Owning shares in a foreign company can be an exciting business venture, but it comes with important U.S. tax reporting obligations. Form 5471—formally titled "Information Return of U.S. Persons With Respect to Certain Foreign Corporations"—is one of the most complex IRS forms, but understanding it doesn't have to be overwhelming. This guide breaks down everything you need to know about Form 5471 for the 2018 tax year in straightforward terms.

What Form 5471 Is For

Form 5471 is an information return, not a tax return where you pay taxes directly. Think of it as a detailed report card that tells the IRS about your relationship with foreign corporations. The IRS uses this form to track U.S. persons who have significant involvement with foreign companies—whether as shareholders, officers, directors, or controlling parties.

The form serves multiple reporting purposes under Internal Revenue Code sections 6038 and 6046. It helps the IRS monitor potential tax avoidance through foreign corporations and ensures U.S. taxpayers properly report income from controlled foreign corporations (CFCs). For the 2018 tax year, Form 5471 became significantly more important due to the Tax Cuts and Jobs Act (TCJA) passed in December 2017, which introduced major international tax reforms including the new "transition tax" under section 965 and Global Intangible Low-Taxed Income (GILTI) rules.

You'll need to attach Form 5471 to your regular income tax return (Form 1040 for individuals, Form 1120 for corporations, or applicable partnership/exempt organization returns) and file both together by the due date, including any extensions. Each foreign corporation requires a separate Form 5471.

IRS.gov

When You’d Use Form 5471

Who Must File

The IRS divides filers into five categories based on their relationship with the foreign corporation. You might fall into one or more categories:

• Category 1 (NEW for 2018): U.S. shareholders of "specified foreign corporations" (SFCs) subject to the section 965 transition tax—part of the 2017 tax reform that required reporting on accumulated foreign earnings.
• Category 2: U.S. citizens or residents who are officers or directors of a foreign corporation where a U.S. person acquired 10% or more of the stock (by voting power or value).
• Category 3: U.S. persons who acquire or dispose of stock that brings their ownership to the 10% threshold, or those who become/cease being U.S. persons while owning 10%+ of a foreign corporation.
• Category 4: U.S. persons who controlled a foreign corporation (owned more than 50% of voting power or value) at any time during the year.
• Category 5: U.S. shareholders who own stock in a controlled foreign corporation (CFC) on the last day of the foreign corporation's tax year when it qualified as a CFC.

Late Filings

If you missed the original deadline, file Form 5471 as soon as possible with an amended tax return. Mark "corrected" at the top of the form and attach a statement explaining the changes. The IRS typically grants a 90-day grace period after issuing a failure-to-file notice before additional penalties kick in.

Amended Filings

Discovered errors or omissions on a previously filed Form 5471? File a corrected version with an amended return (Form 1040-X for individuals) as soon as you identify the issue. Label it clearly as "corrected" and include explanatory statements for all changes.

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Key Rules or Details for 2018

The 2018 tax year brought sweeping changes to Form 5471 due to the Tax Cuts and Jobs Act (TCJA). Here are the critical rules:

Ownership Thresholds

Beginning with tax years after December 31, 2017, the definition of "U.S. shareholder" expanded. You're now considered a U.S. shareholder if you own 10% or more of either the voting power OR value of stock (previously, only voting power counted). This change brought many more taxpayers into the reporting net.

New Category 1 Reporting

Category 1 filing—previously reserved—now applies to specified foreign corporations (SFCs) under section 965. This captures the mandatory "transition tax" on accumulated post-1986 foreign earnings that had never been taxed by the U.S.

Controlled Foreign Corporation (CFC) Changes

The definition of CFC was modified by eliminating the requirement that a foreign corporation be controlled for 30 consecutive days before Subpart F income rules apply. Attribution rules under section 958(b) also changed, potentially making more foreign corporations qualify as CFCs.

New Schedules and Expanded Reporting

The 2018 Form 5471 introduced several new schedules:

• Schedule B, Part II: Reports information about direct shareholders
• Schedule I-1: Captures data for GILTI calculations
• Schedule P: Reports previously taxed earnings and profits (PTEP)
• Separate Schedules E and H: Now completed separately for each applicable income category rather than once per corporation

GILTI Reporting

U.S. shareholders of CFCs must report Global Intangible Low-Taxed Income under new section 951A. This complex calculation requires detailed financial information about the foreign corporation's income, deductions, and assets.

