A Guide for Expats: How to File Form 5471

There’s no question that the IRS has many US tax forms. The one that’s being discussed in this article is Form 5471 for the ownership of foreign corporations. Form 5471 is a complex form that keeps tabs on which US citizens and residents own a foreign corporation. Depending on how much the company is owned by US shareholders, it can either be an informational form or result in potential GILTI taxation.

What is Form 5471?

Form 5471 is another tax form you may have to add to your standard US tax return. However, like all other documents, you need to meet certain requirements. So, what are the requirements?

Well, Form 5471 has a couple of categories for filers alongside numerous schedules, which is what makes this form a bit more complicated than others.

Filer Categories

Category 1:

• US shareholders who own at least 10% of the stock and
• The corporation is more than 50% owned by US shareholders and
• The corporation was section 965 specified foreign corporation (SFC), which generally means it was subject to a one-time transition tax that impacted companies with positive retained earnings as of 12/31/2017

Category 2:

• US shareholders who own at least 10% of the stock and are officers, directors, or shareholders of a foreign corporation and
• There is a change in shareholding in the foreign corporation

Category 3:

• US shareholders who own at least 10% of the stock and
• There is a change in shareholding in the foreign corporation

Category 4:

• US shareholders who own more than 50% of the foreign corporation, including any constructive ownership

Category 5:

• US shareholders who own at least 10% of the stock and
• The corporation is more than 50% owned by US shareholders

Please note category 1 and 5 have multiple sub-categories.

In general, if you meet Category 1, 4, or 5, you can expect to file Form 5471 annually. If you only meet Category 2 or 3, you are generally only filing Form 5471 if there are changes in the corporation’s shareholding. You can qualify under multiple categories at the same time.

If you are a Category 1 or 5 filer, then you are a shareholder in a controlled foreign corporation (CFC) and you may be subject to Global Intangible Low-Taxed Income (GILTI) taxation, which is taxation on your share of any net profit from the company.

What is a Controlled Foreign Corporation (CFC)?

Oftentimes, when you file Form 5471, your tax return will not be affected. However, there is one scenario where you could owe additional taxes. This situation occurs when you ownership over more than 10% of the stock in a foreign corporation that is owned by more than 50% of the US shareholders. If the corporation is majority-owned by US shareholders, the IRS would then consider the foreign company to be controlled by the US, hence the name “Controlled Foreign Corporation.”

Therefore, if you own more than 10% stock in a CFC, your share of the net profit of the company could be subject to the GILTI taxation.  

Schedules

Here is brief overview of the schedules which are within Form 5471. For more information on the intricate details of each schedule, please check out the instructions for Form 5471.

• Schedule A: Details of foreign corporation’s stock
• Schedule B: Information on US shareholders
• Schedule C: Income statement for the foreign corporation
• Schedule E: Details on taxes paid or accrued
• Schedule F: Balance sheet
• Schedule G: Additional information
• Schedule H: Current earnings and profits
• Schedule I: Summary of income from the foreign corporation
• Schedule J: Accumulated earnings and profits of CFCs
• Schedule M: Transactions between the CFC and related parties
• Schedule O: Details on organizational changes and stock transactions
• Schedule P: US shareholders’ previously taxed earnings and profits
• Schedule Q: The CFC’s income, deductions, taxes, and assets
• Schedule R: Reports basic information pertaining to distributions from foreign corporations

Other related schedules to Form 5471 include:

• Form 8992 and Form 8992 Schedule A: US Shareholder Calculation of Global Intangible Low-Taxed Income (GILTI)
• Form 962: Return by a US Transferor of Property to a Foreign Corporation

What are the Penalties for Non-Filing?

If your foreign corporation matches the requirements and you’ve forgotten to file, the IRS is not as kind as you would hope. You could be hit with a $10,000 fine per accounting period missed, and if the IRS notifies you about your failure to file, you’ll have 90 days to file, or you’ll be fined up to $60,000.

Owning part of a foreign corporation is a great accomplishment, but it comes with its own set of responsibilities, and one of those responsibilities is US taxes. Make sure to keep on top of things to avoid unnecessary fines from the IRS.

File Form 5471 Today!

For those of you who do their own taxes every year, taking on Form 5471, can be quite the challenge with the numerous schedules and particular filer categories. Before you put yourself through that, check out MyExpatTaxes reviews and pricing. Our US expat tax software is the only one that have comprehensive checks for Form 5471 filing requirements and offers the most affordable Form 5471 filing rates.