Frost Law
U.S. Persons (i.e., U.S. citizens, Green Card holders, tax residents under the Substantial Presence Test, corporations, partnerships. estates, and trusts), as described in the categories of filers in the instructions to Form 5471, are required to disclose foreign business activities and report income derived therefrom as well as pay corresponding taxes. In instances where a foreign venture is not earning profits, disclosure is, nevertheless, required under the current laws and regulations. Form 5471 is one of the most important forms that U.S. persons have to consider when foreign business activities are operated through a foreign entity treated as a corporation for U.S. tax purposes and controlled by U.S. shareholders.
This particular form, which has been around since 1962, is used by the Internal Revenue Service (IRS) to gather information regarding a U.S. person’s foreign business activities. It asks for information such as ownership, type of business, currency used, accounting period, location of operations and a slew of other information. More importantly, it asks about the financials of the company – which is essential information in subjecting foreign source income to U.S. tax. Additionally, through its numerous schedules, the IRS is able to determine if there are intercompany transactions between related (i.e., owned by same U.S. persons) companies and whether other Internal Revenue Code provisions may apply. Likewise, through the information provided in the form, the IRS is able to determine whether distributions to the U.S. shareholders from the foreign corporation is taxable or not.
Generally, there is a $10,000 civil penalty for failure to timely file Form 5471. This civil penalty can be applied for each required form which was not timely filed. There is also a continuation penalty that may apply when the IRS sends certain notice of failure to file to the taxpayer and the taxpayer fails to file Form 5471 within 90 days - the IRS may impose an additional $10,000 penalty for each 30-day period thereafter that the form is not filed (not to exceed $50,000). There are other potential negative implications for failure to timely file Form 5471.
Similar to many other international information returns, the statute of limitations also never runs if an IRS Form 5471 is not filed. Therefore, the IRS can assess additional income taxes against the taxpayer, even though the general 3-year statute of limitations period has expired.
Stay tuned and follow us for Part Two of this series as we dive deeper and discuss Subpart F and GILTI tax reporting on Form 5471.
If you have any questions or concerns about Form 5471 then please reach out to our team at (410) 497-5947 or schedule a confidential consultation.
U.S. Persons (i.e., U.S. citizens, Green Card holders, tax residents under the Substantial Presence Test, corporations, partnerships. estates, and trusts), as described in the categories of filers in the instructions to Form 5471, are required to disclose foreign business activities and report income derived therefrom as well as pay corresponding taxes. In instances where a foreign venture is not earning profits, disclosure is, nevertheless, required under the current laws and regulations. Form 5471 is one of the most important forms that U.S. persons have to consider when foreign business activities are operated through a foreign entity treated as a corporation for U.S. tax purposes and controlled by U.S. shareholders.
This particular form, which has been around since 1962, is used by the Internal Revenue Service (IRS) to gather information regarding a U.S. person’s foreign business activities. It asks for information such as ownership, type of business, currency used, accounting period, location of operations and a slew of other information. More importantly, it asks about the financials of the company – which is essential information in subjecting foreign source income to U.S. tax. Additionally, through its numerous schedules, the IRS is able to determine if there are intercompany transactions between related (i.e., owned by same U.S. persons) companies and whether other Internal Revenue Code provisions may apply. Likewise, through the information provided in the form, the IRS is able to determine whether distributions to the U.S. shareholders from the foreign corporation is taxable or not.
Generally, there is a $10,000 civil penalty for failure to timely file Form 5471. This civil penalty can be applied for each required form which was not timely filed. There is also a continuation penalty that may apply when the IRS sends certain notice of failure to file to the taxpayer and the taxpayer fails to file Form 5471 within 90 days - the IRS may impose an additional $10,000 penalty for each 30-day period thereafter that the form is not filed (not to exceed $50,000). There are other potential negative implications for failure to timely file Form 5471.
Similar to many other international information returns, the statute of limitations also never runs if an IRS Form 5471 is not filed. Therefore, the IRS can assess additional income taxes against the taxpayer, even though the general 3-year statute of limitations period has expired.
Stay tuned and follow us for Part Two of this series as we dive deeper and discuss Subpart F and GILTI tax reporting on Form 5471.
If you have any questions or concerns about Form 5471 then please reach out to our team at (410) 497-5947 or schedule a confidential consultation.
