporation.
- Category 4: A U.S. person who owns at least 50% of the total voting stock/power of a foreign entity (also termed as being in control of the foreign corp.) at any time during the tax year. In addition, if you have control over a foreign entity that in turn controls another foreign entity, then you are deemed to have control over the second entity as well.
- Category 5: If you own any portion of the voting stock/power of a foreign corporation which is a Controlled Foreign Corp (at least 50% of the voting stock/rights is owned by U.S. shareholders), for an uninterrupted period of 30 days and you owned it on the last day of the year, you will fall under this category.
Understanding and completing Form 5471 can be a tedious task and requires expertise. We can help determine if you have a filing requirement and what schedules need to be completed. In the event you have missed filing Form 5471 in an earlier tax year, we can provide some guidance and options to minimize penalties.
For assistance with this particular form, we would be glad to help out. Please contact us with questions at your earliest convenience.
About the Author
Swati Jain, CPA is a Senior Accountant at Wegner CPAs. Swati is experienced in individual and business tax planning and preparation, as well as international taxation issues.