Controlled Foreign Corporations -Form 5471

Form 5471, Information Returns of U.S. Persons with Respect to Certain Foreign Corporations

United States citizens and residents who are officers, directors, or shareholders in certain foreign corporations are responsible for filing Form 5471, Information Returns of U.S. Persons with Respect to Certain Foreign Corporations, if they possess a certain level of ownership or control in a foreign corporation. U.S. domestic corporations, partnerships, and trusts must also file Form 5471.

Form 5471 is filed as an attachment to the annual federal income tax return – Form 1040 for individuals, Form 1120 for corporations, Form 1065 for partnerships, and Form 1041 for trusts. The due date for Form 5471 is the same as the due date of the income tax return, including valid extensions.

Following is a list of definitions associated with Form 5471:

  • Category One Filer: The related filing requirement was repealed by Section 413(c)(26) of the American Jobs Creation Act of 2004.
  • Category Two Filer: This includes a U.S. citizen or resident who is an officer or director of a foreign corporation in which a U.S. person has acquired (in one or more transactions): i) Stock which meets the 10% stock ownership requirement with respect to the foreign corporation; or ii) An additional 10% or more (in value or voting power) of the outstanding stock of the foreign corporation. Importantly, a U.S. person is considered to have “acquired” stock when that person has an unqualified right to receive the stock, even if the stock is not actually issued.
  • Category Three Filer: This category includes: i) A U.S. person who acquires stock in a foreign corporation which, when added to any stock owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation; ii) A U.S. person who acquires stock which, without regard to stock already owned on the date of acquisition, meets the 10% stock ownership requirement with respect to the foreign corporation; iii) A person who is treated as a U.S. shareholder under Section 953(c) of the Internal Revenue Code with respect to the foreign corporation; iv) A person who becomes a U.S. person while meeting the 10% stock ownership requirement with respect to the foreign corporation; or iv) A U.S. person who disposes of sufficient stock in the foreign corporation to reduce his or her interest to less than the stock ownership requirement.
  • Category Four Filer: This includes a U.S. person who had control of a foreign corporation for an uninterrupted period of at least thirty days during the annual accounting period of the foreign corporation.
  • Category Five Filer: This includes a U.S. shareholder who owns stock in a foreign corporation that is a controlled foreign corporation for an uninterrupted period of thirty days or more during any tax year of the foreign corporation, and who owned that stock on the last day of that year.
  • Stock Ownership Requirement: For the purposes of Category 2 and 3, the stock ownership threshold is met if a U.S. person owns: i) 10% or more of the total value of the foreign corporation’s stock; or ii) 10% or more of the total combined voting power of all classes of stock with voting rights.
  • Control: A U.S. person has control of a foreign corporation if, at any time during that person’s tax year, it owns stock possessing: i) More than 50% of the total combined voting power of all classes of stock of the foreign corporation entitled to vote; or ii) More than 50% of the total value of shares of all classes of stock of the foreign corporation.
  • U.S. Shareholder: For the purposes of Category 5, a U.S. shareholder is a U.S. person who: i) Owns, directly, indirectly, or constructively, 10% or more of the total combined voting power of all classes of voting stock of a controlled foreign corporation; or ii) Owns, directly or indirectly, stock of a controlled foreign corporation that is also a captive insurance company.
  • Controlled Foreign Corporation: A foreign corporation that has U.S. shareholders that own, directly, indirectly, or constructively, on any day of the ax year of the foreign corporation, more than 50% of: i) The total combined voting power of all classes of its voting stock; or ii) The total value of the stock of the corporation.international taxes

Potential Penalties

Civil penalties that range from $10,000 to $50,000 per violation may apply for failure to file Form 5471. Additional, criminal penalties including fines and incarceration may apply if willfulness and intent can be shown.

Sigma Accountants LLC can help you figure out how to best minimize your risk. If you have unreported foreign income or non-compliant offshore accounts and have not yet entered the OVDP, or if you have already entered the OVDP through a tax attorney, we can assist in preparation of the necessary Form 5471s.

 

 

 

Disclaimer: Information provided by Sigma Accountants LLC on this site is not to be construed as legal, tax, or accounting advice. Every effort is made to provide current and accurate information but tax laws and regulations can change and errors can occur. This information is provided “as is” with no guarantees of completeness or accuracy and without warranties of any kind- express or implicit.