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Step-by-Step (High Level)

Filing Form 5471 involves multiple stages. Here's the simplified roadmap:

Step 1: Determine Your Category

Review the five filer categories and identify which apply to you. If you fall into multiple categories (e.g., both Category 4 and 5), you must complete all required schedules for all applicable categories.

Step 2: Gather Financial Information

Collect the foreign corporation's financial statements, including income statements, balance sheets, and earnings and profits calculations. You'll need this information translated into U.S. dollars using appropriate exchange rates (using the "divide-by" convention rounded to at least four decimal places).

Step 3: Complete Required Schedules

Different categories require different schedules. Categories 4 and 5 (control and CFC ownership) have the most extensive requirements:

• Schedule A: Stock ownership information
• Schedule B: U.S. shareholders details
• Schedule C: Income statement
• Schedule E: Taxes paid or accrued
• Schedule F: Balance sheet
• Schedule G: Miscellaneous questions
• Schedule H: Current earnings and profits
• Schedule I: Subpart F income calculations
• Schedule J: Accumulated earnings and profits
• Schedule M: Transactions between corporation and shareholders
• Schedule P: Previously taxed earnings and profits

Step 4: Complete Form 5471 Header Information

Fill in identifying information including your name, address, taxpayer identification number, and the foreign corporation's details. Enter the annual accounting period of the foreign corporation.

Step 5: Attach to Your Tax Return

Include Form 5471 and all required schedules with your income tax return. File everything together by your tax return's due date (including extensions).

Step 6: Keep Records

Maintain copies of all forms, schedules, supporting documentation, and foreign financial statements for at least six years in case of IRS inquiry.

IRS.gov

Common Mistakes and How to Avoid Them

Even experienced taxpayers make errors on Form 5471. Here are the most frequent pitfalls and prevention strategies:

Mistake #1: Not Filing at All

Many U.S. persons don't realize they must file Form 5471. Even if the foreign corporation has no income or you owe no additional U.S. tax, the form is still required. Solution: Review the five filer categories annually and consult a tax professional if you have any foreign corporation involvement.

Mistake #2: Filing for the Wrong Category

Choosing the incorrect filer category leads to incomplete schedules and potential penalties. Solution: Carefully read the category definitions. If uncertain, file under all potentially applicable categories to ensure complete reporting.

Mistake #3: Missing Schedules

Each category has specific schedule requirements, and omitting required schedules triggers penalties. Solution: Use the IRS's Filing Requirements for Categories of Filers chart to verify you've completed every necessary schedule.

Mistake #4: Incomplete Financial Information

Providing estimated figures or leaving financial schedules blank doesn't satisfy IRS requirements. Solution: Request complete audited or accountant-prepared financial statements from the foreign corporation well before the filing deadline.

Mistake #5: Incorrect Currency Translation

Using wrong exchange rates or improper conversion methods causes reporting errors. Solution: Follow IRS rules for currency translation strictly—use the "divide-by" convention showing how many units of foreign currency equal one U.S. dollar, rounded to at least four decimal places.

Mistake #6: Missing the Deadline

Form 5471 is due with your tax return, not separately. Missing the deadline triggers automatic $10,000 penalties. Solution: If you need more time, file an extension for your entire tax return (Form 4868 for individuals) to extend the Form 5471 deadline.

Mistake #7: Not Updating for 2018 Changes

Using old forms or not accounting for TCJA changes results in incomplete filings. Solution: Always use the current year's form (December 2018 revision for 2018 tax year) and review "What's New" sections carefully.

IRS.gov

What Happens After You File

IRS Processing

Unlike individual tax returns where you might expect a refund within 21 days, Form 5471 is an information return processed differently. The IRS receives your form as an attachment to your main tax return and enters the information into its international compliance databases. There's typically no acknowledgment letter unless the IRS identifies issues.

