What Form 5471 Is For

Form 5471 is an information return that certain U.S. citizens, residents, and companies must file when they have ownership interests, officer positions, or director roles in specific foreign corporations. Think of it as the IRS's way of keeping tabs on Americans' involvement with businesses operating overseas.

The form isn't about paying taxes directly—it's about disclosure. The IRS uses Form 5471 to ensure transparency regarding foreign corporate interests and to enforce complex international tax rules, particularly those related to Controlled Foreign Corporations (CFCs) and earnings kept abroad. For 2019, this form was particularly important because it reflected significant changes from the 2017 Tax Cuts and Jobs Act, including new section 965 transition tax requirements and modifications to how foreign income is taxed.

You'll file Form 5471 as an attachment to your regular tax return (Form 1040 for individuals, Form 1120 for corporations, or the appropriate partnership or exempt organization return). The form requires detailed financial information about the foreign corporation, including income statements, balance sheets, shareholder information, and various tax calculations. IRS

When You’d Use Form 5471 (Including Late and Amended Filings)

Regular Filing

Form 5471 must be filed by the due date of your income tax return, including extensions. For most individuals, this means April 15 of the year following the tax year (or October 15 if you've filed for an extension). For corporations, it follows their fiscal year-end filing deadlines.

Late Filings

If you missed the deadline, you should file Form 5471 as soon as possible, even if it's late. Attach it to an amended tax return for the year in question. While the IRS imposes significant penalties for late filing (starting at $10,000 per foreign corporation, per year), filing late is always better than not filing at all. In 2019, some taxpayers qualified for penalty relief under Rev. Proc. 2019-40, particularly those dealing with newly classified CFCs due to changes in the tax law.

Amended Filings

If you discover your originally filed Form 5471 was incomplete or incorrect, you must file a corrected version. Write "Corrected" at the top of the form, attach a statement identifying what changed, and submit it with an amended income tax return (Form 1040-X for individuals or appropriate amended forms for other entities). IRS

Key Rules or Details for 2019

Filing Categories

You must file if you fall into one of five categories:

• Category 1: U.S. shareholders of section 965 specified foreign corporations (SFCs) dealing with the transition tax from tax reform
• Category 2: Officers or directors when a U.S. person acquires 10% or more ownership
• Category 3: U.S. persons who acquire stock meeting the 10% threshold or dispose of stock falling below it
• Category 4: U.S. persons with control (more than 50% voting power or value) of any foreign corporation
• Category 5: U.S. shareholders owning 10% or more of a Controlled Foreign Corporation (CFC)

Ownership Thresholds

The 10% threshold can be met through direct, indirect, or constructive ownership. For 2019, this included both voting power and value calculations—an important change from previous years that only considered voting power for certain purposes.

Controlled Foreign Corporation (CFC) Definition

A foreign corporation becomes a CFC when U.S. shareholders collectively own more than 50% of the total voting power or value on any day during the corporation's tax year.

Subpart F Income

U.S. shareholders must report their pro-rata share of certain types of income (Subpart F income and Global Intangible Low-Taxed Income or GILTI) even if not distributed. For 2019, this included foreign personal holding company income, foreign base company sales income, and foreign base company services income.

Section 965 Transition Tax

Category 1 filers dealing with the 2017 tax reform's one-time transition tax on previously untaxed foreign earnings continued reporting obligations in 2019, tracking accumulated earnings and profits related to section 965. IRS

Step-by-Step (High Level)

Step 1: Determine Your Filing Category

First, identify which category applies to you (1 through 5). This determines which schedules you must complete. You might fall into multiple categories—if so, you'll need to complete all applicable requirements without duplicating information.

Step 2: Gather Financial Information

Collect the foreign corporation's complete financial records for its annual accounting period, including:

• Income statements prepared under U.S. Generally Accepted Accounting Principles (GAAP)
• Balance sheets (beginning and end of year)
• Shareholder information and stock ownership details
• Tax payments to foreign governments
• Information about related party transactions

Step 3: Complete the Basic Form (Page 1)

Fill out the identifying information including your name, the foreign corporation's details, country of incorporation, date of incorporation, functional currency, and your filing category.

Step 4: Complete Required Schedules

Depending on your category, complete the applicable schedules:

• Schedule A: Stock description
• Schedule B: Shareholder information (Parts I and II)
• Schedule C: Income statement
• Schedule E: Taxes paid to foreign countries
• Schedule F: Balance sheet
• Schedule G: Other detailed questions
• Schedule I: Summary of shareholder's income from the foreign corporation
• Separate schedules (E, H, I-1, J, M, O, P) for more complex situations

Step 5: Currency Conversion

Convert all foreign currency amounts to U.S. dollars using the appropriate exchange rates (generally the average rate for income items and the year-end rate for balance sheet items). Report exchange rates as units of foreign currency per one U.S. dollar, rounded to at least four decimal places.

Step 6: Attach to Your Tax Return

Attach the completed Form 5471 and all applicable schedules to your income tax return and file by the due date (including extensions). IRS

Common Mistakes and How to Avoid Them

Mistake #1: Filing the Wrong Schedules

Each filing category has specific schedule requirements. Filing too few schedules triggers penalties; filing unnecessary schedules wastes time.
How to avoid: Carefully review the Filing Requirements table in the IRS instructions. If you're Category 5 (the most common for CFC shareholders), you must complete all six pages of Form 5471 plus separate Schedules E, H, I-1, J, M, and P.

