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What is Form 5471? Form 5471 “Information Return of U.S. Persons With Respect to Certain Foreign Corporations” is an informative form that must be completed and submitted when a U.S. person is engaged with certain foreign companies as official, director or shareholder in order to report the activity of this foreign company.
Although Form 5471 has an informative character, an accurate completion is essential, because it is an important IRS tool for determining companies that need to be audited or subjected to “Subpart F” revenues.
Conditions for Form 5471
The requirements for the preparation and submission of Form 5471 relate to persons who have a degree of control in certain foreign companies. Form 5471 must be submitted in the following situations:
- A U.S. person becomes a director or officer of a foreign company.
- A U.S. person acquires an interest in a foreign company that exceeds the prescribed thresholds.
- A U.S. person sells shares in a foreign company that reduces his or her interest in the foreign company to less than the prescribed thresholds.
- A U.S. person has control over a foreign company for an uninterrupted period of at least 30 days per year.
- A U.S. person is a shareholder of 10% or more in a foreign company that is a “controlled foreign company” for an uninterrupted period of at least 30 days in a year and that person is the owner of those shares on the last day of the year.
In determining the ownership interest, the complex rules of direct, indirect and constructive ownership also play a role. Not only that, the category of filers (4 in total) can be confusing. These categories are used to determine which schedules, attachments, declarations and/or other information should be included as part of Form 5471. It is an understatement to say that the instructions for submitting Form 5471 are complicated and difficult to understand.
Form 5471 and the relevant annexes are used to meet the reporting obligations of transactions between foreign companies and the U.S. person(s). The higher the interest of the U.S. person the more information and transparency must be given to the IRS.
Fines and Form 5471
There are substantial fines for U.S. persons who are required to submit Form 5471 and have not done so. The fine may amount to at least $ 10,000 and may increase up to $ 50,000 (in case of multiple violations), but it may also lead to criminal prosecution. Finally, your US tax return may be considered as not filed, exposing your tax return for a possible audit and further fines.
Questions about Form 5471?
If you have any questions you can contact Americans Overseas. Two dual nationals living abroad founded Americans Overseas. In the costly and exhausting process of finding the right experts, they realised they had not only accumulated a mountain of knowledge, but also built up a solid network of tax and legal experts. This could be of great benefit to others in similar situations.
Please do not hesitate to contact Americans Overseas free of charge and free of obligations.