Form 5471: a guide for US taxpayers with foreign interests

US tax rules, particularly those involving foreign corporations and Form 5471, can be complex and overwhelming for taxpayers.

In this article, we’ll break down what Form 5471 is, who is required to file it, the penalties for non-compliance, and share tips to keep you on track with the IRS.

What is Form 5471?

Form 5471, Information Return of US Persons With Respect To Certain Foreign Corporations, is a US tax form used to report a US person’s interest in certain foreign corporations to the Internal Revenue Service (IRS).

If you are a shareholder, officer, or director in a foreign corporation, and you meet the ownership requirements, you must file Form 5471 to provide the agency with information about your foreign corporation’s structure, income, and financial activities.

Form 5471 preview

Who needs to file Form 5471?

You need to file Form 5471 if you are a US person who falls into one of the categories described below in detail. Each category targets different aspects of a US person's involvement in foreign corporations.

Even if you don't fall into one of the categories, you might still need to file Form 5471 if you’re involved in certain transactions with foreign entities.

Category 1

Who they are: US shareholders of specified foreign corporations (SFCs) at any time during the tax year.
Scope: This category primarily targets US persons who own 10% or more of the total combined voting power of all classes of stock in an SFC, which includes controlled foreign corporations (CFCs).

Category 2

Who they are: US officers or directors of foreign corporations where a US person has acquired a significant stock interest.
Scope: Targets officers and directors when there is an acquisition or disposition of stock amounting to 10% or more of the total value of the corporation's stock.

Category 3

Who they are: US persons who acquire or dispose of a substantial interest in a foreign corporation.
Scope: Includes any US person who acquires an additional 10% interest or disposes of such an interest in a foreign corporation.

Category 4

Who they are: US persons who had control of a foreign corporation during the tax year.
Scope: "Control" is defined as owning more than 50% of the total value of shares or the total voting power of the foreign corporation at any time during the tax year.

Category 5

Who they are: US shareholders of controlled foreign corporations during the tax year.
Scope: Involves any US person who owns 10% or more of a CFC.

Exceptions from filing Form 5471

While Form 5471 is a critical requirement for many involved with foreign corporations, there are specific exceptions where certain individuals may not need to file:

Form 5471 schedules

Form 5471 consists of several schedules, each focusing on different aspects of a foreign corporation’s structure, financials, and transactions:

What is a controlled foreign corporation (CFC)?

A controlled foreign corporation (CFC) is a foreign corporation where more than 50% of its stock is owned by US shareholders. These shareholders are US persons who each own at least 10% of the corporation’s stock.

CFCs are subject to specific US tax rules, which include reporting requirements on Form 5471.

Pro tip. Dividends paid to shareholders of foreign corporations are occasionally eligible for reduced qualified dividend rate when paid from the foreign corporation that is located in a country with which the US has a tax treaty.

Subpart F income and GILTI: what you need to know

Subpart F of the Internal Revenue Code (IRC) targets income from foreign subsidiaries that US taxpayers must report and pay taxes on, even if it’s not brought back to the US. This includes passive income like interest, dividends, and royalties.

GILTI (Global Intangible Low-Taxed Income) refers to income derived from foreign intangible assets, which is also taxable by the US.

If the foreign corporation's effective tax rate exceeds a certain threshold, the GILTI income may be exempt from US taxation. Learn more: Demystifying the GILTI high tax exception.

Both Subpart F income and GILTI must also be reported on Form 5471.

What’s the difference between Form 5471 and Form 5472?

Form 5471 and Form 5472 are both used to report foreign transactions, but they serve different purposes and apply to different groups of US taxpayers.

Here’s a quick comparison:

Form 5471 filing requirements

Form 5471 is due with the income tax return of the affected shareholder. This form should be filed along with your personal tax return, or with your business corporation/LLC tax return if the entity owns the foreign corporation.

Penalties for non-compliance

Not filing Form 5471 or filing it incorrectly can lead to serious penalties. The IRS imposes a starting penalty of $10,000 per form.

Remember, this form is mostly informational and doesn’t result in taxes due, but the penalty is a "disclosure penalty." If you don’t file within 90 days of the IRS notice, an additional $10,000 penalty applies for each 30-day period, capped at $50,000.

Even if the foreign corporation has no profits or taxable income, the form still needs to be filed.

Tips to stay compliant with Form 5471

1. Double-check your category: Ensure you understand which category you fall under to meet the specific reporting requirements.
2. Early preparation is key: Gather all necessary information well before the deadline to avoid last-minute scrambles and potential errors.
3. When in doubt, file: If you're unsure about the need to file Form 5471, it’s safer to file than face the penalties.
4. Seek professional help: Considering the complexity of Form 5471, consulting with a tax pro is highly advisable.

Need help with Form 5471? Talk to a tax pro today

If you’re a US person who owns at least 10% of a foreign corporation, is an officer or director, or is involved in certain transactions with a foreign entity, you’ll need to file Form 5471 to maintain compliance with US tax laws.

Preparing Form 5471 can be complex, especially when you have multiple foreign interests. If you’re struggling with the detailed ownership structures, income reporting, the complexities of Subpart F or GILTI, and need help navigating Form 5471 – whether for a small foreign corporation, a large multinational, or a CFC – at Taxes for Expats, we're here to help.