Form 5471 is used by the IRS to satisfy the informational reporting requirements of 26 U.S.C. § 6038 (“Information reporting with respect to certain foreign corporations and partnerships”) and 26 U.S.C. § 6046 (“Returns as to organization or reorganization of foreign corporations and as to acquisitions of their stock”). It must be filed by certain U.S. citizens and residents who are officers, directors, or shareholders in specified foreign corporations, if various requirements are met. The penalties can be steep, so compliance with the reporting rules is crucial. In this article, I will describe the most important of these penalties.
If taxpayer does not file the required information, criminal penalties may apply in certain circumstances. The penalty provisions are 26 U.S.C. § 7203 (“Willful failure to file return, supply information, or pay tax”), 26 U.S.C. § 7206 (“Fraud and false statements”), and 26 U.S.C. § 7207 (“Fraudulent returns, statements, or other documents”).
Failure to file information required under section 26 U.S.C. § 6038(a) (Form 5471 and Schedule M)
A $10,000 penalty will be imposed for each annual accounting period of each foreign corporation if the necessary reporting information is timely not filed. If the IRS sends the taxpayer a notice of a failure to file, an additional $10,000 penalty (per foreign corporation) will be charged for each 30-day period (or fraction thereof), during which the failure continues after the 90-day period in which the notification occurred, has expired. This additional penalty is limited to a maximum of $50,000 for each failed filing.
Additionally, if all of the required information is not timely reported or filed, a taxpayer may be subject to a 10% reduction of certain available Foreign Tax Credits. A further 5% reduction may be applied for each 3-month period (or fraction thereof), during which the failure to timely report or file continues after the 90-day period of IRS notification has expired. (26 U.S.C. § 6038(c)(2) places certain limitations on this penalty).
Failure to file information required by 26 U.S.C. § 6046 and related regulations (Form 5471 and Schedule O)
Taxpayers who fail to file or report all of the information under 26 U.S.C. § 6046 will be subject to a $10,000 penalty for each failure, for each reportable transaction. Additionally, if the failure to report or file continues for more than 90 days after the date the IRS mails notice of this failure, an additional $10,000 penalty will apply for each 30-day period (or fraction thereof) during which the failure continues after the 90-day period has expired. This additional penalty is limited to a maximum of $50,000.
Further, taxpayers who have another person file required Form 5471 and Schedule J, M, or O for them may be subject to the above-cited penalties if the other person does not correctly file the required form and schedules.
Contact Sherayzen Law Office NOW For Legal Help With The IRS Form 5471
Do you have questions regarding Form 5471 reporting issues, or concerns that you may be neglecting to report required information and schedules that can lead to substantial penalties? Sherayzen Law Office is here to assist you in all of your international tax needs. Call now at (612) 790-7024 to discuss your tax situation with an experienced business tax lawyer.