If you are at the healm of a corporation that’s based outside the United States, IRS form 5471 is something you should know about. It’s an informational form, meaning there will be no tax due. IRS informational forms come with requirements but they are not for collecting taxes. The IRS requires informational forms for all sorts of reasons…for example non-profits must file informational forms every year in order to maintain their tax-exempt status. If they don’t, they lose that status. For IRS Form 5471 the penalty for not filing can be monetary. It’s a very serious penalty: $10,000. And if you fail another 90 days after getting a warning: ANOTHER $10,000 is charged…every 30 days!
Got your attention now?
IRS Form 5471: What do They Need to Know?
Basically they want to know numbers…besides the usual identifying information such as names, addresses, and Tax ID numbers of people and corporations involved. You will have to categorize yourself: Categories 1-5, as denoted below. You don’t have to choose just one to describe yourself. You can choose multiple categories that apply to you.
- Category 1. Actually this is no longer a category but it used to be so skip to Category Two…
- Category 2. You are a director of a foreign corporation and you have the right to receive stock in the amount of at least 10% of the company + an 10% more. The additional 10% can be in actual stock ownership or it can be converted to voting power.
- Category 3. You aren’t a director but you acquire stock that when added to what you already own (if any) adds up to at least 10% stock. Acquiring stock isn’t the same as buying stock. Acquiring stock means you have the right to stock in a company because of some other reason other than purchasing it.
- Category 4. You had control of a foreign corporation for at least 30 days. That means you had more than 50% of the voting power or stock value. Stock can equal voting power or it can equal money value. If you own more than 50% of either one for at least 30 days then you are a Category 4 filer.
- Category 5. This is like Category 4 but you have power as a group of US shareholders.
The form itself isn’t simple…it’s four pages of mostly financial information about the foreign corporation:
- income statement
- list of US shareholders
- a description of stock of the corporation
- current earnings