What Form 5471 Is For
Form 5471 (2013) is an information return used by U.S. taxpayers who own significant interests in certain foreign corporations. It supports international tax compliance by helping the Internal Revenue Service monitor income earned through foreign entities and prevent tax avoidance. The filing requirements apply to U.S. citizens, residents, and domestic corporations with ownership or control in a controlled foreign corporation (CFC). The form’s purpose is defined under the Internal Revenue Code sections 6038 and 6046.
When You’d Use Form 5471
You must file Form 5471 when you meet specific ownership thresholds or roles in a foreign corporation. These include being an officer, director, or shareholder in a controlled foreign corporation. The form must be attached to your income tax return and filed by the same deadline, including any extensions. Late filers should file as soon as possible to avoid significant penalties. Amended filings are required if you discover errors or missing schedules.
Key Rules or Details for 2013
- Five filing categories: Filers are divided into categories based on their ownership or control of foreign corporations. Categories 2 through 5 applied to 2013, with each determining which foreign corporation schedule and income statement schedule to file for proper reporting.
- 10 percent ownership rule: Filers with significant ownership of a foreign corporation’s voting stock must report both direct and indirect ownership. Constructive ownership rules also apply when shares are attributed through related parties or foreign partnerships.
- Controlled foreign corporation (CFC) rules: A controlled foreign corporation exists when U.S. shareholders collectively own more than 50 percent of the voting power or value of the foreign corporation. This classification subjects the reporting corporation to Subpart F income inclusion requirements.
- Subpart F income and CFC income groups: Taxpayers must include certain foreign income earned by controlled foreign corporations, including insurance income, dividends, and base erosion payments, on their tax return.
- Currency and corporation’s functional currency: All foreign currency amounts must be translated to U.S. dollars using the proper rate based on the corporation’s functional currency and annual accounting period.
- Financial statement requirements: You must attach an income statement and balance sheet prepared under generally accepted accounting principles. These documents disclose gross receipts, accumulated earnings, and foreign taxes paid.
- Foreign Tax Credit: U.S. shareholders may claim credits for income tax paid or accrued to foreign jurisdictions, thereby reducing double taxation under applicable tax laws.
Browse more tax form instructions and filing guides in our Forms Hub.
Step-by-Step (High Level)
Step 1: Determine your filing category
Identify which of the filing requirements apply by reviewing your ownership interest and relationship to the foreign corporation. The category determines the required schedules and the reporting level for foreign entities.
Step 2: Gather financial and ownership information
Collect the foreign company’s income statement, balance sheet, and records of dividends, accumulated earnings, and related party transactions. Include foreign taxes paid and fair market value calculations for owned stock and foreign financial assets.
Step 3: Complete the identifying information on the form
Provide your name, taxpayer identification number, and employer identification number for the foreign corporation. Include the corporation’s functional currency, country of incorporation, principal business activity, and voting power details.
Step 4: Complete the required schedules
Attach schedules relevant to your category, such as the balance sheet schedule, income statement schedule, and accumulated earnings schedule. These reveal the reporting corporation’s financial position and income for tax purposes.
Step 5: Calculate Subpart F and CFC income
Determine your share of Subpart F income, including previously taxed income and income from insurance or cost-sharing arrangements. Ensure accuracy when calculating shareholders’ income and war profits.
Step 6: Review for completeness and file
Double-check all forms, income statements, and foreign tax credit details. Confirm that foreign taxes paid and the foreign corporation’s tax year align with your own tax year. Attach the completed Form 5471 to your income tax return before submission.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Missing filing requirements: Many taxpayers overlook filing requirements because they misunderstand the rules governing constructive ownership or indirect ownership. To avoid penalties, review the Internal Revenue Code and specific tax regulations each tax year.
- Incomplete schedules: Filers often forget the balance sheet schedule or the income statement schedule. To prevent this, confirm every applicable foreign corporation schedule before submission.
- Incorrect currency translation: Errors occur when taxpayers use an incorrect rate or fail to apply the divide-by convention. To prevent this, use the average exchange rate for the foreign corporation’s annual accounting period.
- Ignoring Subpart F income: Some filers omit Subpart F inclusions from their tax return. To stay compliant, report all Subpart F income from controlled foreign corporations and verify figures with a qualified tax professional.
- Failing to document ownership details: Missing records on stock ownership percentages or related parties can cause audit issues. Maintain documentation for all foreign entities and ownership interests for a minimum of seven years.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File
After you file Form 5471, the IRS processes it with your tax return to confirm compliance with international reporting requirements. Data is cross-checked with other filers of the same foreign corporation. The IRS uses these details to ensure that foreign income and foreign taxes paid are accurately reflected in your return. Inaccurate or missing information may extend the statute of limitations or result in audits and penalties for noncompliance.
FAQs
Do I need to file Form 5471 for 2013 if I own less than 10 percent of a foreign corporation?
Generally, ownership below 10 percent does not trigger filing requirements unless constructive ownership applies through related parties or foreign entities. Review specific tax regulations or consult a tax professional for guidance tailored to your situation.
What are the filing requirements for certain foreign corporations with multiple shareholders?
Suppose multiple U.S. shareholders have the same filing requirements. In that case, one may file Form 5471 on behalf of all, as long as each individual attaches a statement confirming the filing form’s location and identity as the filer.
How does a controlled foreign corporation affect my income tax return?
A controlled foreign corporation (CFC) requires U.S. shareholders to report Subpart F income and CFC income groups as taxable income. Failure to include this income may violate international tax compliance rules.
How do constructive ownership rules influence filing Form 5471 for 2013?
Constructive ownership rules treat shares owned by related parties as owned by you for tax purposes. This affects significant ownership thresholds and determines whether you are required to file Form 5471.
How should I prepare the balance sheet and balance sheet schedule for Form 5471?
Prepare the balance sheet and balance sheet schedule in accordance with generally accepted accounting principles. Ensure figures accurately reflect the foreign corporation’s fair market value, accumulated earnings, and gross receipts for the reporting period.
What is the role of the corporation’s functional currency in reporting foreign subsidiaries?
The corporation’s functional currency determines how foreign currency amounts are translated for reporting on the income statement and tax return. Filers must use consistent conversion methods based on the tax year.
