Form 5471 for U.S. Shareholders of
Foreign Corporations
This is an “Information Return of U.S. Persons
With Respect to Certain Foreign
Corporations.” It is required to be filed at the time that you file
your
corporate or personal tax return, including any extended filing date. A
second
copy must be sent to the Philadelphia
office of the IRS.
If you are: (1) a shareholder, director or
officer in a foreign corporation; (2) the grantor of a trust that has
formed a
foreign corporation (aka IBC); or (3) an individual whose U.S.
corporation or
partnership owns shares in a foreign corporation, then you must
determine
whether you are required to file IRS Form 5471.
There are five categories of persons required
to file this form:
(1) A U.S.
citizen or resident who is an officer, director or a 10% shareholder of
a FPHC
(i.e. an investment company).
(2) A U.S. citizen or resident who is an
officer or
director of a foreign corporation in which a U.S. person has acquired
stock that
meets the 10% ownership requirement.
(3) A U.S.
person (defined below) who acquires stock in a foreign corporation,
which when
added to any stock owned meets the 10% ownership requirement.
(4) A U.S.
person who had control of a foreign corporation for an uninterrupted
period of
at least 30 days during the accounting year of the corporation.
(5) A U.S.
shareholder who owns stock in a foreign corporation that is a CFC for
an
uninterrupted period of 30 days or more during any tax year and who
owned that
stock on the last day of the year.
For the purposes described above, a “U.S.
Person” includes a citizen, permanent resident, domestic partnership,
domestic
corporation, a domestic trust or a domestic estate.
Depending on which of the five categories
apply to a particular taxpayer, different schedules must be completed.
An
officer of director of a CFC who is not an owner of the CFC will be
required to
file under category 2 where certain U.S. persons have acquired
additional stock
in the corporation. A category 2 filer is only required to complete
page one
and schedule G. Where a U.S.
corporation is the 100% owner of a foreign corporation that is not a
FPHC, the
corporation could be classified as a category 3, 4 and 5 filer. In this
case,
all of the schedules except Schedule A, Part II and Schedule O, Part 1
may be
required.
In the instructions to the 2006 Form 5471, the
IRS estimates that the average time required for record keeping to
prepare this
form is 82.5 hours, that the average time required for learning about
the form
is 16 hours and that the average time required to prepare the form is
24 hours.
(That does not include the separate time estimates for schedules J, M,
N and
O.) Clearly, these time estimates are for fairly substantial business
activity
rather than for a foreign corporation with only a few transactions.
However, we
believe the time required to learn how to prepare this form is much
greater
than the IRS estimate, even for a tax professional who familiar with
domestic
tax law.
A nasty surprise that your preparer discovers
when reading the instructions is that Schedules C, F and H must be
prepared on
the basis of U.S. based GAAP (generally accepted accounting
principles). This
precludes the use of the cash or hybrid method of accounting. The
return itself
is just four pages, but there are also four pages of worksheets
included in the
15 pages of instructions.
You must find out if you or your company is
required to file this form. If you have any ownership interest in a
foreign
corporation or if you are an officer or director of a foreign
corporation, you
must file. If you are the grantor of a foreign trust and if the trust
owns
shares in a foreign corporation, you may have to file this form. The
following
is a partial list of who has to file. If you own 50% or more of a
domestic
corporation or partnership that owns 10% or more of a foreign
corporation, you
might be required to file this form.
The penalties for a failure to file the
return are severe - and it
is not necessary that the corporation have any profits for the
penalties to
apply. A return must be filed even if there is no taxable income to
report.
Complete details of the applicable penalties are provided in the
instructions
to Form 5471, but in general, the penalty is $10,000 per year for
failing to
file the form. In addition, if the form is not filed, your personal
income tax
return is deemed to be incomplete and the statute of limitations does
not begin
to run until the information required by Form 5471 has been submitted.
This
form is required to be filed by April 15th
or the extended due date of your personal or corporate tax return.
