FOREIGN CORPORATIONS – FORM 5471
Certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign (i.e. non-U.S.) corporations may be required to file Form 5471 to report certain information with regards to those foreign corporations to the IRS. Individual taxpayers file Form 5471 as part of their U.S. income tax return (Form 1040).
There are five ‘filing categories’ for Form 5471. A taxpayer must complete Form 5471 and all schedules and statements that apply to his filing category. Generally, U.S. citizens who own at least 10% (directly, indirectly, or constructively) of the shares of a foreign corporation may be required to file Form 5471. U.S. citizens who own more than 50% of the shares of a foreign corporation are required to file additional schedules and statements. However, even if a U.S. citizen does not (directly) own any of the shares of a foreign corporation, he may still be required to file Form 5471, for example if he indirectly owns shares through his nonresident spouse.
What information must be provided?
All taxpayers who are required to file Form 5471 must include their personal information as well as information about the foreign corporation. Depending on the filing categories that apply, an income statement, balance sheet and data with regards to transactions between the foreign corporation and its shareholders (such as loans, distributions, contributions, etc.) must be included.
New tax filing and tax payment obligations were recently introduced by the IRS under Internal Revenue Code section 965. Section 965 requires U.S. citizens and residents who are shareholders of a foreign corporation to pay a transition tax on the untaxed foreign earnings of certain specified foreign corporations as if those earning had been repatriated to the United States. In addition, under section 951A, U.S. shareholders of ‘controlled foreign corporations’ (CFCs) may be required to include in gross income their share of so-called Global Intangible Low-Taxed Income (GILTI).
Penalties for not filing Form 5471 and for filing an incomplete or incorrect Form 5471
The penalty for failure to file Form 5471 is at least $10,000. Penalties may also apply if Form 5471 is filed, but is not substantially complete. If you filed your individual income tax return and should have filed a Form 5471 as part of your tax return, but failed to do so, or if you filed an incorrect or incomplete Form 5471 with your tax return, you should file a corrected Form 5471 with an amended individual income tax return.
Most corporations that are foreign from a U.S. perspective are subject to tax in another country. Their financial statements may not be in English, whereas all information provided to the IRS on Form 5471 must be in English. Sanders US Tax Services specializes in the preparation of Form 5471 and other similar tax information returns. With offices in Switzerland, Germany and the Netherlands, our multi-lingual U.S. tax preparers are experts in Form 5471. Contact us today for more information and ask us how we can help you to make sure you’re tax compliant.
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