The Complete Guide to Form 5471 for U.S. Shareholders of Foreign Corporations
Professional guidance for U.S. persons with foreign corporate interests on Form 5471 compliance, CFC reporting, GILTI, and Subpart F income requirements
Key Information About Form 5471
Form 5471 is required for U.S. persons who are officers, directors, or shareholders in certain foreign corporations. The form reports ownership interests, financial information, and income from controlled foreign corporations (CFCs), with penalties up to $60,000 per form for non-compliance. This is an “outbound” form tracking U.S. investment in foreign corporations.
Key Takeaways: Form 5471 at a Glance
- Who files: U.S. persons with 10%+ ownership in foreign corporations (5 filer categories)
- Penalty: $10,000 initial, up to $60,000 maximum per corporation per year
- Deadline: Filed with your tax return (April 15 individuals, March 15 businesses)
- GILTI reporting: Required for CFC shareholders even without distributions
- 2026 changes: GILTI becomes NCTI under OBBBA with new 15% corporate rate
Form 5471 vs Form 5472: Quick Comparison
| Feature | Form 5471 | Form 5472 |
|---|---|---|
| Direction | Outbound (U.S. owns Foreign) | Inbound (Foreign owns U.S.) |
| Ownership Threshold | 10% | 25% |
| Initial Penalty | $10,000 | $25,000 |
| Maximum Penalty | $60,000 | No cap |
Comprehensive Coverage of Form 5471 Topics
What is Form 5471 and Why It Matters
Form 5471, “Information Return of U.S. Persons With Respect to Certain Foreign Corporations,” is a critical compliance requirement under IRS sections 6038 and 6046. This form serves as the IRS’s primary tool for tracking outbound U.S. investment in foreign corporations and ensuring proper reporting of foreign corporate income.
The form itself doesn’t directly calculate tax liability, but the information reported often triggers taxation under Controlled Foreign Corporation (CFC) rules, Subpart F income provisions, and GILTI regulations (renamed NCTI—Net CFC Tested Income—starting in 2026 under the One Big Beautiful Bill Act).
2025 OBBBA Tax Law Changes
The One Big Beautiful Bill Act (signed July 4, 2025) significantly changes CFC taxation effective for tax years beginning after December 31, 2025. Key changes include: GILTI renamed to NCTI, QBAI exclusion eliminated, Section 250 deduction reduced to 40%, and FTC haircut reduced to 10%. See our GILTI/NCTI guide for details.
Outbound vs. Inbound International Reporting
Form 5471: Outbound (U.S. person → Foreign corporation)
Form 5472: Inbound (Foreign person → U.S. corporation)
Form 8865: Foreign partnership interests
Understanding the direction of investment determines which form applies.
Form 5471 is one of the most complex forms in the Internal Revenue Code, potentially requiring 12+ schedules for Category 4 and 5 filers. The form gathers detailed financial and ownership information including income statements, balance sheets, earnings and profits calculations, and related party transactions.
Who Has Form 5471 Obligations?
- U.S. Citizens: Regardless of where they live, including expatriates
- U.S. Residents: Green card holders and those meeting substantial presence test
- U.S. Corporations: Including those owned by foreign parents
- U.S. Partnerships: With interests in foreign corporations
- Trusts and Estates: With foreign corporate holdings
Key Statistic: With over 12 million U.S. citizens living abroad, many have potential Form 5471 obligations they may not be aware of, particularly if they own or control businesses in their country of residence.
The Five Categories of Filers Explained
Understanding your filer category is essential because it determines which schedules you must complete and your ongoing filing obligations. Many taxpayers fall into multiple categories simultaneously and must file all schedules required by each applicable category.
