Form 5471: Information Return of U.S. Persons With Respect To Certain Foreign Corporations

form 5471
Form 5471, titled as Information Return of U.S. Persons With Respect To Certain Foreign Corporations, is an informational return filed by U.S. citizens or U.S. residents who are officers, directors, or shareholders of a foreign corporation (non-US corporation). If a U.S. citizen or U.S. resident owns directly or indirectly more than 50% of the foreign corporation or has signature authority over any of the foreign corporation’s financial accounts, then the U.S. citizen or U.S. resident is required to report the financial accounts of the foreign corporation on the Report of Foreign Bank and Financial Accounts (FBAR).

Form 5471 requires the U.S. Person to provide the following information:

  • Stock of the Foreign Corporation. Form 5471 requires Filers to provide a description of each class of stock, as well as the number of issued and outstanding shares throughout the accounting period for each class of stock.
  • U.S. shareholders of foreign corporations. Form 5471 requires Filers to provide the name, address and identifying number of each U.S. shareholder. For each U.S. shareholder, the Filer must provide a description of each class of stock held by the U.S. shareholder and number of shares held throughout the accounting period.
  • Income statement. Form 5471 requires the Filer to provide an income statement in the foreign corporation’s functional currency and in accordance with U.S. Generally Accepted Accounting Principles (GAAP).
  • Income, war profits, and excess profits taxes paid or accrued. Form 5471 requires the Filer to provide the name of each country where income, war profits, and excess profits taxes were paid or accrued during the tax year being reported. This information is used in calculating current earnings and profits on Form 5471.
  • Balance sheet. Form 5471 requires the Filer to provide a balance sheet for the foreign corporation, including information about assets, liabilities, and shareholder’s equity. The balance sheet is required to be in U.S. dollars and prepared in accordance with U.S. GAAP.
  • Current earnings and profits. Form 5471 requires Filers to compute earnings and profits using the foreign corporation’s functional currency. The starting point is net income which is adjusted by certain items as provided in Schedule H of Form 5471 to arrive at current earnings and profits for the period being reported.
  • Summary of shareholder’s income from foreign corporation. Form 5471 requires the Filer to complete a Schedule I for each U.S. shareholder of the foreign corporation summarizing the U.S. shareholder’s proportional share of certain income items (i.e., subpart F income) of the foreign corporation. Form 5471 also requires the Filer to furnish each U.S. shareholder with Schedule I.

Form 5471 is used to report ownership interest in foreign corporations. Just to make Form 5471 more interesting, there are four categories of filers, Category 2, 3, 4, and 5, each of which has different reporting obligations. A Category 2 filer includes a US citizen or resident who is an officer or director of a foreign corporation who is required to report US persons who have acquired 10% or more stock ownership of the foreign corporation by value or vote. A Category 3 filer includes a US person who: acquires stock in a foreign corporation which, when added to stock already owned, has 10% or more of the stock by value or vote of the foreign corporation; acquires stock of 10% or more, by value or vote, of the foreign corporation; a person who becomes a US person while owning 10% or more of the foreign corporation by value or vote; or a US person who disposes of sufficient stock in the foreign corporation to reduce their stock ownership, by value or vote, in the foreign corporation below 10%. A Category 4 filer is a US person who for at least an uninterrupted period of 30 days during the annual accounting period of the foreign corporation owned more than 50% of the foreign corporation stock by value or vote. A Category 5 filer includes US shareholders who own stock in a foreign corporation that is a Controlled Foreign Corporation (“CFC”) for an uninterrupted period of 30 days or more during any tax year of the foreign corporation, and who owned stock on the last day of the tax year.

As detailed above, Form 5471 requires Filers to present the financial information using U.S GAAP (or U.S. generally accepted accounting principles). Since the foreign corporation operates outside of the U.S., it is likely that the foreign corporation does not routinely follow U.S. GAAP and probably keeps their books under International Financial Reporting Standards. Even if a U.S. taxpayer is required to file Form 5471, the foreign corporation may also be a passive foreign investment company (“PFIC”) requiring the filing of Form 8621.

How Flott and Co. PC Helps You

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 and understand the filing requirements.

Our company assists you in the tedious process of filing Form 5471, providing you with all the details, and helping you respond to disputes as we represent businesses and individuals in their quest to manage their financial matters with the best tools available.

Please contact us to learn more.