Hi,
Many U.S. owners of foreign businesses we talk to have never heard of Form 5471 – and that carries one of the harshest penalties in the entire tax code: $10,000 per form, per year, with no statute of limitations on the related return. You likely need to file Form 5471 if you are a U.S. citizen, green card holder, or resident and any of the following apply:
- You own 10% or more (by vote or value) of a foreign corporation
- You are an officer or director of a foreign corporation in which a U.S. person acquired a 10%+ stake
- You acquired, disposed of, or changed your ownership in a foreign corporation by 10% or more during the year
- You and other U.S. shareholders together own more than 50% of a foreign corporation (a Controlled Foreign Corporation, or “CFC”)
- You held an interest in a Section 965 specified foreign corporation
This catches a lot of people off guard – expats who started a small consulting company abroad, U.S. residents who inherited shares in a family business overseas, founders with a foreign holding company, and even officers/directors who don’t own a single share themselves.
What the penalties actually look like in practice:
- $10,000 initial penalty per foreign corporation, per year, for failing to file or filing a substantially incomplete return
- An additional $10,000 for every 30-day period the failure continues after IRS notice, up to a $50,000 cap – bringing total exposure to $60,000 per form per year
- A separate 10% reduction of your available foreign tax credit, which stacks on top of the cash penalty
- The statute of limitations on your entire related federal return does not start until you file – the IRS can come back years, even a decade, later
- In willful cases, criminal penalties under IRC sections 7203, 7206, and 7207
If you have any questions, concerns, didn’t know about this form, or just found out you may not have filed it in prior years – reply to this email by next Friday and we will set up a free 15-minute call with our international tax team. Sincerely,
—
George Dimov, CPA
Licensed and Insured
(833) 829-1120 toll free
(212) 994-8081 Fax
www.dimovtax.com