SFC Shareholders
U.S. shareholders of specified foreign corporations (Section 965)
Officers/Directors
At time of 10%+ acquisition by U.S. shareholder
Ownership Changes
Acquiring or disposing of 10%+ ownership
Controlling Persons
More than 50% ownership by vote or value
CFC Shareholders
10%+ ownership in a controlled foreign corporation
Category 1: U.S. Shareholders of Specified Foreign Corporations (SFCs)
Category 1 applies to U.S. shareholders of foreign corporations that qualify as specified foreign corporations under Section 965 transition tax provisions. This category has three subcategories (1a, 1b, 1c) and requires annual filing with limited schedules.
Category 2: Officers and Directors
Category 2 applies to U.S. persons who are officers or directors of a foreign corporation at the time when another U.S. shareholder acquires 10% or more ownership. This is typically a one-time filing triggered by the acquisition event, requiring only Schedule O.
Category 3: Ownership Changes
Category 3 filers are U.S. persons who:
- Acquire stock in a foreign corporation that meets the 10% ownership threshold
- Dispose of stock that drops their ownership below 10%
- Become a U.S. person (immigrant/naturalized citizen) with existing 10%+ foreign ownership
This is an event-based filing requiring Schedules A, B, G, and O.
Category 4: Controlling U.S. Persons
Category 4 is the most comprehensive category, applying to U.S. persons who control a foreign corporation (more than 50% of total voting power or value) for an uninterrupted period of at least 30 days during the tax year. This requires the full complement of schedules including financial statements, E&P calculations, and related party transaction reporting.
Category 5: U.S. Shareholders of CFCs
Category 5 applies to U.S. shareholders (10%+ owners) of controlled foreign corporations (CFCs). A CFC is a foreign corporation with more than 50% U.S. shareholder ownership. Category 5 has three subcategories (5a, 5b, 5c) and is the primary category for GILTI and Subpart F income reporting.
Multiple Category Filing
Many taxpayers qualify under multiple categories simultaneously. If you own 100% of a foreign corporation, you are both Category 4 (control) AND Category 5 (CFC shareholder). However, if you qualify as both Category 4 and 5a, only check Category 4 on the form – but you must still complete all schedules required by both categories.
Detailed Category Guide
For a complete breakdown of each category with practical examples, decision trees, and schedule requirements, see our detailed guide to Form 5471 filer categories.
Understanding Controlled Foreign Corporations (CFCs)
A Controlled Foreign Corporation (CFC) is any foreign corporation where U.S. shareholders (those owning at least 10% of vote or value) collectively own more than 50% of the total voting power or value. Understanding CFC status is critical because it triggers additional reporting requirements and immediate U.S. taxation on certain types of income.
CFC Definition Elements
- Foreign Corporation: Any corporation organized outside the U.S.
- U.S. Shareholder: U.S. person owning 10%+ of vote or value (directly, indirectly, or constructively)
- Control Test: U.S. shareholders collectively own more than 50%
- Any Day Rule: CFC status is tested on any day during the tax year
Attribution Rules
Ownership is determined using complex attribution rules that can attribute stock ownership from:
- Family Members: Spouse, children, grandchildren, and parents
- Partnerships: Partners are treated as owning proportionate share
- Corporations: 50%+ shareholders attribute corporation’s holdings
- Trusts and Estates: Beneficiaries attribute trust/estate holdings
- Options: Treated as if exercised
CFC Determination Examples
| Scenario | U.S. Ownership | CFC Status | Form 5471 Category |
|---|---|---|---|
| U.S. person owns 100% | 100% | Yes | Category 4 & 5a |
| U.S. person owns 30% | 30% | Depends on others | Category 3 or 5 |
| Two U.S. persons own 30% each | 60% | Yes | Category 5 each |
| U.S. person owns 8% | 8% | No (below 10%) | Generally none |
Why CFC Status Matters
- GILTI Inclusions: Current taxation on CFC income exceeding routine return
- Subpart F Income: Immediate taxation of certain passive and related party income
- Anti-Deferral Rules: Cannot defer CFC income until distribution
- Foreign Tax Credit Limitations: Separate basket rules apply
- Section 962 Election: Individuals can elect corporate rates on CFC income
GILTI and Subpart F Income Reporting
U.S. shareholders of CFCs are subject to two primary anti-deferral regimes that require current inclusion of CFC income even without actual distributions: Subpart F (since 1962) and GILTI (since 2017).
