The IRSMedic 2020 Form 5471 Guide Part 1: Overview - What is IRS Form 5471?

The IRSMedic 2020 Form 5471 Guide Part 1: Overview - What is IRS Form 5471?

Our 2016 Form 5471 series proved to be such a success however, Tax Reform made some of that information obsolete. In this part of our updated guide, international tax attorneys Anthony Parent and Robert Hanson discuss the following commons questions that taxpayers, CPAs, enrolled agent and attorneys have about IRS Form 5471. What is IRS Form 5471? IRS Form 5471 is one of the hand full of forms part of the very consequential international information reporting forms, and it's for US persons who are shareholders in foreign corporations to disclose their ownership of that foreign corporation. It is a form few have to file. But for those who do, it is one the most complicated forms we come across. Is Form 5471 based on US sourced income or worldwide income? Really neither. It's definitely not based on US income and it's not even necessarily based on foreign income per se. For instance, you could have a foreign entity that doesn't generate income and still have a Form 5471 filing requirement. Be aware - Form 5471 actually might not have any tax due. There are some changes where there is not a tax return component but we'll get to that in a little bit. When was Form 5471 introduced? Sometimes 1960s. It has been around a long time. And if you don't file it the IRS has forever to assess. So even if you're missing one an unfiled 5471 keeps your entire return open permanently. So it's really one of those things you want to make sure you get done correctly because any tax year you have however unlikely could be open indefinitely without a correctly filed 5471 if one's required. So what is Form 5471 used for? It is fairly easy for the government to Summons or Subpoena any bank or business record in the United States. But what if the records were located overseas? Even with FATCA, it is very difficult and expensive for the IRS to do so. So this is what Form 5471 is meant to do. It is meant to make it as easy for the IRS to audit a foreign corporation owned by US persons as it is to audit a domestic corporation owned by US persons. But of course it doesn’t work that way at all, the forms complications ensure that there is nothing easy about audited a foreign corporation. Yet the Form 5471 labyrinth is enforced by severe penalties. So for many US taxpayers, their best choice is to simply pay the higher costs associated with being in Form 5471 compliance and leave it at that - as they simply have to much to lose. What about a situation you have a dormant 5471 and no income? If you otherwise don’t have tax return filing requirement and a dormant 5471 you might still have still want to file the Form 5471. Sometimes it might pay to be a little bit more conservative with this and file a 1040 within income an attachment 5471 if you're not sure. The benefit of being conservative here is that if you do start making money, you likely won’t forget about your Form 5471 requirement. Is Form 5471 a Standalone Form? It is not considered as such. Although there can be instances where stand alone For 5471 needs to be filed. The form is typically attached to a 1040 variant if filed by an individual or an 1120 variant if filed by a corporation. What’s the difference between an 1120-F and a Form 5471? A foreign corporation files an 1120-F to report its income, gains, losses, deductions, credits, and to figure their U.S. income tax liability. A Form 5471 is used to report certain US shareholders interests in a foreign entity. What is Form 5471 and what is Form 5472? While they are close in numbers, they are actually quite different. Form 5472 is almost the mirror image of the 5471. The 5471 is for US shareholders of foreign corporation and the 5472 is for domestic entities that are held more than 25% by non-US persons that also might have some non-reportable transaction and reportable transactions. Now while the Form 5472 doesn’t get the attention Form 5471 does, it should, as the Form 5472 are much higher than the 547. Tax Reform increased 5472 penalties to $25,000, while Form 5471 penalties remain at a still extreme, $10,000. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 Assisting US taxpayers worldwide (203) 269-6699 (888) 477 4258 https://youtu.be/9x-VCwWU8m8 IRS Medic