What Is Form 5471 and Who Must File It?

If you're a U.S. citizen or resident and you have direct or indirect ownership in a foreign corporation, you may be required to file Form 5471. Issued by the IRS (Internal Revenue Service), this form is not only complex, but failure to submit it properly can lead to significant tax penalties. In this article, we clearly explain what Form 5471 is, who must file it, when it's due, and what penalties apply if you don't comply.

What Is Form 5471?

Form 5471, officially titled Information Return of U.S. Persons With Respect to Certain Foreign Corporations, is an informational return required by the IRS for certain U.S. persons who have a relationship with foreign corporations. It is not a form to directly pay taxes, but rather a required report that accompanies your tax return. Its purpose is to ensure transparency in the international financial activities of U.S. taxpayers.

This form includes details about the corporate ownership structure, accumulated earnings, transactions between the corporation and U.S. shareholders, reorganizations, and more. It also includes specific schedules such as:

• Schedule E: Taxes paid to foreign governments
• Schedule H: Current and accumulated earnings and profits
• Schedule M: Transactions with related parties
• Schedule O: Reorganizations, acquisitions, and dispositions

Each schedule must be completed depending on the filer’s category and the characteristics of the foreign corporation involved.

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Who Needs to File Form 5471?

The IRS has outlined five main categories of filers required to submit Form 5471. Here's a breakdown:

Category 1 – Shareholders of a Specified Foreign Corporation (SFC)

Applies to U.S. persons who, since tax year 2018, own at least 10% of the vote or value of a foreign corporation classified as an SFC. This includes Controlled Foreign Corporations (CFCs) and any foreign corporation in which a U.S. domestic corporation holds a significant interest.

Category 2 – Officers and Directors

This category covers U.S. citizens or residents who serve as officers or directors of a foreign corporation, where another U.S. person has acquired at least 10% ownership. It includes both voting and value-based ownership.

Category 3 – Changes in Ownership

Includes individuals who acquire 10% or more in a foreign corporation, reduce their ownership below 10%, or become U.S. persons while holding 10% or more. This also applies in cases of inherited shares, gifts, or transfers to trusts.

Category 4 – U.S. Control of the Corporation

Covers U.S. persons who, individually or jointly with related parties, control more than 50% of a foreign corporation. Control may be direct, indirect, or constructive (i.e., via relatives or related entities).

Category 5 – Shareholders in a Controlled Foreign Corporation (CFC)

This is the most common category. It includes U.S. citizens or residents who, directly, indirectly, or constructively, own shares in a CFC — defined as a foreign corporation where U.S. shareholders collectively own more than 50% at any point during the tax year.

Practical Examples

Here are a few common situations that would require filing Form 5471:

• Example 1: María, a U.S. citizen, owns 30% of a company in Panama. Her sister, also a U.S. citizen, owns another 25%. Since they jointly control more than 50%, the company is considered a CFC and both must file Form 5471.
• Example 2: Luis, a U.S. resident, becomes a director of a Colombian company after his partner acquires 15% ownership. As an officer of a foreign corporation in which a U.S. person owns over 10%, Luis falls under Category 2.
• Example 3: Sofía inherits 12% of a foreign corporation while residing in the U.S. As a U.S. citizen, she must file under Category 3 due to the inherited interest.

When Is Form 5471 Filed?

Form 5471 must be submitted as part of your annual income tax return. If you’re an individual, it goes with your Form 1040; if you have a business, it attaches to your corporate return.

The typical filing deadline is April 15 for individuals and March 15 for corporations, although extensions may be requested. However, filing Form 5471 late—even with an extension for the main tax return—can result in penalties if not properly justified.

What Are the Penalties for Not Filing?

The IRS imposes strict penalties for non-compliance:

• $10,000 fine for each foreign corporation not reported.
• Additional $10,000 penalties may be assessed for each 30-day period of continued failure, up to a maximum of $50,000.
• The IRS may also reduce foreign tax credits by 10%, with further reductions of 5% per quarter during continued non-compliance.
• In severe cases, the failure may be treated as tax evasion, which carries criminal consequences.

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What If I Didn’t Know I Had to File?

It’s common for individuals to learn about the Form 5471 requirement years after acquiring an interest in a foreign corporation. If this is your case, it’s best to act quickly. You may be able to submit past-due forms through IRS streamlined compliance procedures or voluntary disclosure programs, which can reduce or eliminate penalties.

Whatever you do, don’t ignore it. The IRS has increasingly sophisticated tools to detect omissions in international tax reporting.

Conclusion

Form 5471 may be complex, but it plays a vital role in staying compliant with U.S. tax obligations if you own or control a foreign corporation. Failing to file or filing incorrectly can result in costly penalties and legal issues.

At Openbiz, we help entrepreneurs and international businesses meet all U.S. legal and tax requirements — including the proper filing of Form 5471. If you’re unsure about your filing obligations or need expert guidance, we’re here to help.

Do you own a foreign company and aren't sure whether you need to file Form 5471? Reach out to us — we’ll review your case and help you navigate it with confidence.

Frequently Asked Questions About Form 5471

Do I need to file if I don’t receive income from the foreign company?
Yes. The requirement is based on ownership or control, not on receiving dividends or income.

Can I file it without an accountant?
Technically yes, but it’s not recommended. It’s a technical form that requires specialized knowledge. Mistakes can cost you thousands in fines.

Is there a difference between filing as an individual or as a company?
Yes. The required schedules and level of detail vary depending on the type of filer and ownership.

Does the form apply only to for-profit companies?
Not necessarily. What matters is whether the foreign entity qualifies as a corporation and whether a U.S. person holds significant ownership.

Do you own an LLC, have investments abroad, or plan to expand internationally? At Openbiz, we help you stay compliant with the IRS and protect your business. Let’s get started today.

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