Foreign Corporations Form 5471

Simon Misiewicz

Simon Misiewicz

Expat & Property Tax Specialist

6th March 2022

What is form 5471 used for?

Form 5471 is officially called the Information Return of US Persons concerning Certain Foreign Corporations held by Americans living in the UK to other foreign countries.

It is an information return, not a tax return, and its purpose is to file information by US taxpayers that have an interest in certain foreign corporations.

This is so that the IRS has a record of US citizens’ and residents’ ownership in foreign corporations by Americans.

Since being introduced in 1962, Form 5471 has been considered one of the most challenging and time-consuming US tax forms to prepare.

Some industry commentators have claimed that efforts to require US taxpayers to repatriate their foreign earnings under the Tax Cuts and Jobs Act 2017 (TCJA) have further complicated Form 5471.

Before the passing of TCJA, Form 5471 was comprised of 11 schedules and three worksheets.

Knowing what foreign corporation shares are owned by US citizens help the IRS prevent people from hiding overseas assets. It also shows the IRS in which countries these financial interests are held.

Form 5471 is similar to Form 1120, the US Corporation Income 1040 Return, because it requires similar disclosures and large amounts of information.

Form 5471 is informational; it doesn’t usually affect the amount you pay in taxes unless you fail to file it, then heavy penalties are in place.

Reporting requirements under Form 5471 can be as simple as what percentage of stock the US taxpayer owns and company information.

In other cases, the reporting information required can be as complex as the corporation’s entire income from financial statements and balance sheets.

Form 5471 can be due to various factors determining which documents and schedules are relevant for an individual US shareholder’s circumstances.

Some of these factors include:

– The ownership % held by the US taxpayer in the foreign corporation

– The ownership % held by the other US and non-US shareholders in the foreign corporation

– Their relationship to the US taxpayer

Each scenario needs to be thoroughly examined and is best done with the assistance of an Expat Accountants.

Americans owning Controlled Foreign Corporations may also need to think about GILTI, where the IRS tax CFCs as though dividends have been extracted.

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Who needs to file IRS Form 5471?

Any US citizen, partnership, trust, corporation, or estate with at least 10% ownership in a foreign corporation must file Form 5471. The IRS clearly outlines who must file Form 5471. This is particularly relevant to Americans that invest or live in the United Kingdom. Many Americans move from Florida or New York to London to start employment or a business enterprise.

Certain US persons who are shareholders, officers, officers, or directors of a foreign corporation may also be required to file it.

The categories of US persons (Americans) potentially liable for filing Form 5471 include:

– US citizen and resident alien individuals

– American domestic corporations

– US domestic partnerships

– American domestic trusts

The term foreign corporation includes an International Business Company (IBC) owned by US persons.

It also includes a foreign limited liability company.

Form 5471 is similar to the information return for a partnership, an S Corporation or a trust.

Unlike a C Corporation, the income of a foreign corporation may be either taxed to the shareholders or tax-deferred until there is a distribution or liquidation.

The Form serves multiple purposes and can be confusing to a novice.

Form 5471 should be filed as an attachment to the taxpayer’s federal income tax, partnership or exempt organisation return.

It should be filed by the due date, including any extensions for that return.

There are four categories of persons, including corporate shareholders, that may be required to file Form 5471, including:

– A US person who is an officer or director of a foreign corporation in which any US person owns 10% or more of the stock

– A person who becomes a US person while owning 10% or more stock of a foreign corporation

– An American who had control of a foreign corporation for 30 days or more

– A US shareholder who owns stock in a foreign corporation that is a controlled foreign corporation for at least 30 days and who owned that stock on the last day of the year

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When should Form 5471 be filed?

Form 5471 should be filed annually with the 1040 return of the relevant shareholder. That date would be 15th March / 15th April for most individuals.

The filing of Form 5471 to disclose the ownership of foreign corporations will be done as part of your 1040 rax return submission to The IRS.

What information is included in Form 5471 to be reported by American expats?

The information included in Form 5471 starts by listing the US shareholder’s identity and details about the foreign corporation.

It should also include information about transactions between the shareholder and the foreign corporation, original capital contributions and other relevant data.

This initial information is four pages long.

Several other schedules are required, which can add an extra seven pages.

Among the schedules to be added are the balance sheet for the corporation and the income and expense sheets for the current year.

