25 Things to Know About IRS Form 5471, Foreign Corporations

IRS Form 5471 

Form 5471 is becoming an increasingly important form for any US taxpayers in the world with an interest in a foreign corporation. The form is more complicated than some of the other IRS international tax reporting forms — not only because the form is longer than its FBAR or Form 8938 counterparts, but because it requires significantly more information from the filer. When coupled with the requirements involving GILTI (Global Intangible Low-Taxed Income) and Subpart F, the form can get very complicated for many taxpayers to complete — presuming they can even obtain the necessary information required to complete the form.  Let’s review 25 basics of reporting Form 5471. If you are seeking a condensed list, you can find summary resources in a separate article we have available.

Who has to Report Ownership in a Foreign Corporation?

When a US person has an ownership or interest in a foreign corporation, they may be required to file a Form 5471. The Form 5471 is a relatively detailed form. Unlike the FBAR or Form 8938, Form 5471 requires the taxpayer to provide information involving the corporate income, expenses, and balance sheets for the company. This can be very complicated, especially for taxpayers who do not have any finance background and/or when the foreign “books” are in a different language.

Ownership Pre-dated Becoming a US Person

One common situation we come across is when a US person had ownership or interest in a foreign corporation before they became a US person and therefore believe it is not required to be disclosed — but this is inaccurate. Let’s say for example a foreign person owned a 20% ownership in a foreign corporation before becoming a US person.  Then, in 2018, they became a US 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

The 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.

Categories of Filers

Not everyone who has ownership or interest in a foreign corporation is required to file Form 5471. Rather, the form is required by individuals who fall into one of the five categories of filers. And, just because a person is a particular category filer in one year does not mean they will meet the requirement to file as that same category in the next year. Oftentimes, after the initial 5471 is filed, the taxpayer may be able to file the simpler Form 8938 going forward.

Dormant Corporation

The Internal Revenue Service developed Revenue Procedure 92-70 to assist shareholders of dormant foreign corporations. If the foreign corporation is dormant, the taxpayer may still have to file the Form 5471 — but only very limited information is required for reporting.

Treaty Based Positions

If a person does not want to file a Form 5471 but is unable to disregard the entity, one strategy they may take is to be treated as a foreign person for the tax year under the Form 8833 treaty rules.

If the person is treated as a foreign person for the tax year, they may be able to avoid filing a Form 5471.

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, before the implementation of the TCJA. GILTI applies to CFC and Forms 8992 and schedule I-1 of the Form 5471 apply 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 actually distributed to the taxpayer. 

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist that specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.