FORM 5471: EVERYTHING YOU NEED TO KNOW

Form 5471: Ownership in foreign corporations

One tax requirement that’s complicated and hard to understand is for US citizens and residents who have ownership in a foreign corporation. These people are required to file IRS Form 5471, Information Return of US Persons with Respect to Certain Foreign Corporations.

What is Form 5471 and Who Needs to File?

Form 5471 is an information return, rather than a tax return. This form is designed to provide the IRS with a record of U.S. citizens, residents, and entities that have significant ownership or control in foreign corporations. It’s similar to Form 1120, the US corporate income tax return, and requires much of the same information. It differs from Form 5472, which is intended for foreign corporations that do business in the US, or for US corporations that are at least 25 percent foreign owned.

In general, any US citizen, corporation, partnership, trust, or estate that owns at least 10 percent of the shares of a foreign corporation needs to file Form 5471 with their Federal income tax return. If you own more than 50 percent of the shares of the foreign corporation, you may be required to file additional schedules and statements. If you’re not sure if you are required to file, the IRS has published detailed qualifications. The qualifications for Form 5471 are extremely convoluted, so if you think you qualify, it’s a good idea to consult your accountant.

Who Should File a Form 5471

You may need to file Form 5471 if you are a U.S. person who:

Owns at least 10% of the shares of a foreign corporation
Is an officer or director of a foreign corporation where a U.S. person has acquired a substantial ownership interest
Owns more than 50% of the shares of a foreign corporation
Meets other specific criteria outlined by the IRS

Remember to work with a qualified CPA, as every startup’s / businesses’ situation is unique.

What is a 5471 Form Used For?

Form 5471 serves several important purposes for the IRS and U.S. taxpayers:

Reporting ownership: It provides detailed information about U.S. persons’ ownership in foreign corporations.
Tracking foreign income: The form helps the IRS monitor income earned through foreign corporations.
Ensuring compliance: It allows the IRS to verify compliance with international tax laws and regulations.
Disclosing corporate structure: Form 5471 reveals the organizational structure of foreign corporations with U.S. ownership.

One crucial component of Form 5471 is Schedule O, which is used to report the organization or reorganization of a foreign corporation and the acquisition or disposition of its stock. This schedule provides the IRS with valuable information about changes in ownership and corporate structure.

Practical Advice - What Should You Do?

Have a Bias Toward Filing: If you have any doubt about whether to file, do it. The $10,000 penalty is too steep to risk.
Seek Professional Help: Due to the intricacy and potential retroactivity, it’s advisable to consult with professionals experienced in international taxation issues. Proper documentation and professional advice can be your best defense.
Appeal if Necessary: If penalties are assessed, you must act quickly to file an appeal. Knowledge of the correct procedures and timelines is crucial.
Be Prepared for Audit: As Form 5471 effectively opens up your entire tax return for scrutiny, ensure that all other aspects of your return are in order.

What if you don’t file?

If you are required to file Form 5471 and you don’t file, you can face a $10,000 penalty for each annual accounting period of the foreign corporation. If the IRS notifies you that you’re required to file Form 5471 and you don’t file one within 90 days, you could incur a penalty of $60,000.

Understanding the Purpose of Form 5471

What is a 5471 Form Used For?

Form 5471 serves several important purposes for the IRS and U.S. taxpayers:

Reporting ownership: It provides detailed information about U.S. persons’ ownership in foreign corporations.
Tracking foreign income: The form helps the IRS monitor income earned through foreign corporations.
Ensuring compliance: It allows the IRS to verify compliance with international tax laws and regulations.
Disclosing corporate structure: Form 5471 reveals the organizational structure of foreign corporations with U.S. ownership.

Key Components of Form 5471

Form 5471 consists of several schedules, each serving a specific purpose in reporting information about foreign corporations. Some of the most important schedules include:

Schedule A (Stock of the Foreign Corporation)
Schedule B (Shareholders of Foreign Corporation)
Schedule C (Income Statement)
Schedule F (Balance Sheet)
Schedule G (Other Information)
Schedule I (Summary of Shareholder’s Income)
Schedule O (Organization or Reorganization of Foreign Corporation)

Each of these schedules requires detailed information about the foreign corporation’s financial status, ownership structure, and transactions. Accurately completing these schedules is crucial for compliance with IRS regulations.

