IRS Form 5471 Categories

What is Form 5471?

Form 5471, Information Return of US Persons With Respect to Certain Foreign Corporations, is an IRS reporting requirement designed to prevent US taxpayers from hiding income in foreign corporations. It’s not a tax return itself, but rather a detailed information return that gets attached to your US income tax return.

The Form 5471 Categories Explained

The IRS uses Form 5471 categories to determine who must file and what level of reporting is required. Each category is based on ownership percentage, changes in ownership, or control in a foreign corporation. You may fall into more than one category, in which case you’ll need to meet the reporting requirements for each.

Category 2 Filers: US Officers and Directors of a Foreign Corporation

Who qualifies:

• You are a US citizen or resident serving as an officer or director of a foreign corporation, and
• A US person acquires enough stock to reach 10% or more ownership of the corporation’s voting power.

Triggering event:
The obligation arises when a US person acquires 10% ownership, not just when you first become an officer or director.

Example:
If a US person purchases 15% of the shares of a foreign corporation, the US director of that company must file Form 5471 under Category 2.

Schedules often required: A (stock ownership), G (current year transactions).

Category 3 Filers: US Shareholders Who Acquire or Dispose of Stock

Who qualifies: You are a US person who meets one of the following conditions:

• You acquire stock that brings your ownership to 10% or more,
• You acquire additional 10% ownership (in voting power or value), or
• You dispose of stock, dropping your ownership below 10%.

Triggering event:
The filing obligation is tied to changes in ownership percentage.

Example:

• A US individual buys 12% of a foreign corporation → Category 3 filer.
• A US shareholder increases ownership from 15% to 25% → Category 3 filer.
• A US person sells shares and drops from 12% ownership to 5% → Category 3 filer.

Schedules often required: A (stock ownership), B (US shareholders), O (organization or reorganization).

Category 4 Filers: US Persons Who Control a Foreign Corporation

Who qualifies:

• You are a US person who had control of a foreign corporation at any time during the year.
• Control means owning more than 50% of either:
  • The total combined voting power, or
  • The total value of all classes of stock.

Triggering event:
This applies if you meet the control threshold, even if there is no change in ownership during the year.

Example:
A US person owns 60% of a foreign company. They are considered to have control and must file under Category 4, even if their ownership percentage did not change.

Schedules often required: C (income statement), F (balance sheet), G (current year transactions).

Category 5 Filers: US Shareholders of a CFC (Controlled Foreign Corporation)

Who qualifies:
You are a US shareholder of a Controlled Foreign Corporation (CFC) at any point during the year.

• A CFC is a foreign corporation where US shareholders collectively own more than 50% of voting power or value.
• A US shareholder is a US person who owns at least 10% of voting power or value.

Triggering event:
Being a US shareholder of a CFC automatically creates a filing obligation. This is one of the most common and most complex categories.

Example:

• Three US persons each own 20% of a foreign corporation. Collectively, they own 60%. Since it’s a CFC, each one is a Category 5 filer.
• If a US individual owns 15% of a CFC, they must file Form 5471 under Category 5.

Schedules often required: C (income statement), E (Subpart F income), I (earnings and profits), J (accumulated earnings), P (previously taxed earnings).

Overlap Between Categories

It’s common for taxpayers to fall into multiple Form 5471 categories. For instance, if you acquire 15% of a foreign corporation and also serve as a director, you may be both a Category 2 and Category 3 filer. In these cases, you must complete all schedules required for each applicable category.

Special Consideration: NRA Spouses Who Are Shareholders

If you are a US citizen or resident married to a Nonresident Alien (NRA) spouse, special rules may apply when it comes to Form 5471 filing obligations:

• Ownership attribution rules can cause a US taxpayer to be treated as owning shares that legally belong to the NRA spouse. This means you may be considered a US shareholder (even if the stock certificate is in your spouse’s name).
• If your NRA spouse owns at least 10% of a foreign corporation, you might be treated as a constructive owner of those shares. This could place you into Category 3, 4, or 5 filing requirements depending on the level of ownership and whether the corporation is a Controlled Foreign Corporation (CFC).
• In some cases, electing to treat an NRA spouse as a US resident for tax purposes (by filing jointly) can also change the Form 5471 reporting requirements.

Because the rules around NRA spouses and shareholder attribution are complex, it’s critical for married US taxpayers with foreign corporations to carefully review their ownership positions or work with a tax professional who understands both Form 5471 categories and NRA spouse rules.

Penalties for Not Filing Form 5471

The IRS imposes heavy fines for failing to file or filing incomplete information. The penalty is generally $10,000 per form, per year, and additional penalties can accrue if the form is not filed after notification. In some cases, the IRS can even limit the statute of limitations on your entire tax return until Form 5471 is filed correctly.