What is IRS Form 5471?
What is Form 5471? When it comes to international tax and information reporting, the form 5471 is one of the most complicated offshore tax forms a U.S. Person taxpayer may have to complete. Unlike the FBAR, which is limited to reporting the maximum value of your Foreign Bank and Financial Accounts or the Form 8938, which is limited to reporting the maximum value specified foreign financial assets and the associated income — the Form 5471 is an exercise in bookkeeping and balance sheets. For some taxpayers with a background in finance it may not be that big of deal; for everyone else, it is an unnecessary headache.
Foreign Corporation Reporting is Complicated
For the majority of taxpayers who do not have a background in accounting and finance — this form can be overwhelming — especially when the Taxpayer may not even be intentionally operating a foreign business. One common example is when a taxpayers conducts operations through a Per Se Corporation such as a Sociedad Anonima (S.A.) and never thought of their entity as a company operating as a business, insomuch as an entity being used as an estate planning or rental property shell.
Late Filing Penalties
The IRS has taken to issuing automatic fines and penalties for the failure to comply with form 5471.
It is one of the most commonly penalized forms in addition to forms 3520/3520-A. If you have not filed the form 5471 and are worried about preparing it correctly, you may consider reaching out to a tax specialist to assist you.
Form 5471 Penalty Summary
The form 5471 penalties are broken down as follows:
“Failure to file information required by section 6038(a) (Form 5471 and Schedule M).
A $10,000 penalty is imposed for each annual accounting period of each foreign corporation for failure to furnish the information required by section 6038(a) within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure.
Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901, 902 (with respect to foreign corporate tax years beginning before January 1, 2018), and 960. If the failure continues 90 days or more after the date the IRS mails notice of the failure to the U.S. person, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038(c) (2) for limits on the amount of this penalty.
Failure to file information required by section 6046 and the related regulations (Form 5471 and Schedule O).
Any person who fails to file or report all of the information requested by section 6046 is subject to a $10,000 penalty for each such failure for each reportable transaction. If the failure continues for more than 90 days after the date the IRS mails notice of the failure, an additional $10,000 penalty will apply for each 30-day period or fraction thereof during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000.
Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file the information required by sections 6038 and 6046. Note. Any person required to file Form 5471 and Schedule J, M, or O who agrees to have another person file the form and schedules for him or her may be subject to the above penalties if the other person does not file a correct and proper form and schedule. Section 6662(j). Penalties may be imposed for undisclosed foreign financial asset understatements.
No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See sections 6662(j) and 6664(c) for additional information. Inapplicability of certain penalties. Certain penalties under sections 6038 and 6662 may be waived for certain persons under Rev. Proc. 2019-40. See Section 7 of Rev. Proc. 2019-40 for more details.”
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