Filing Requirements and Deadlines

Form 5471 is not a standalone return; it must be filed with the U.S. person’s tax return. This means that the deadline for filing Form 5471 coincides with the deadline for your personal or business tax return, including any extensions.

For most individual taxpayers, this means Form 5471 is due on April 15th of each year, unless an extension is granted. For corporations and partnerships, the deadline may vary depending on their fiscal year and any extensions filed.

It’s crucial to note that even if you have a dormant foreign corporation, you may still be required to file Form 5471. In such cases, taxpayers can take advantage of a summary filing procedure outlined in Rev. Proc. 92-70.

Form 5471 and Startup Taxes

For startup founders and investors dealing with international business structures, understanding Form 5471 is an important part of getting startup taxes right. Many startups expand globally or establish foreign subsidiaries, which can trigger Form 5471 filing requirements. Failing to comply with these requirements can lead to significant penalties and complications in future funding rounds or exit strategies.

If your startup has any foreign corporate interests, it’s essential to:

Identify all potential Form 5471 filing obligations
Implement systems to track ownership changes and financial information
Work with tax professionals experienced in international startup taxation
Consider the tax implications of your global business structure

Talk to your accountant

Form 5471 is very complicated and includes 12 schedules which you may or may not need to complete. Your accountant at Kruze Consulting can help guide you through this process. For more information, contact us.

Form 5471 (Rev. December 2022) Department of the Treasury Internal Revenue Service

Information Return of U.S. Persons With Respect to Certain Foreign Corporations

Information furnished for the foreign corporation’s annual accounting period (tax year required by section 898) (see instructions) beginning _ _ _ _ _ _ _ _, 20__, ending _ _ _ _ _ _ _ _ , 20_ _

▶ Go to www.irs.gov/Form5471 for instructions and the latest information.

OMB No. 1545-0123

Attachment Sequence No. 121

Name of person filing this return

A Identifying number

Number, street, and room or suite no. (or P.O. box number if mail is not delivered to street address)

B Category of filer (See instructions. Check applicable box(es).):

1a▢ 1b▢ 1c▢ 2▢ 3▢ 4▢ 5a▢ 5b▢ 5c▢

City or town, state, and ZIP code

C Enter the total percentage of the foreign corporation’s voting stock you owned at the end of its annual accounting period

Filer’s tax year beginning, 20 , and ending , 20

D Check box if this is a final Form 5471 for the foreign corporation

▢

E Check if any excepted specified foreign financial assets are reported on this form (see instructions)

▢

F Check the box if this Form 5471 has been completed using “Alternative Information” under Rev. Proc. 2019-40

▢

G If the box on line F is checked, enter the corresponding code for “Alternative Information” (see instructions) ▶

H Person(s) on whose behalf this information return is filed:

(1) Name	(2) Address	(3) Identifying number	(4) Check applicable box(es)
(1) Name	(2) Address	(3) Identifying number	Shareholder	Officer	Director
			▢	▢	▢
			▢	▢	▢
			▢	▢	▢

Important:

Fill in all applicable lines and schedules. All information must be in English. All amounts must be stated in U.S. dollars unless otherwise indicated.

1a Name and address of foreign corporation	b(1) Employer identification number, if any
	b(2) Reference ID number (see instructions)
	c Country under whose laws incorporated

d Date of incorporation

e Principal place of business

f Principal business activity code number

e Principal business activity

h Functional currency code

2 Provide the following information for the foreign corporation’s accounting period stated above.

a Name, address, and identifying number of branch office or agent (if any) in the United States	b If a U.S. income tax return was filed, enter:
	(i) Taxable income or (loss)	(ii) U.S. income tax paid (after all credits)

c Name and address of foreign corporation’s statutory or resident agent in country of incorporation

b Name and address (including corporate department, if applicable) of person (or persons) with custody of the books and records of the foreign corporation, and the location of such books and records, if different

Schedule A

Stock of the Foreign Corporation

(a) Description of each class of stock	(b) Number of shares issued and outstanding
(a) Description of each class of stock	(i) Beginning of annual accounting period	(ii) End of annual accounting period

For Paperwork Reduction Act Notice, see separate instructions.

