Is Form 5471 Required Even if I Do Not File a Tax Return?

Is Form 5471 Required Even if I Do Not File a Tax Return?

A common question we receive about Form 5471, is just knowing when the form is filed.  Form 5471 is a very complicated international information reporting form used by US persons who have ownership or interest in a foreign corporation. There are five (5) main categories of filers, along with some subcategories as well. While there are some exceptions, exclusions, and limitations as to who has to file (and who can circumvent filing), not having to file a tax return is not one of them. Stated another way, just because a person is not required to file an annual tax return because they are below the threshold in a given year, does not mean they can avoid filing Form 5471 — Form 5471 is still required even if the filer falls below the IRS tax return requirements in a given year. Let’s take a brief look at the requirement.

26 U.S.C. 6038

• • • (a) Requirement

      • (1) In general

        • Every United States person shall furnish, with respect to any foreign business entity which such person controls, such information as the Secretary may prescribe relating to—

          • (A) the name, the principal place of business, and the nature of business of such entity, and the country under whose laws such entity is incorporated (or organized in the case of a partnership);

          • (B) in the case of a foreign corporation, its post-1986 undistributed earnings (as defined in section 902(c)); [1]

          • (C) a balance sheet for such entity listing assets, liabilities, and capital;

          • (D) transactions between such entity and—

            • (i) such person,

            • (ii) any corporation or partnership which such person controls, and (iii)any United States person owning, at the time the transaction takes place—

            • (I) in the case of a foreign corporation, 10 percent or more of the value of any class of stock outstanding of such corporation, and

            • (II) in the case of a foreign partnership, at least a 10-percent interest in such partnership; and

          • (E)

            • (i) in the case of a foreign corporation, a description of the various classes of stock outstanding, and a list showing the name and address of, and number of shares held by, each United States person who is a shareholder of record owning at any time during the annual accounting period 5 percent or more in value of any class of stock outstanding of such foreign corporation, and

            • (ii) information comparable to the information described in clause (i) in the case of a foreign partnership. The Secretary may also require the furnishing of any other information which is similar or related in nature to that specified in the preceding sentence or which the Secretary determines to be appropriate to carry out the provisions of this title.

26 CFR 1-6038-2

(In pertinent part)

• 1.6038-2 Information returns required of United States persons with respect to annual accounting periods of certain foreign corporations

(a) Requirement of return.

• • • Every U.S. person shall make a separate annual information return with respect to each annual accounting period (described in paragraph (e) of this section) of each foreign corporation which that person controls (as defined in paragraph (b) of this section) at any time during such annual accounting period.

      • (1) Form 2952, “Information Return with Respect to Controlled Foreign Corporations,” if such taxable year ends before December 31, 1982;

      • (2) Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations,” if such taxable year ends on or after December 31, 1983; or

      • (3) Either Form 5471 or Form 2952 if such taxable year ends on or after December 31, 1982 and before December 31, 1963.

(d) U.S. Person –

• • • • (1) In general.

        • For purposes of section 6038 and this section, the term United States person has the meaning assigned to it by section 7701(a)(30), except as provided in paragraphs (d)(2) and (3) of this section.

      • (2) Special rule for individuals residing in certain possessions.

        • (i) With respect to an individual who is a bona fide resident of Puerto Rico, the term United States person has the meaning assigned to it by § 1.957-3 except that the rules of § 1.937-2(g)(1) will apply.

        • (ii) With respect to an individual who is a bona fide resident of any section 931 possession, as defined in § 1.931-1(c)(1), the term United States person has the meaning assigned to it by § 1.957-3. (3) Special rule for certain nonresident aliens. An individual for whom an election under section 6013(g) or (h) is in effect will, subject to the exceptions contained in paragraph (d)(2) of this section, be considered a United States person for purposes of section 6038 and this section.

Filing a Form 5471 Even if No Tax Return is Required

The language from the code section and corresponding regulation makes it clear that US persons who have an ownership interest in a foreign corporation may have a Form 5471 filing requirement. When the code and regulations define a ‘US person’  they do not carve out an exception for taxpayers who are not required to file a US Tax Return. That is why the IRS requires US Person Taxpayers who have a Form 5471 filing requirement to still file the form to report a foreign corporation — even if it is in a year that they do not have to technically file a tax return.

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 of the Streamlined Procedures. 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. 

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.