Matching and Compliance Checks

The IRS uses sophisticated computer systems to match Form 5471 data across multiple filers. For example, if several shareholders file Form 5471 for the same CFC, the IRS compares financial data for consistency. Discrepancies may trigger inquiries.

Audit Selection

Form 5471 filers face higher audit rates than average taxpayers because international tax issues are enforcement priorities. The IRS's Large Business & International Division specifically targets CFC reporting compliance.

Foreign Tax Credit Impact

Information from Form 5471 (particularly Schedule E) flows to your Form 1116 (Foreign Tax Credit) calculations. The IRS verifies that foreign taxes claimed for credit were properly reported and paid.

Future Year Implications

Data from Schedule J (accumulated earnings and profits) and Schedule P (previously taxed earnings and profits) carries forward to future years. Errors discovered years later can cascade through multiple tax returns, requiring amended filings.

No Response Needed

If the IRS accepts your filing without questions, you typically won't receive correspondence. Maintain your records, as the IRS has three years from your filing date (or longer in certain circumstances) to audit the return.

IRS.gov

FAQs

Q1: What are the penalties for not filing Form 5471?

The penalties are severe and escalate quickly. You face an initial $10,000 penalty per foreign corporation per year for failure to file. If you don't file within 90 days after receiving IRS notice, an additional $10,000 penalty applies for each 30-day period (or part thereof), up to a maximum additional $50,000. Beyond monetary penalties, the IRS can reduce your foreign tax credits by 10%, increasing by 5% for each additional 3-month period of non-compliance. Criminal penalties under sections 7203, 7206, and 7207 may also apply.

Q2: I own less than 10% of a foreign corporation. Do I need to file?

Generally, no—unless you're a Category 2 filer (an officer or director when someone else acquired 10%+ ownership). The 10% threshold applies to most filing categories, but review all five categories carefully since your specific circumstances might create obligations even with smaller ownership percentages.

Q3: Can someone else file Form 5471 on my behalf?

Yes, but with conditions. If multiple persons have the same filing requirements for the same foreign corporation, one person may file a joint information return covering all parties. However, the person filing must complete it properly, and you remain legally liable for penalties if it's incomplete or incorrect. Consider having each person file separately to maintain control.

Q4: The foreign corporation had no activity this year. Do I still need to file?

Possibly not. The IRS provides a "dormant foreign corporation" exception under Revenue Procedure 92-70. If the corporation meets specific dormancy criteria (no income, no changes in ownership or structure, minimal assets), you can file a summary version. However, most active corporations don't qualify, so consult the specific requirements carefully.

Q5: How does Form 5471 differ from FBAR (FinCEN Form 114)?

These are completely different forms with separate requirements. FBAR reports foreign bank and financial accounts with balances over $10,000. Form 5471 reports ownership in foreign corporations. You may need to file both if you own a foreign corporation AND have signature authority over its bank accounts exceeding the FBAR threshold. They have different deadlines, agencies (FinCEN vs. IRS), and penalty structures.

Q6: What if I just discovered I should have filed Form 5471 for previous years?

Address this immediately. The IRS offers several penalty relief programs for taxpayers with reasonable cause, including procedures specifically for late international information returns. Consult a tax professional about the Delinquent International Information Return Submission Procedures or other relief options. Voluntary disclosure before the IRS contacts you typically results in better outcomes.

Q7: Do I need to attach English translations of foreign financial statements?

While not always explicitly required to attach full statements, you must translate all amounts on Form 5471 schedules into U.S. dollars. If the IRS requests supporting documentation during an examination, you'll need English translations of foreign-language documents. It's prudent to prepare these translations contemporaneously with filing to support your reported figures.

IRS.gov

Final Thoughts

Form 5471 is one of the most demanding IRS compliance requirements, particularly for the 2018 tax year with all the TCJA changes. The complexity stems from international tax rules intersecting with corporate accounting principles, multiple filing categories, and extensive schedule requirements. Given the substantial penalties for non-compliance and the technical nature of the calculations, most taxpayers benefit from working with tax professionals experienced in international reporting. The key is recognizing your filing obligation early, gathering complete information, and meeting deadlines without exception.

For the latest updates and official guidance, always visit IRS.gov/Form5471.