Common Form 5471 Errors
What are Common Form 5471 Errors & How to Solve Them: When it comes to international information reporting forms, the form 5471 is one of the most complicated IRS tax forms. What makes this form more complex than other forms, is that it requires more than just a summary of the maximum account their asset value — as is required on forms such as the Form 8938 and FBAR. Depending on which Category of Filer the taxpayer qualifies as — along with whether or not the company is a Controlled Foreign Corporation (CFC) or not will dictate how extensive reporting requirements – keeping in mind that sometimes, the Form 5471 requirements are not all that bad. Let’s go through the basics of with some of the more common form 5471 errors are — and how to solve them.
5 Common Form 5471 Errors
Here are a list of Five (5) Common Form 5471 Errors:
Wrong Category of Filer
Sometimes, it can be very confusing for a US Taxpayer just to determine which category or Categories of Filer they qualify for under form 5471. This is a very common mistake — and the reason it is so important is because sometimes by getting the Category of Filer incorrect, it may result in either unnecessary Form 5471 reporting (read: waste of time) — or underreporting.
CFC is More than 50% US Ownership
One of the baseline evaluations when analyzing a foreign corporation is to determine whether it qualifies as a Controlled Foreign Corporation or not. It is important to remember that in order to qualify as a controlled foreign corporation or “CFC,” there must be more than 50% ownership by US persons who each owned 10% — if it is owned only 50% by US persons then it does not qualify as a CFC — and this may significantly limit the amount of reporting required.
Dormant Corporation Rev Proc 92-70
When a foreign corporation qualifies as a dormant corporation in accordance with Revenue Procedure 92-70, the Taxpayer only has to report a minimal amount of information about the foreign corporation. Therefore, before taking the estimated 30 to 40 hours to complete the Form 5471, it is important to determine whether or not the filer will qualify to report the foreign corporation as a dormant foreign corporation.
Reporting vs. Income
Another very important note about form 5471, is the form can be required even if no income was distributed from the corporation to the taxpayer. In other words, if a US person meets one of the categories of Filers a form 5471, they would still be required to file the form even if no income was distributed in that year.
Duplicate Form 8938 Reporting Not Necessary
Depending on which category filer the taxpayer qualifies as — and whether or not it is the first year the Taxpayer received the ownership that meets the threshold or not — will determine whether or not the Taxpayer has to file the form 5471 or form 8938 for this specific asset. If a Taxpayer is required to file a form 5471 — they generally do not have to file a form 8938 for the same asset.
More Form 5471 Questions?
We have a separate article that identifies the 25 most common Frequently Asked Questions regarding Form 5471.
Solving Form 5471 Errors with Offshore Disclosure
When a Taxpayer is out of compliance for not properly reporting form 5471, the IRS has developed various amnesty programs that can facilitate the taxpayer. There are several different programs, so it is important to Evaluate the taxpayers facts and circumstances to determine which program(s) is best for them.
International Tax Lawyer Specialist Team
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