Mistake #2: Incomplete or Inaccurate Financial Data

The IRS expects precise financial statements following U.S. GAAP. Estimates and incomplete records are not acceptable and can trigger steep penalties.
How to avoid: Work with the foreign corporation's accountants to ensure proper GAAP-compliant financial statements. If records are incomplete, reconstruct them properly before filing rather than estimating.

Mistake #3: Currency Conversion Errors

Using the wrong exchange rate or wrong conversion method is extremely common. Some filers use year-end rates for everything, while others use purchase dates—both approaches can be incorrect.
How to avoid: Use the average exchange rate for income statement items and earnings calculations. Use spot rates for balance sheet items at year-end. Always express rates as foreign currency units per one U.S. dollar (divide-by convention), not dollars per foreign unit.

Mistake #4: Missing the Constructive Ownership Rules

Many filers don't realize they own stock "constructively" through family members, partnerships, or trusts, causing them to miss filing requirements entirely.
How to avoid: Review sections 958(a) and (b) carefully. If family members, business partners, or related entities own foreign corporation stock, you might be treated as owning it too. When in doubt, consult a tax professional.

Mistake #5: Not Filing When Required

Some taxpayers incorrectly assume that small ownership percentages, dormant corporations, or unprofitable foreign entities don't require Form 5471.
How to avoid: If you meet any Category 1-5 criteria, you must file regardless of the corporation's activity level or profitability. Even dormant corporations require filing (though a simplified procedure exists under Rev. Proc. 92-70).

Mistake #6: Failing to Report Related Party Transactions

Schedule M requires detailed reporting of transactions between the foreign corporation and related U.S. persons. Omitting these transactions is a red flag for IRS audits.
How to avoid: Document all transactions between the filer and the foreign corporation, including sales, services, rents, royalties, and loans. Be thorough—the IRS cross-references these amounts across multiple forms. IRS

What Happens After You File

IRS Processing

Once filed, the IRS processes Form 5471 along with your income tax return. The information helps the IRS:

• Track foreign income that may be taxable to U.S. shareholders
• Identify potential transfer pricing issues
• Monitor compliance with Subpart F and GILTI rules
• Detect unreported foreign accounts or income

Potential Audits

Form 5471 can increase your audit risk, particularly if:

• The foreign corporation shows significant related-party transactions
• Income allocations appear unusual
• There are inconsistencies between Form 5471 and other international information returns (Forms 5472, 8938, FinCEN Form 114)

Penalty Notices

If the IRS identifies missing or incomplete information, you'll receive a notice. Penalties can be severe:

• Failure to file: $10,000 per foreign corporation, per year, plus an additional $10,000 for each 30-day period after 90 days of IRS notice (capped at $50,000)
• Foreign tax credit reduction: A 10% reduction in available foreign tax credits, increasing 5% for each 3-month period after 90 days of IRS notice
• Information accuracy penalties: Penalties under section 6662(j) for undisclosed foreign financial asset understatements

Reasonable Cause Relief

If you can demonstrate reasonable cause for late or incomplete filing (and that you acted in good faith), the IRS may waive penalties. However, "reasonable cause" is a high bar—mere oversight or reliance on incorrect advice typically doesn't qualify.

Ongoing Compliance

Filing Form 5471 creates an ongoing obligation. You must continue filing each year you meet the category requirements. The IRS maintains your filing history and will notice if you suddenly stop filing without disposing of your foreign interest. IRS

FAQs

1. Do I need to file Form 5471 if the foreign corporation didn't make any money in 2019?

Yes. The filing requirement is based on your ownership status and the corporation's classification (CFC or SFC), not its profitability. Even dormant or loss-generating corporations require Form 5471, though a simplified filing procedure may be available under Rev. Proc. 92-70.

2. Can I file one Form 5471 for multiple foreign corporations?

No. You must file a separate Form 5471 for each foreign corporation in which you meet the filing requirements. If you own interests in five foreign corporations as a Category 5 filer, you must file five separate Forms 5471.

3. What if I own foreign stock through a U.S. partnership or LLC?

If the U.S. partnership or LLC is treated as a pass-through entity for tax purposes, you may have constructive ownership of the foreign corporation through your partnership interest. Review the instructions carefully or consult a tax professional to determine if you're required to file.

4. How do I report the transition tax from the 2017 tax reform on my 2019 return?

If you made an election to pay the section 965 transition tax over eight years, you'll report the installment payment on your 2019 tax return using Form 965-A. You'll still need to file Form 5471 (Category 1) to report the foreign corporation's accumulated earnings and profits related to section 965, using Schedule J and Schedule P.

5. What's the difference between Form 5471 and Form 8938 (FATCA reporting)?

Form 8938 reports specified foreign financial assets held by individuals, while Form 5471 reports involvement with foreign corporations. Both may be required, but you don't need to duplicate items already reported on Form 5471 when completing Form 8938. Additionally, Form 5471 has different filing thresholds and applies to entities (corporations, partnerships) as well as individuals.

6. Can someone else file Form 5471 on my behalf?

Yes. One person can file Form 5471 covering multiple filers with the same requirements for the same foreign corporation. However, the person filing must complete Item F properly, and all covered persons must attach a statement to their tax returns referencing the joint filing. Each person remains liable for penalties if the form isn't filed correctly.

7. What if I just discovered I should have filed Form 5471 for previous years?

File the missing forms immediately using the IRS's Delinquent International Information Return Submission Procedures or, if you have unreported income, consider the Streamlined Filing Compliance Procedures. Don't wait—penalties accumulate, and voluntary disclosure before IRS detection generally results in better outcomes. Working with an experienced international tax attorney is strongly recommended for delinquent filings. IRS

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