What Form 5471 Is For
Form 5471 (2018) is an information return used to report ownership or control of certain foreign corporations. It helps the IRS identify U.S. individuals with interests in controlled foreign corporations, foreign subsidiaries, or other foreign entities. The purpose of this form is to ensure compliance with U.S. tax laws and prevent tax avoidance through foreign companies. Taxpayers must attach Form 5471 to their income tax return and meet all reporting requirements under the Internal Revenue Code.
When You’d Use Form 5471 (2018)
Taxpayers must file Form 5471 if they own or control sufficient stock in a foreign corporation or certain foreign corporations. The IRS divides filers into five categories based on their ownership interest or relationship with the foreign entity. U.S. persons, including individuals and domestic corporations, may fall under more than one filing category. Late or amended filings must include an explanation and may qualify for reasonable cause relief if the delay was not due to intentional disregard of filing requirements.
Key Rules or Details for 2018
- Expanded filing categories: The 2018 tax year introduced new filer classifications for specified foreign financial assets and controlled foreign corporations. These expanded definitions increased the number of taxpayers required to file Form 5471.
- Controlled Foreign Corporation (CFC) definition: The CFC rules have been revised, removing the 30-day control requirement and broadening downward attribution. This adjustment resulted in more entities qualifying as controlled foreign corporations.
- Ownership and attribution: Constructive ownership rules determine indirect ownership through related parties. Taxpayers must report all stock they own, regardless of whether it is held directly or indirectly.
- Financial reporting details: Each filer must provide a complete income statement and balance sheet prepared in functional currency and translated for U.S. tax purposes.
- Subpart F income and GILTI: U.S. shareholders of controlled foreign corporations must report subpart F income and Global Intangible Low-Taxed Income (GILTI) for tax purposes.
- Foreign Tax Credit Reporting: To be eligible for the foreign tax credit, filers must include foreign taxes paid and report information on insurance income, dividends received, and taxes from foreign sources.
- International information penalties: Failure to file may lead to a $10,000 penalty per corporation, plus additional international information return penalties if the IRS-issued notices remain unanswered.
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 five categories applies to your relationship with the foreign corporation. Certain foreign corporations or controlled foreign corporations may be required to complete multiple detailed schedules under Part III of the form.
Step 2: Gather corporate financial data
Collect the foreign corporation’s financial records, including the income statement, balance sheet, and details of contributed property or dividends received. Ensure that all figures are in the corporation’s functional currency and have been accurately translated into U.S. dollars.
Step 3: Complete required schedules
Form 5471 comprises several parts and detailed schedules that are used to report ownership interests, foreign taxes paid, foreign financial assets, and related regulations for foreign subsidiaries or related parties. Each schedule must reflect accurate information for the correct tax year.
Step 4: Attach Form 5471 to your tax return
File Form 5471 with your federal income tax return. Include all relevant schedules and explanations about foreign entities, ownership structure, and related business activities.
Step 5: Retain records for compliance
Keep all supporting documentation, such as reports, income statements, and financial data, for a minimum of six years. The IRS may review filings involving foreign corporations or controlled foreign corporations for accuracy and completeness.
Learn more about federal tax filing through our IRS Form Help Center.
Common Mistakes and How to Avoid Them
- Not filing Form 5471: Many taxpayers fail to recognize their filing requirements for foreign corporations. To avoid penalties, review your CFC status and filing categories annually.
- Reporting Incorrect Ownership: Misstating ownership interest or indirect ownership under constructive ownership rules can lead to filing errors. Verify ownership details for all foreign individuals and related parties.
- Incomplete financial information: Missing balance sheet or income statement data can trigger IRS inquiries. Always include complete monetary details for each corporation organized abroad.
- Incorrect currency translation: Using the incorrect functional currency conversion method leads to reporting inconsistencies. Apply the official IRS exchange rates for foreign entities.
- Late or missing filings: The IRS imposes a maximum penalty for intentionally failing to meet filing requirements. File on time or request an extension to stay compliant.
- Omitting schedules: Each filer must complete all applicable detailed schedules for controlled foreign corporations. Double-check the form instructions to ensure no required sections are missing.
Learn more about how to avoid business tax problems in our guide on How to File and Avoid Penalties.
What Happens After You File Form 5471
After you file Form 5471, the IRS reviews the information to confirm compliance with international reporting requirements and U.S. tax laws. The data helps the IRS verify foreign tax credit claims, assess CFC status, and track income from foreign sources. Most taxpayers will not receive a direct acknowledgment unless the IRS identifies discrepancies in their tax return. Maintaining accurate records and adhering to all relevant regulations helps reduce audit risks and supports future filings involving foreign corporations.
FAQs
What are the penalties for not filing Form 5471 for foreign corporations?
Failure to file Form 5471 for certain foreign corporations can result in an initial penalty of $10,000 per corporation per tax year. Additional penalties apply every 30 days after an IRS notice, up to a maximum penalty of $50,000.
Who must file Form 5471 for a controlled foreign corporation?
Any U.S. person with at least 10% ownership or control in a controlled foreign corporation must file. Filing requirements depend on the filer’s category and the percentage of ownership interest they hold.
How do constructive ownership rules affect the Form 5471 filing?
Constructive ownership means a taxpayer may be treated as owning stock held by related parties or entities. These rules ensure all indirect ownership interests are properly reported to prevent tax avoidance.
What are the filing requirements for Form 5471 under the 2018 CFC status changes?
The 2018 tax year expanded the definitions of CFC status and introduced downward attribution rules. These changes mean more U.S. shareholders must report information for controlled foreign corporations.
What does a balance sheet reveal on Form 5471?
The balance sheet summarizes the foreign corporation’s financial position, including assets, liabilities, and equity. It helps verify foreign financial assets and compliance with U.S. reporting requirements.
When should taxpayers file Form 5471 for foreign corporations?
Taxpayers must file Form 5471 with their annual tax return by the regular filing deadline, including any extensions. Late filings may be subject to international information return penalties unless reasonable cause applies.
Can a tax professional help file Form 5471 for controlled foreign corporations?
Yes, a tax professional familiar with international tax matters can ensure compliance, identify applicable exceptions, and help avoid reporting errors for foreign corporations and their related entities.
