US TAX SURPRISES AND REPORTING REQUIREMENTS SERIES
If you are a US person (citizen or resident) you may have learned by now that you have to file a US tax return and bank report each year, even if you have no US source income. Well, that’s not all. This is the first in a series of posts regarding other reporting or compliance obligations that US persons have as part and parcel of their exposure to the US tax system.
We start with Form 5471. US citizens and residents with stock interest in foreign corporations may be required to file information returns which are used by the IRS to obtain information on cross-border activities. Form 5471 is used to report ownership interest in foreign corporations. Just to make the form more interesting, there are four categories of filers, Category 2, 3, 4, and 5, each of which has different reporting obligations.
This article will discuss the penalties for failure to file Form 5471.
Unlike penalties for non-payment or under-payment of tax, the penalty for failure to file one of the reporting forms is based solely on failure to file the form when required. Thus, a taxpayer could owe not tax, but still pay a hefty monetary penalty for non-filing of one of the forms we will discuss in this series of posts.
Depending on the category of filer, penalties for failure to file Form 5471 differ. The initial failure to file penalty is generally $10,000 per year or reportable transaction and can increase to a maximum of $50,000 per year or reportable transaction for continued failure to file. Failure to file Form 5471 could also result in criminal penalties. Thus, it is important to pay attention to the filing requirements: failure to file Form 5471 can result in substantial civil and criminal penalties.