Table of contents:
Q: I own a foreign corporation but receive no income from it. Should I file? Do I need Form 5471?
A: It is a tricky question. If you do not file Form 5471, you could leave yourself open to penalties. There is no check box to indicate that you are not required to file Form 5471 due to low income. If you file Form 5471, you must also file Form 1040.
The purpose of Form 5471 is to disclose any assets that you currently do not include as part of your taxable income (which puts you below the filing threshold for Form 1040) to the IRS. However, you have retained earnings that are ultimately yours, and the IRS will not accept Form 5471 unless it is attached to Form 1040, which may declare zero income.
Q: Can you prepare Form 5471 as a stand-alone form?
A: Form 5471 is an informational return submitted to the IRS as an attachment to Form 1040. The calculations performed on Form 5471 correspond with specific lines on Form 1040. Moreover, because of the difference in the foreign corporation accounting period and the U.S. accounting period, in some cases, numbers from Form 5471 will need to be prorated to reconcile any differences between it and Form 1040.
We strongly advise you to complete and file Forms 5471 and 1040 together, even if you hire a preparer to do it for you. Most tax preparers will recommend this rather than relying on the client to report that additional information to the IRS separately. For these reasons, we do not prepare Form 5471 as a stand-alone form and do not advise that you work with tax firms willing to do so.
For the same reasons, it's impossible to prepare Form 5471 for one year and then copy it for each year. "Copying" the same form for multiple years puts you at risk of filing an incorrect return, and we cannot recommend it.
You cannot "copy" one Form 5471 for use for another year because specific schedules do not simply roll over but are dependent on prior year numbers (decrease or increase).
Suppose you received any distributions from the company (unless the corporation is dormant, this is highly probable). In that case, those distributions must be reported on Form 1040 and will affect all other calculations on the form, increasing the odds of the IRS examining your return.
Q: Does a U.S. corporation owned by siblings, all of whom are U.S. citizens, require filing multiple copies of Form 5471?
A: No, we can file one Form 5471 for you that reports all U.S. shareholders.
If the shareholders are not related, it may be a more excellent gamble unless you can be sure that the shareholder responsible for filing included your information when filing Form 5471.
Each family member will receive a copy of Form 5471. One tax preparer must be used to facilitate information sharing.
Q: I will be filing Form 5471 for my foreign corporation using Taxes for Expats. Can I add another U.S. shareholder of the same foreign corporation who is not a TFX client and file Form 5471 on their behalf?
A: Yes, you can do it. When completing your Tax Questionnaire, follow these steps:
Go to Income > Corporation & Trust > Entity List and create a non-U.S. corporation entity.
When answering the questionnaire for the non-U.S. corporation entity, scroll down to the Documents section, and select Yes for the question Will you file Form 5471 on behalf of any other U.S. shareholder?
Note: if you don't see the Corporation & Trust subsection, follow these steps:
Click the Configure Life & Income button.
On the next page, under the question I have ownership in a corporation, partnership, or trust, select Yes.
Also, under the question I have ownership in a non-US corporation or partnership, select Yes, and then click Submit.
Q: I own my own French company (SARL). Do I need to file Form 5471?
A: Yes, a SARL is considered a foreign corporation and requires filing Form 5471. Unlike SARL or EURL, EI (Enterprise Individual) is not considered a corporation and can be reported via Schedule C.
Q: Form 5471 is for a corporation, but what about a partnership?
A: Please note there is a separate form for partnerships (Form 8865) when you complete your documents we will determine whether you need Form 5471 or 8865.
Q: I am up to date with my tax returns, but I did not file Form 5471 for my foreign corporation
A: There is a unique program for this: the Delinquent Informational Return Program. This program can also be used if you've failed to report other informational returns (i.e., Foreign Trust 3520-A)
Participation in this program entails three amended returns, one for each of the past three years (assuming you have not filed the informational return for three years) and three Form 5471 (assuming that that is the missing form), one for each year. Finally, a reasonable cause statement must be attached to explain your failure to file.
You could also potentially be required to file FATCA (Form 8938) if the balance on the company accounts (previously unreported) puts you over the filing threshold.
If you are at least a 10% shareholder in a foreign corporation, you must file Form 5471. Failure to do so can carry very stiff penalties.
Eligibility requirements
You have not filed one or more required international informational returns,
You have reasonable cause for not having filed the informational returns promptly,
You are not under a civil examination or a criminal investigation by the IRS, and
The IRS has not already contacted you about your delinquent informational returns.
For pricing information in addition to the fee for Form 5471, refer to Streamlined Procedure – IRS Amnesty Program.
Note: there are no 'almost-dormant' corporations (just like one cannot be almost pregnant). The occurrence of any business activity during the year would mean the corporation is no longer dormant and would require the preparation of Form 5471.
Q: Is it advisable to classify an eligible entity as disregarded as separate from its owner?
A: Corporations set up in foreign countries are required to file Form 5471.
In general, we do not recommend classifying an entity as disregarded as separate from its owner. Doing so will not simplify the filing process, as you would need to file Form 8858 and Schedule C instead of Form 5471 without the added benefits described here.
Q: I own a corporation and pay myself a salary. How do I report this on my return?
A: If you own a foreign corporation, you are required to file Form 5471. You should also report the salary you received from the corporation as income on your 1040 personal tax return.
Q: I own a dormant corporation which I’m planning to dissolve this year. Do I still need to file?
A: You must file for this corporation for the year in question to be safe. Corporations that haven't experienced any activity don't necessarily qualify as dormant. No shares can have been acquired or disposed of over the year to allow as static. You must report the acquisition or disposition of any shares on Form 5471.
There is a confusing clause in the instructions which is often misinterpreted:
No foreign corporation shares (other than the directors' qualifying shares) were sold, exchanged, redeemed, or otherwise transferred, nor was the foreign corporation party to a reorganization.
Which logically leads to questions like this:
I founded the corporation. I am the president, and all the initial shares were issued to me at the company's founding. Does this mean that I am the director and, therefore, the shared activity is exempt?
The quote referenced above means that issuing qualifying shares to directors is an exempt event, and a corporation may remain dormant if no other events occur. However, the director wears many hats. You are not only the self-appointed director. You are also a shareholder. The major reportable event is a company shareholder's acquisition and disposition of shares. Because of this, companies are not considered dormant in the year when they are created and in the year when they are dissolved.