Late Filing Form 5471
Late Filing Form 5471 Penalties: The IRS 5471 form is one of the most complicated International tax reporting forms required for taxpayers, it can can all get pretty overwhelming for taxpayers, pretty quickly. The Form 5471 Late Filing Penalty can be pretty rough. The 5471 is an IRS international reporting form used to report ownership in foreign corporations (aka Information Return of U.S. Persons With Respect to Certain Foreign Corporations ). The form is not limited to ownership of controlled foreign corporations.
There are five (5) categories of filers, and the complexity of filing is dependent on the category or categories of filers. There are also numerous schedules the filer may have to include on complex issues involving Subpart F, GILTI and more. Moreover, the IRS has taken an aggressive approach on issues involving foreign accounts and business compliance and unreported foreign income. Even the IRS presumes a taxpayer competent in bookkeeping and accounting would spend 30-hours to prepare the form.
Form 5471 Late Filing Penalties & the IRS
We summarize the IRS Form 5471 Late & Delinquent Filing Penalty. The 5471 form is due when the filer is required to file a tax return. The delinquency penalty for non-filing or late-filing can be tough.
As provided by the IRS:
Penalties Failure to file information required by section 6038(a) (Form 5471 and Schedule M)
- 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. 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.
Failure to file information required by section 6046 and the related regulations (Form 5471 and Schedule O)
Any person who fails to file or report all of the information requested by section 6046 is subject to a $10,000 penalty for each such failure for each reportable transaction. If the failure continues for more than 90 days after the date the IRS mails notice of the failure, an additional $10,000 penalty will apply 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.
Criminal Penalties for Form 5471 Delinquency
Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file the information required by sections 6038 and 6046.
Note. Any person required to file Form 5471 and Schedule J, M, or O who agrees to have another person file the form and schedules for him or her may be subject to the above penalties if the other person does not file a correct and proper form and schedule.
Penalties may be imposed for undisclosed foreign financial asset understatements. No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See sections 6662(j) and 6664(c) for additional information.
Inapplicability of Certain Penalties involving IRS Form 5471
Certain penalties under sections 6038 and 6662 may be waived for certain persons under Rev. Proc. 2019-40.
Section 7 of Rev. Proc. 2019-40 & Form 5471 Late Filing Penalty
SECTION 7. INAPPLICABILITY OF PENALTIES UNDER SECTIONS 6038 AND 6662 .
Under section 6038(b) and (c), penalties can be imposed if any person fails to timely furnish information required under section 6038(a)(1), which information is required to be reported on Form 5471.
Under section 6038(c)(4)(B), for purposes of determining such penalties, the time for furnishing such information is treated as not earlier than the last day on which reasonable cause existed for failure to furnish such information.
Under section 6662, penalties can be imposed on any portion of an underpayment (as defined in section 6664(a)) of tax required to be shown on a return 16 that is attributable to one of the items listed in section 6662(b), which include negligence or disregard of rules or regulations and a substantial understatement of income tax. Under section 6664(c)(1), penalties will generally not be imposed under section 6662 with respect to any portion of an underpayment if it is shown that there was reasonable cause for such portion and that the taxpayer acted in good faith with respect to such portion. .
Taking into account that the IRS will accept taxpayers’ positions based on sections 4.02, 5.02, and 6.02 of this revenue procedure and the availability of reasonable cause relief, penalties under sections 6038 and 6662 will not be applied to the extent such penalties would be attributable to:
(a) A U.S. person determining that a foreign corporation does not meet the section 957 ownership requirements consistent with section 4.02 of this revenue procedure,
(b) A U.S. person determining a subpart F inclusion amount or GILTI inclusion amount, an amount in a record required to be maintained under section 964(c), §1.964- 3, or §1.964-4, or an amount reported on a Form 5471 on the basis of alternative information consistent with section 5.02 of this revenue procedure, or
(c) A U.S. person determining a section 965 amount on the basis of alternative information consistent with section 6.02 of this revenue procedure.
The IRS has developed various abatement and amnesty procedures to assist Taxpayers.
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