Cat. No. 49958V

Form 5471 (Rev. 12-2022)

Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 5471 and instructions, generally found at: https://www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit https://www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.

Form 5471 (Rev. 12-2022)

Page 3

Schedule C

Income Statement (see instructions)

Important: Report all information in functional currency in accordance with U.S. generally accepted accounting principles (GAAP). Also, report each amount in U.S. dollars translated from functional currency (using GAAP translation rules). However, if the functional currency is the U.S. dollar, complete only the U.S. Dollars column. See instructions for special rules for dollar approximate separate transactions method (DASTM) corporations.

Functional Currency

U.S. Dollars

Income

Gross receipts or sales

Returns and allowances

Subtract line 1b from line 1a

Cost of goods sold

Gross profit (subtract line 2 from line 1c)

Dividends

Interest

Gross rents

Gross royalties and license fees

Net gain or (loss) on sale of capital assets.

Foreign currency transaction gain or loss—unrealized

Foreign currency transaction gain or loss—realized

Other income (attach statement)

Total income (add lines 3 through 9)

Deductions

Compensation not deducted elsewhere

12a

Rents

12a

Royalties and license fees

12b

Interest

Depreciation not deducted elsewhere

Depletion

Taxes (exclude income tax expense (benefit))

Other deductions (attach statement—exclude income tax expense (benefit))

Total deductions (add lines 11 through 17)

Net Income

Net income or (loss) before unusual or infrequently occurring items, and income tax expense (benefit) (subtract line 18 from line 10)

Unusual or infrequently occurring items

21a

Income tax expense (benefit)—current .

b Income tax expense (benefit)—deferred

21b

Current year net income or (loss) per books (combine lines 19 through 21b)

Other
Comprehensive Income

23a

Foreign currency translation adjustments

23a

Other

23b

Income tax expense (benefit) related to other comprehensive income

23c

Other comprehensive income (loss), net of tax (line 23a plus line 23b less line 23c)

Form 5471 (Rev. 12-2022)

Form 5471 (Rev. 12-2022)

Page 4

Schedule D

Balance Sheet (see instructions)

Important: Report all amounts in U.S. dollars prepared and translated in accordance with U.S. GAAP. See instructions for an exception for DASTM corporations.

Assets

Functional Currency

U.S. Dollars

Cash

Trade notes and accounts receivable

Less allowance for bad debts

Derivatives

Other current assets (attach statement)

Loans to shareholders and other related persons

Investment in subsidiaries (attach statement)

Other investments (attach statement).

Buildings and other depreciable assets

Less accumulated depreciation

10a

Depletable assets

10a

Less accumulated depletion .

10b

Land (net of any amortization)

Intangible assets:

Goodwill

12a

Organization costs

12b

Patents, trademarks, and other intangible assets

12c

Less accumulated amortization for lines 12a, 12b, and 12c

12d

Other assets (attach statement).

Total assets

Liabilities and Shareholders’ Equity

Accounts payable .

Other current liabilities (attach statement) .

Derivatives

Loans from shareholders and other related persons

Other liabilities (attach statement)

Capital stock:

Preferred stock .

20a

Common stock

20b

Paid-in or capital surplus (attach reconciliation)

Retained earnings

Less cost of treasury stock

Total liabilities and shareholders’ equity

Schedule G

Other Information (see instructions)

During the tax year, did the foreign corporation own at least a 10% interest, directly or indirectly, in any foreign partnership?
If “Yes,” see the instructions for required statement.

Yes

During the tax year, did the foreign corporation own an interest in any trust?

Yes

During the tax year, did the foreign corporation own any foreign entities that were disregarded as separate from their owner under Regulations sections 301.7701-2 and 301.7701-3 or did the foreign corporation own any foreign branches (see instructions)?
If “Yes,” you are generally required to attach Form 8858 for each entity or branch (see instructions).

