- U.S. person becomes a director or officer of a foreign corporation
- U.S. person acquires an ownership interest in a foreign corporation in excess of the prescribed limits
- U.S. person disposes of stock in a foreign corporation that reduces his or her interest in the foreign corporation to less than the prescribed limits
- U.S. person is in control of a foreign corporation for an uninterrupted period of at least 30 days in a year
-U.S. person is a 10% or more shareholder in a foreign corporation that is a “controlled foreign corporation” for an uninterrupted period of at least 30 days in a year and that person owns that stock on the last day of the year.
In determining the ownership interest, the complex rules of direct, indirect, and constructive ownership come in to play as well.
If the form 5471 is not filed, your Form 1040 would be considered to be non-filed by the IRS leaving your individual return open for audit and penalties indefinitely.
The Form 5471 filing is attached to your individual income tax return and is to be filed by the due date (including extensions) for that return.
If you fail to file the form and were required to file the form you can be subject to a substantial penalty $10,000 or more for each year. Additional penalties of up to $50,000 are charged for instances of continued failure. Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit. Continued cases of failure are also subject to additional reductions. In addition, criminal penalties may also apply for failure to file the requisite information.
Are you directly or indirectly involved in a foreign corporation as discussed above? Contact us to determine if you have any filing obligations.