Overview Of The Revised Form 5471

Content Who Must File The Form 5471? Form 5471 Instructions Automated Tax Technology What People Ask About The Form 5471 Form 5471, Informational Reporting Of Foreign Corporations Who Is Required To File Form 5471? What Is Form 5471? U.S. citizens and U.S. residents, officers, directors, or shareholders in certain foreign corporations are responsible for IRS […]

schedule q 5471

U.S. citizens and U.S. residents, officers, directors, or shareholders in certain foreign corporations are responsible for IRS Form 5471 filing. U.S. citizens and U.S. residents who are officers, directors, or shareholders in certain foreign corporations may well be responsible for filing Form 5471. The IRS has also issued a notice about a filing requirement for inclusion of virtual currency on the Report of Foreign Bank and Financial Accounts . Currently, FBAR regulations do not define a foreign account holding virtual currency https://turbo-tax.org/ as a type of reportable account. With the issuance of this notice, AAFCPAs believes there is intent to amend current regulations to include virtual currency as a type of reportable account. AAFCPAs will monitor the development of this notice and provide further guidance as it becomes available. As if the comprehensive form 5471 is not in and of itself complicated enough, there are several potential separate schedules that you may also have to complete in addition to the schedule is included as part of the actual form.

And the IRS will only increase its efforts in the future. For example, many US-Foreign Country tax treaties provide for complete cooperation between the two nations.

Who Must File The Form 5471?

So what I’m going to do is I’m going to point out all of those new things and discuss for you how to complete those items there. It’s nice when we’re in person and we’re petty cash able to actually talk and interact with each other. I know you can’t do that today, but there is a Q&A and I’m asking you to please write questions or comments.

  • Once we receive your signed e-file authorization and payment, we will file your return electronically with the IRS.
  • See the specific instructions for Schedule I, Line 5d, for details.
  • The schedule B is specifically focused on the shareholder.
  • New Question 22b asks, if the answer to Question 22a is “Yes,” was an election made to close the tax year such that no amount is treated as an extraordinary reduction amount or tiered extraordinary reduction amount.
  • So honestly it’s very not clear over here where that would go, which is just like I said, the IRS, as I just went through with you, where does that fit?

So if anybody’s doing business with Iran, that would go over there. So again, we had our 1Bs and our 1Cs, and then we had our questions down below all those check boxes that got added. So the most important one, the new one that’s going to be difficult for you to understand is check this box if you relied on alternative information when you prepared the tax return. So that means you’re a foreign controlled CFC and you relied on alternative information.

Form 5471 Instructions

The question five is really just now dividing it into what buckets you would have it on your 1116s, so to speak, if you’re filing an 1116 for this. I am going to spend a couple of minutes going into detail with you on downward attribution. The only way to understand the new filing categories is to understand downward attribution. The most important thing for you to remember as we discuss downward attribution is those new categories, 1B and 1C, 5B and 5C are only applicable to foreign controlled CFCs. I’m going to explain to you right now what foreign controlled CFCs are. So if you’re filing a regular Form 5471 for a person who owns this company.

Failing to file Form 5471 or filing incorrectly can lead to penalties. Any individual who fails to file Form 5471 or supply all of the required information is subject to a reduction of 10% of the foreign tax credit available to them. A severe schedule q 5471 penalty is imposed for failure to comply with Form 5471 reporting. Now I see some questions that are not applicable to the Schedule E, so I will come back to them at the end, just because I want to stay with some sort of direction.

schedule q 5471

We’re going to have those, just be Column A, B and C here, and remember if it’s in functional currency and US dollars. So again, if I have a hundred dollars of income and it’s treated as GILTI, I’m going to put it in column A row three. In column A row eight, I’m going to show a minus a hundred dollars. And then in column eight VII, row eight, I’m going to put in the hundred dollars. Now someone just asks, assuming software still don’t allow e-file or 951A category.

Finally, CFC shareholders will be required to account and disclose any foreign income on Schedule Q that was excluded from U.S. federal tax under the GILTI and subpart F high-tax exclusions. The Form 5471 instructions state that this form is an information return that is applicable to U.S. Residents who are officers, directors, or shareholders in certain foreign corporations.

Automated Tax Technology

It is important to properly assess and evaluate the business information before attacking the form and then carefully and methodically moving through each section. If it gets too overwhelming, you may want to consider retaining a specialist to assist you. This is probably enough information for one article, and if you’re still awake will be posting additional articles identifying the separate schedules and instructions for each one of those as well. When a US Person has control of a foreign corporation, then they are required to disclose the information on the Form 5471 under Category 4 Filer.

