What is Form 5471?
You may have heard of Internal Revenue Service (“IRS”) Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, which has increased in significance after the passing of the Foreign Account Tax Compliance Act (“FATCA”) in 2010 and the Tax Cut and Jobs Act (“TCJA”) in December 2017. Form 5471, is an informational return that reports activity of foreign corporations in which certain U.S. citizens or residents, who are officers, directors, or shareholders of a certain foreign corporation are required to file. The term “certain” leaves room for interpretation, which is why it is important to consult a tax attorney who understand the different categories of fillers the IRS provides.
What is the difference between form 5471 and 5472?
Form 5471 relates to certain interests and transactions related to a U.S. taxpayer’s ownership in a foreign corporation. Form 5472, Information Return of a 25% Foreign Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is filed by either U.S. corporations with at least 25% of foreign owners or a foreign corporation which engages in a U.S. trade or business.
Do I need to file a form 5471?
U.S. persons, whether an individual, business entity, trust, or estate, who owns more than 10% of value or voting rights of a foreign corporation will likely need to file Form 5471. If you are required to file Form 5471, the Form must be “substantially complete” and you should attach the Form to your income tax return and file both by the due date (including extensions) for the return. The IRS Form 5471 instruction includes five different categories of persons who are required to file the Form – Category 1, 2, 3, 4, or 5.
What is a category 1 filer?
Category 1 filers must be U.S. citizens or residents that are shareholders (own at least 10% or more of the total combined voting power or value of all shares of all classes of stock) of a foreign corporation that is a section 965 specified foreign corporation (“SFC”) at any time during any tax year of the foreign corporation, and who owned stock on the last day in that year on which it was an SFC. A specified foreign corporation, for purposes of this category, is either a Controlled Foreign Corporation (“CFC), which includes foreign corporation that has U.S. shareholders that own (directly, indirectly, or constructively) more than 50% of the total combined voting power of all classes of stock or the total value of the stock of the corporation, or is a foreign corporation with respect to which one or more domestic corporations is a U.S. shareholder.
What is a category 2 filer?
There are two parts to the Category 2 filer. First, the Category 2 filer must be U.S. citizens or residents that are either an officer or director of a foreign corporation. Second, the foreign corporation must be one in which a U.S. person has acquired at least 10% of the total value of the stock or 10% or more of the total combined voting power of all classes of stock with voting rights.
What is a category 3 filler?
Category 3 filers include U.S. persons that acquired additional stock in order to meet the 10% stock ownership requirement. This category also works in reverse, meaning a U.S. person who disposed of stock in a foreign corporation to reduce their stock ownership below the 10%.
What is a category 4 filer?
To be a category 4 filer, you must meet the “control” requirements of a foreign corporation at any time during your tax year. Specifically, this category is for U.S. persons who own at least 50% of the total value of a foreign corporation’s stock or have at least 50% of the corporation’s voting rights.
What is a category 5 filer?
Category 5 filers include U.S. shareholders who own at least 10% of stock in a foreign corporation that is a CFC (see above in Category 1) at any time during the tax year of the foreign corporation, and who owned that stock on the last day in that year on which the foreign corporation was a CFC.