With a growing number of U.S. citizens and permanent residents living abroad and engaging in various types of international business activity, it's more important than ever to stay abreast of international tax law. Especially when failing to file certain forms come with a hefty penalty!
One of the many forms to keep an eye on is IRS Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations.
IRS Form 5471, a tax return attachment, is used to report information pertaining to certain foreign corporations. This form is also known as one of the most complicated forms in the tax world, notoriously for taking hours to complete.That's right -- hours.
Since completing this form is so difficult, if you're required to file it, make sure you consult an advisor. This step is crucial because the penalties associated with IRS Form 5471 could potentially be as high as $60,000. That’s a huge penalty to potentially face.
To avoid the risk of failing to file correctly and incurring a substantial penalty, let's learn more about the filing requirements for IRS Form 5471.
Who is required to file
While it may seem that IRS Form 5471 is a tax form for major corporations, many small businesses owners who have property (i.e., real estate) held by a foreign equivalent to an LLC are also deemed a shareholder in a foreign corporation and thus have a 5471 reporting requirement.
In general, individuals who are U.S. citizens or residents who are officers, directors, or shareholders in a foreign corporation with at least a 10% ownership stake in the foreign corporation are required to file IRS Form 5471. While this is the general rule, IRS 5471 instructions separate filers into different categories, labeled 1 through 5c, and each category comes with its own set of instructions.
Since the instructions contain so many technical details and categories of filers, you and your advisor should review the instructions closely before filing IRS Form 5471.
Form 5471 schedules
In addition to the technical instructions associated with each filing category, the tax form also has 15 schedules. Here are the Form 5471 schedules you should know about:
- Form 5471 Schedule A: Stock of the Foreign Corporation
- Form 5471 Schedule B: Shareholders of Foreign Corporations
- Form 5471 Schedule C: Income Statement
- Form 5471 Schedule E: Income, War Profits, and Excess Profits Taxes Paid or Accrued
- Form 5471 Schedule E-1: Taxes Paid, Accrued, or Deemed Paid on Earnings and Profits (E&P) of Foreign Corporation
- Form 5471 Schedule F: Balance Sheet
- Form 5471 Schedule G: Other information
- Form 5471 Schedule H: Current earnings and profits
- Form 5471 Schedule I: Summary of Shareholder’s Income From Foreign Corporation
- Form 5471 Schedule I-1: Information for Global Intangible Low-Taxed Income
- Form 5471 Schedule J: Accumulated earnings and profits of Controlled Foreign Corporations
- Form 5471 Schedule M: Transactions Between Controlled Foreign Corporation and Shareholders or Other Related Persons
- Form 5471 Schedule O: Organization or Reorganization of Foreign Corporation, and Acquisitions and Dispositions of Its Stock
- Form 5471 Schedule P: Previously Taxed Earnings and Profits of U.S. Shareholder of Certain Foreign Corporations
- Form 5471 Schedule R: Distributions From a Foreign Corporation
In addition to being familiar with the 15 schedules, taxpayers and their advisor should also get acquainted with the categorial instructions for each schedule. For convenience, the chart below can help filers identify which schedules are associated with each category type.