Yes

During the tax year, did the filer pay or accrue any base erosion payment under section 59A(d) to the foreign corporation or did the filer have a base erosion tax benefit under section 59A(c)(2) with respect to a base erosion payment made or accrued to the foreign corporation (see instructions)?
If “Yes,” complete lines 4b and 4c

Yes

Enter the total amount of the base erosion payments

Yes

Enter the total amount of the base erosion payments ▶ $

Yes

Enter the total amount of the base erosion tax benefit ▶ $

Yes

During the tax year, did the foreign corporation pay or accrue any interest or royalty for which the deduction is not allowed under section 267A?
If “Yes,” complete line 5b.

Yes

Enter the total amount of the disallowed deductions (see instructions) ▶ $

Yes

Form 5471 (Rev. 12-2022)

Form 5471 (Rev. 12-2022)

Page 5

Schedule G

Other Information (continued)

Yes

Is the filer of this Form 5471 claiming a foreign-derived intangible income deduction (under section 250) with respect to any amounts listed on Schedule M?
If “Yes,” complete lines 6b, 6c, and 6d.

Enter the amount of gross income derived from sales, leases, exchanges, or other dispositions (but not licenses) from transactions with the foreign corporation that the filer included in its computation of foreign-derived deduction eligible income (FDDEI) (see instructions)
If “Yes,” complete lines 6b, 6c, and 6d.

Enter the amount of gross income derived from a license of property to the foreign corporation that the filer included in its computation of FDDEI (see instructions) ▶ $

Enter the amount of gross income derived from services provided to the foreign corporation that the filer included in its computation of FDDEI (see instructions) ▶ $

During the tax year, was the foreign corporation a participant in any cost sharing arrangement?

If the answer to question 7 is “Yes,” complete a separate Schedule G-1 for each cost sharing arrangement in which the foreign corporation was a participant during the tax year.

From April 25, 2014, to December 31, 2017, did the foreign corporation purchase stock or securities of a shareholder of the foreign corporation for use in a triangular reorganization (within the meaning of Regulations section 1.358-6(b)(2))?

Did the foreign corporation receive any intangible property in a prior year or the current tax year for which the U.S. transferor is required to report a section 367(d) annual income inclusion for the tax year?

If “Yes,” go to line 9b.

Enter in functional currency the amount of the earnings and profits reduction pursuant to section 367(d) (2)(B) for the tax year ▶ $

During the tax year, was the foreign corporation an expatriated foreign subsidiary under Regulations section 1.7874-12(a)(9)?

If “Yes,” see instructions and attach statement.

During the tax year, did the foreign corporation participate in any reportable transaction as defined in Regulations section 1.6011-4?

If “Yes,” attach Form(s) 8886 if required by Regulations section 1.6011-4(c)(3)(i)(G).

During the tax year, did the foreign corporation participate in any reportable transaction as defined in Regulations section 1.6011-4?

If “Yes,” attach Form(s) 8886 if required by Regulations section 1.6011-4(c)(3)(i)(G).

During the tax year, did the foreign corporation pay or accrue any foreign tax that was disqualified for credit under section 901(m)?

During the tax year, did the foreign corporation pay or accrue foreign taxes to which section 909 applies, or treat foreign taxes that were previously suspended under section 909 as no longer suspended?

Did you answer “Yes” to any of the questions in the instructions for line 14?

If “Yes,” enter the corresponding code(s) from the instructions and attach statement ▶

Does the foreign corporation have interest expense disallowed under section 163(j) (see instructions)? . . . . If “Yes,” enter the amount

Does the foreign corporation have previously disallowed interest expense under section 163(j) carried forward to the current tax year (see instructions)?

If “Yes,” enter the amount

17a

Did any extraordinary reduction with respect to a controlling section 245A shareholder occur during the tax year (see instructions)?

If the answer to question 17a is “Yes,” was an election made to close the tax year such that no amount is treated as an extraordinary reduction amount or tiered extraordinary reduction amount (see instructions)?

