If you are an expat US citizen or resident alien who is either an officer or director of a foreign corporation—or even if you own a significant share of a foreign corporation—you likely have a requirement to file an information return with the IRS. That return has substantial reporting requirements.
Form 5471 – What Is It, Who Must File It?
Form 5471 is an information return required of Americans who own foreign corporations or are officers or directors of a foreign corporation. The return enables the IRS to track which US citizens and resident aliens have ownership and management oversight over foreign corporations and in which foreign countries they operate.
Form 5471 bears some similarities to US domestic corporations’ federal return, which are C Corporations, Form 1120, with many of the same information and disclosure requirements.
Form 5471 must be filed by US persons who are either owners, directors or shareholders of foreign corporations and who fall within one of the four following categories:
- A US person who is an officer or director of a foreign corporation in which any US person owns or acquires 10% or more of the stock of the foreign corporation,
- A person who becomes a US person while owning 10% or more of the stock of the foreign corporation,
- A US person who had control of a foreign corporation for at least 30 days, or
- A US shareholder who owns stock in a foreign corporation that is a controlled foreign corporation for an uninterrupted period of at least 30 days and who owned that stock on the last day of that year.
The specific reporting requirements for Form 5471 will vary widely, depending on which of the categories of Form 5471 filer the foreign corporation falls under – ranging from mere reporting of general company information and stock ownership percentage, all the way up to including the corporation’s entire income statement and balance sheet in the return.
What is a Controlled Foreign Corporation (CFC)?
Some foreign corporations for which an officer, director or shareholder needs to report on Form 5471 are of a type known as a Controlled Foreign Corporation (CFC), which is a foreign corporation where US shareholders hold more than 50% stock ownership. Classification of a foreign corporation as a CFC is an important distinction because an expat who is a shareholder of a CFC may be liable for a tax known as GILTI tax (Global Intangible Low-Taxed Income.)
Additionally, expats with ownership or control of CFCs will likely incur US income under complex IRS tax rules called Subpart F, whereby undistributed earned and profits of the foreign corporations are classified for US tax purposes are “deemed distributions” taxable to the owner.
When Is Form 5471 Due, and What Happens If I Don’t File It?
Expats required to report information on Form 5471 must include the form with their returns when filed. Penalties for failure to file a required Form 5471 are severe: $10,000 for each year in which it is not filed. If a taxpayer receives a notice from the IRS mandating filing of Form 5471 and it is not filed within 90 days, the IRS can assess an additional $10,000 per month (after the first 90 days), up to a total of $50,000.
Need Help Filling Form 5471?
Universal Tax Professionals can guide you through the reporting requirements for Form 5471 and prepare the form for inclusion in your expat tax return. Our foreign corporation tax return preparation packages are flat-rate fees, depending on the complexity of your foreign corporation filing requirements. Contact us today to get started!