The user of this should contact his or her AAFCPAs advisor prior to taking any action based on this information. AAFCPAs assumes no obligation to inform the reader of changes or other factors that could affect the information contained herein.

Reach out to Brian Abbey and Raymond Wynman. Watch the original webinar on demand here. Participants asked several questions during the session, including some that we could not address due to time constraints. Call us or fill out the form to schedule your consultation now.

This leaves your return open for audit and penalties indefinitely. What Happens if You Don’t File Form 5471 On Time? If you fail to file the form, you can be subject to a substantial penalty of $10,000 or more each year. Your accountant will work with you to ensure your tax return is accurate and uncovers all the best opportunities for savings and deductions. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by AAFCPAs to the user. The user is also cautioned that this material may not be applicable, or suitable for, the user’s specific circumstances or needs, and may require consideration of non-tax and other factors if any action is to be contemplated.

So it’s nice that they’ve left this one easy for us, at least for right now. Schedule B, Part 2 also hasn’t changed, but since this is relatively new, I’m going to remind you that if you’re a category four filer, you will list all the direct owners of the CFC. If you’re a category one, three or five filer, you’re going to list all of the direct owners of the CFC that gave you that ownership in the CFC. So if you own the CFC indirectly, you would list all of the other entities that you have to go through in order to get to your ownership in the CFC. This webinar explains the Form 5471 information reporting including the various nuances and calculations necessary to complete the form.

The laws are applicable only concerning the income of an entity that is not currently taxable to its owners. The financial information must be presented using the US generally accepted accounting principles (U.S. GAAP), which typically differ from those used to produce foreign financial statements. So, there is some work required in converting financial statements to the necessary format. Last but not least, if the form is not filed, your Form 1040 would be considered to be non-filed.

schedule q 5471

And again, this goes back to how many people in the IRS actually understand what they’re looking at here, probably very, very few and what’s the time value of your money and your sense of time and your money. What’s the money value of your time and the risk benefit reward factor of picking something in the mail, especially in the middle of COVID is payroll going to be much more of a risk than just e-filing with that same general category. So I do still think if you can’t e-file, if it doesn’t say general, just stick it in as general. Another question that I had is high tax is the actual percentage of tax paid, meaning if prior losses reduced your income to zero, then the high tax is not applicable?

What People Ask About The Form 5471

There is a place to check in the box if the U.S shareholder doesn’t have all of the information applicable. Remember, the schedule J is from the perspective of CFC. We’re going to look at the schedule P in a few minutes, which is different, it’s from a different perspective but the schedule J is from the perspective of the CFC. So what we’re looking at over here, is the full picture of what’s going on with this corporation and their earnings and profits.

It’s too bad I can’t see your faces nodding so I don’t know if you understood. And it’s a little bit backwards so I apologize for if it’s not clear, or if I repeated myself too much. If we look at this first page of the form 5471, as I said, it’s fairly familiar to us, but we’ve got our extra categories over there, the 1B and the 1C, the 5B and the 5C. Only an entity that became a CFC because of downward attribution.

If you have other foreign financial assets, you may be required to file Form 8938, Statement of Specified Foreign Financial Assets. However, you are not required to report any items otherwise reported on Form 5471 on that form. See the Instructions for Form 8938 for more information. The filer is a U.S. shareholder that only owns stock, within the meaning of section 958, in the foreign corporation. On page 6 of Form 5471, Schedule I, line 9 is new.

The most streamlined way to determine your unique instructions is by speaking with a seasoned international tax professional. A professional is able to determine what you need to fill out, and how is the best way to do so. Form 5471 is made complicated by the schedules included within the form, which are detailed below. Reporting requirements for the Form 5471, “Information Return of U.S. Persons with Respect to Certain Foreign Corporations”, have expanded significantly since tax reform legislation was passed in late 2017.

10% or more of the total combined voting power of all classes of stock with voting rights. See Related constructive U.S. shareholder, later, for instructions pertaining to when Form 5471 may be completed as a Category 1c filer. See Unrelated section 958 U.S. shareholder, later, for instructions pertaining to when Form 5471 may be completed as a Category 1b filer. Schedule J, Part I, line 3, has been updated to include a reference to Schedule H .

What Is Form 5471?

Things are not likely to improve next tax season. This is because the IRS has decided to add two more schedules to Form 5471. Beginning in this tax season, controlled foreign corporation (“CFC”) shareholders could be required to attach all new Schedule Q and Schedule R to the Form 5471. Category 4 and Category 5 filers will be required to attach Schedule Q and Schedule R to their Form 5471.

Author: Loren Fogelman