It is a requirement of Form 5471 to provide accurate completion of all necessary information.

The required information may be as little as the identification of the US shareholder and the name and address of the foreign corporation.

In other cases, the details required to file on Form 5471 could be comprehensive, including a complete balance sheet and income statement converted from multiple foreign currencies into US dollars.

If five or fewer US shareholders own the corporation and each owns 10% or more of the foreign corporation, it will be deemed a Controlled Foreign Corporation (CFC).

More information is provided later in this article on CFCs.

In this case, all or part of the corporation’s income may be taxable to certain shareholders.

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How long does Form 5471 take to prepare by Americans expats?

It has been estimated that preparing Form 5471 could take up to 40 hours, not including record-keeping and the time required to learn relevant law.

The learning time would be much longer for a US person not knowledgeable of US tax law, which must be held by Americans to avoid penalties.

For an operating business with extensive transactions, the time spent could be much longer.

Completing Form 5471 should only take a few hours if the foreign corporation is dormant.

It has been estimated that for a CFC owned by one person and used as an investment entity only, around five hours would be sufficient to complete Form 5471.

Each Form 5471  preparation will be individual and bespoke.

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What are the form 5471 penalties for not filing for Americans?

The penalty is $10,000 for each late or incomplete Form 5471, classed as a disclosure penalty.

It is not necessary for the foreign corporation to have any profits for this penalty to apply.

Form 5471 must be filed even if there is no taxable income to report.

Failure to file continues for more than 90 days, after the date of the IRS notice, a $10,000 penalty will apply.

The additional penalty can be added up to a maximum of $50,000 in total.

If you get a notice from the IRS of duty to file and don’t do so within 90 days, there could be a maximum fine of $60,000.

The TCJA implemented two new taxes for US owners of controlled foreign corporations.

The Transition Tax (also called IRC Section 965) and Global Intangible Low-Taxed Income or GILTI (also called IRC Section 951A) functions as a current-year tax.

Form 5471 has moved from an informational return to an integral part of reporting.

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Want to save tax in the future?

We have now created free online tac courses to help you build wealth whilst paying less tax. Learn today and save tax tomorrow. We have covered the basics of tax filing with HMRC and IRS. We have created courses on advanced planning strategies that will save you tax in the future.

We have training programmes for UK tax and US tax. Learn today and save tax tomorrow

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Are there different Form 5471 schedules?

The Form 5471 schedules are used to satisfy the reporting requirements of transactions between foreign corporations and US persons.

The IRS has published all Form 5471 revisions, and whilst this is not essential reading, it does provide helpful insights into the ongoing development of this information return.

Within Form 5471, there are 12 schedules, which include:

– Schedule A – Stock of the Foreign Corporation

– Schedule B – US shareholders of Foreign Corporations

– Schedule C – Income Statement

– Schedule E – Income, War Profits, and Excess Profits Taxes paid or Accrued

– Schedule F – Balance Sheet

– Schedule G – Other information

– Schedule H – Current earnings and profits

– Schedule I – Summary of Shareholder’s Income from Foreign Corporation

– Schedule J – Accumulated earnings and profits of Controlled Foreign Corporations

– Schedule M – Transactions between Controlled Foreign Corporation and shareholders or other related persons

– Schedule O – Organisation od reorganisation of a Foreign Corporation, and acquisitions and dispositions of its stock

The IRS has provided information about the reporting requirements of Form 5471.

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What is a Controlled Foreign Corporation (CFC) that Americans are forced to report?

A Controlled Foreign Corporation (CFC) is a foreign corporation where American shareholders hold more than 50% ownership of the stock.

Controlled Foreign Corporation (CFC) rules are features of an income tax system designed to limit artificial tax deferral by using offshore low-taxed entities.

The rules are required only regarding the income of an entity that is not currently taxed to the owners of the entity.

Certain classes of taxpayers must include in their certain income amounts earned by foreign entities they or related people control.

The rules define the type of owners and entities affected, the type of income or investments subject to inclusion, exceptions to that inclusion, and the means of preventing double inclusion of the same income.

Controlled Foreign Corporation (CFC) rules have been in place in the US since 1962.

Countries with CFC rules include the UK, Germany, Japan, Australia, New Zealand, Russia, Brazil, Sweden and many more.

The CFC rules in different countries vary significantly.

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