Do You File IRS Form 5471 (Foreign Corporations) and FBAR?

Do You File IRS Form 5471 (Foreign Corporations) and FBAR?

IRS Form 5471 (Foreign Corporations)

While the FBAR is one of the most common international tax forms — it is just one of many. While it would appear that there are an infinite number of international information reporting forms required for taxpayers with overseas accounts and assets, Form 5471 is one of the more common and complicated forms. That is because unlike some other forms such as FBAR and Form 8938 which simply require the taxpayer to report the account or assets’ maximum value, Form 5471 (Information Return of U.S. Persons With Respect To Certain Foreign Corporations) requires most categories of filers to prepare balance sheets (BS) and profit and loss statements (PLs) — along with detailing and other complex information surrounding CFC (Controlled Foreign Corporation); Subpart F Income; GILTI and more. In general, the more complex that the foreign business is, will dictate the complexity of preparing the Form 5471 for that business — multiple foreign corporations may require multiple Form 5471s each year. With that said, there are some important factors to consider when sitting down to prepare Form 5471.

Original Publication Date, 2/2023.

Are You a U.S. Person for Tax Purposes?

The first thing to remember is that only U.S. Persons (individuals and entities) have to file Form 5471. In other words, if a person is considered a non-U.S. Person, then generally they are not required to file Form 5471.

Do You Even Need to File the Form 5471?

Especially due to the complexity of Form 5471, the first very important threshold question is to determine whether or not you have to file the form. For example, depending on which category of filer the taxpayer qualifies as, it will determine whether they have to report Form 5471 only in the current year when there is a triggering event (such as becoming a US person and/or acquiring more than 10% of a foreign corporation) or whether there is an annual reporting requirement, such as when there is a Controlled Foreign Corporation.

Do You Qualify for an Exception?

There are some exceptions to filing Form 5471 that taxpayers should become familiar with, so they can determine whether or not they are required to file the form. For example, are there other similar categories of filers for the same corporation, in the same year that are already filing the form so it does not have to be duplicated by all shareholders in the same category of filer? Likewise, depending on the status of the foreign corporation, the taxpayer may qualify to file a Dormant Form 5471 under Revenue Procedure 92–70 — which results in much more simplified reporting.

Which Category of Form 5471 Filer(s) Are You?

There are five (5) main categories of Form 5471 filers, noting categories (1) and (5) can be broken down further into subcategories and a single taxpayer may fall into several different categories of filers. The reason why this is so important is that depending on which category of filer a taxpayer qualifies as will determine whether or not they have to file multiple schedules — or have a much more limited reporting requirement. For example, if a taxpayer qualifies as a category four (4) filer, they will have significant reporting — while some of the other categories have less reporting required.

Form 5471 and 8621 (PFIC) Cross-Over

It is not uncommon for foreign corporations to qualify as both a corporation that must file under Form 5471 — as well as a Passive Foreign Investment Company which will require a Form 8621. Form 8621 refers to PFIC (Passive Foreign Investment Companies).  If a company qualifies to file both Form 5471 and 8621 (PFIC), they will generally not be required to file Form 8621 but are still required to file Form 5471. There will also be some complications involving items such as Subpart F versus PFIC Excess Distributions, but the taxpayer can lean on the 5471 rules (which while they are not great, are typically better than the 8621/PFIC tax regime).

Other International Reporting Forms

There are many different international information reporting forms that a U.S. taxpayer may have to file each year depending on the specific type of foreign accounts, assets, and investments that they maintain overseas. Some of the more common forms include:

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.