Does the reporting corporation have any loan to or from the related party to which the safe-haven rate rules of Regulations section 1.482-2(a)(2)(iii)(B) are applicable, and for which the reporting corporation used a rate of interest within the safe-haven range of Regulations section 1.482-2(a)(2)(iii)(B)(1) (100% to 130% of the AFR for the relevant term)?

19a

Did the reporting corporation make at least one distribution or acquisition (as defined by Regulations section 1.385-3) during the period including the tax year and the preceding three tax years, or, during the period beginning 36 months before the date of the respective distribution or acquisition and ending 36 months afterward, did the reporting corporation issue or refinance indebtedness owed to a related party?

If the answer to question 19a is “Yes,” provide the following.

(1) The amount of such distribution(s) and acquisition(s) ▶ $

(2) The amount of such related party indebtedness ▶ $

Form 5471 (Rev. 12-2022)

Form 5471 (Rev. 12-2022)

Page 6

Schedule I

Summary of Shareholder’s Income From Foreign Corporation (see instructions)

If item H on page 1 is completed, a separate Schedule I must be filed for each Category 4, 5a, or 5b filer for whom reporting is furnished on this Form 5471. This Schedule I is being completed for:

Name of U.S. shareholder ▶ Identifying number ▶

Section 964(e)(4) subpart F dividend income from the sale of stock of a lower-tier foreign corporation (see instructions)

Section 245A(e)(2) subpart F income from hybrid dividends of tiered corporations (see instructions)

Subpart F income from tiered extraordinary disposition amounts not eligible for subpart F exception under section 954(c)(6)

Subpart F income from tiered extraordinary reduction amounts not eligible for subpart F exception under section 954(c)(6)

Section 954(c) Subpart F Foreign Personal Holding Company Income (enter result from Worksheet A)

Section 954(d) Subpart F Foreign Base Company Sales Income (enter result from Worksheet A)

Section 954(e) Subpart F Foreign Base Company Services Income (enter result from Worksheet A)

Other subpart F income (enter result from Worksheet A)

Earnings invested in U.S. property (enter the result from Worksheet B)

Reserved for future use

Factoring income

See instructions for reporting amounts on lines 1, 2, and 4 on your income tax return.

Section 245A eligible dividends (see instructions)

Extraordinary disposition amounts (see instructions)

Extraordinary reduction amounts (see instructions)

Section 245A(e) dividends (see instructions)

Dividends not reported on line 5a, 5b, 5c, or 5d

Exchange gain or (loss) on a distribution of previously taxed earnings and profits

Yes

Was any income of the foreign corporation blocked?

Did any such income become unblocked during the tax year (see section 964(b))?

If the answer to either question is “Yes,” attach an explanation.

Did this U.S. shareholder have an extraordinary disposition (ED) account with respect to the foreign corporation at any time during the tax year (see instructions)?

If the answer to question 8a is “Yes,” enter the U.S. shareholder’s ED account balance at the beginning of the CFC year $ and at the end of the tax year $ . Provide an attachment detailing any changes from the beginning to the ending balances.

Enter the CFC’s aggregate ED account balance with respect to all U.S. shareholders at the beginning of the CFC year $ and at the end of the tax year $ . Provide an attachment detailing any changes from the beginning to the ending balances.

Enter the sum of the hybrid deduction accounts with respect to stock of the foreign corporation (see instructions) $

Form 5471 (Rev. 12-2022)

(a) Name, address, and identifying number of shareholder	(b) Description of each class of stock held by shareholder. Note: This description should match the corresponding description entered in Schedule A, column (a).	(c) Number of shares held at beginning of annual accounting period	(d) Number of shares held at end of annual accounting period	(e) Pro rata share of subpart F income (enter as a percentage)

(a) Name, address, and identifying number of shareholder. Also, include country of incorporation or formation, if applicable.	(b) Description of each class of stock held by shareholder. Note: This description should match the corresponding description entered in Schedule A, column (a).	(c) Number of shares held at beginning of annual accounting period	(d) Number of shares held at end of annual accounting period