Form 5471 is used by the IRS to track investment of US persons in foreign companies, and ensure that US tax obligations are met, when required. Unfortunately, if you are a US person with business interests in a foreign country, this may apply to you. The following paragraphs provide a brief summary to this complex topic.
What is Form 5471?
Form 5471 is an information return filed by certain U.S. Persons (resident aliens are also required), corporations, partnerships, estates and resident aliens who are officers, directors, or shareholders in certain foreign corporations irrespective of whether the foreign corporation has a permanent establishment in the U.S. or have no U.S. sourced income. Unless Subpart F Income is involved (click here for detail on Subpart F), additional tax is generally not generated by this form. However there are onerous penalties for filing a late return. Every filer is required to include a “unique reference ID”, which the IRS uses to track, compare, and analyze activity of reported foreign entities from year to year.
What is Involved in Filing Form 5471?
There are officially five categories of filers for Form 5471, however, category 1 was repealed in 2004 by section 413(c)(26) of the American Jobs Creation Act of 2004. Categories 2-5 however, are still very much relevant today. The determination of which category or categories the US stockholder falls under can be a very involved process. Some of the items that will trigger specific category filings by a taxpayer who has an interest in a non-US company are as follows:
1. If the taxpayer is a U.S. Person as defined by the Internal Revenue Code (IRC)
2. If the taxpayer is an officer or director in the company
3. If the taxpayer holds greater than 10% of the shares in the company (along with other US persons)
4. If a related US person owns shares in the same company
5. It a related Non-US person owns shares in the same company
6. If the ownership level of the taxpayer is changed during the year
Each of these filing categories has its own set of forms and schedules that must be completed to file an accurate return. However, if the taxpayer falls under multiple categories, duplication of information is eliminated.
Penalties for not Filing Form 5471
In the event that you are obligated but fail to file Form 5471, you may automatically be liable to pay a $10,000 penalty for each annual accounting period of each foreign corporation (up to a maximum of $50,000 if the IRS has notified the taxpayer about the failure to file). Additionally, this may cause some filers to lose the benefit of certain foreign tax credits. Additional penalties may apply depending on the circumstances, like willful neglect.
AG Tax LLP Can Help
Filing Form 5471 is complicated and time consuming. However, if you are involved with a foreign (non-US) corporation (or are planning to be), you should consult an AG Tax Professional Chartered Accountant to determine if you have any tax filing obligations.
Our crossborder tax experts have years of experience in dealing with foreign reporting requirements, and look forward to assisting you. Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.