Subpart F Income (IRC Section 952)
Subpart F income includes specific categories of “tainted” income that Congress determined should be taxed currently rather than deferred:
- Foreign Personal Holding Company Income: Dividends, interest, royalties, rents, and capital gains
- Foreign Base Company Sales Income: Sales involving related parties where property is manufactured and sold outside the CFC’s country
- Foreign Base Company Services Income: Services performed for or on behalf of related persons outside the CFC’s country
- Insurance Income: Income from insuring U.S. risks
- International Boycott Income: Participation in international boycotts
GILTI (Through 2025) / NCTI (2026+)
GILTI was introduced by the 2017 Tax Cuts and Jobs Act. Starting in 2026, GILTI is renamed to NCTI (Net CFC Tested Income) under the OBBBA with significant changes:
GILTI vs. NCTI Comparison
GILTI (Through 2025):
• Formula: Net CFC Tested Income – (10% × QBAI) – Interest Expense
• Section 250 deduction: 50%
• Effective rate: ~10.5%
• FTC haircut: 20% (80% creditable)
NCTI (2026+):
• Formula: Net CFC Tested Income – Interest Expense (QBAI eliminated)
• Section 250 deduction: 40%
• Effective rate: ~12.6%
• FTC haircut: 10% (90% creditable)
Key Differences: Subpart F vs. GILTI
| Feature | Subpart F | GILTI |
|---|---|---|
| Origin | 1962 Revenue Act | 2017 TCJA |
| IRC Section | Section 952 | Section 951A |
| Income Type | Specific passive categories | Residual income above routine return |
| High-Tax Exception | 90% of U.S. rate threshold | 90% of U.S. rate (if elected) |
| Section 250 Deduction | Not available | 50% through 2025 / 40% starting 2026 (NCTI) |
| Form 5471 Schedule | Schedule I | Schedule I-1 |
Both Subpart F and GILTI require current inclusion on the U.S. shareholder’s tax return, regardless of whether the CFC makes actual distributions. This is reported on Form 5471 and flows through to the shareholder’s income tax return.
Comprehensive GILTI and Subpart F Guide
For detailed calculations, Section 962 election analysis, and planning strategies, see our GILTI and Subpart F reporting guide.
Required Schedules by Filer Category
Form 5471 can require up to 12+ separate schedules depending on your filer category. Understanding which schedules apply to you is essential for complete and accurate filing.
Schedule Requirements Matrix
| Schedule | Description | Cat 1 | Cat 2 | Cat 3 | Cat 4 | Cat 5a |
|---|---|---|---|---|---|---|
| A | Stock of Foreign Corporation | ✓ | ✓ | ✓ | ||
| B | U.S. Shareholders | ✓ | ✓ | ✓ | ||
| C | Income Statement | ✓ | ||||
| E/E-1 | Taxes Paid/Accrued | ✓ | ✓ | |||
| F | Balance Sheet | ✓ | ||||
| G/G-1 | Other Information/Cost Sharing | ✓ | ✓ | ✓ | ✓ | |
| H/H-1 | Current E&P/CAMT | ✓ | ✓ | |||
| I-1 | GILTI Information | ✓ | ✓ | |||
| J | Accumulated E&P | ✓ | ✓ | |||
| M | Related Party Transactions | ✓ | ||||
| O | Organization/Reorganization | ✓ | ✓ | ✓ | ✓ | |
| P | Previously Taxed E&P | ✓ | ✓ | |||
| Q | CFC Income by Income Groups | ✓ | ✓ | |||
| R | Distributions from CFCs | ✓ | ✓ |
Key Schedules Explained
Schedule J – Accumulated E&P
- Reports accumulated earnings and profits
- Tracks E&P pools in functional currency
- Critical for distribution analysis
- Must be calculated under U.S. tax rules
Schedule P – Previously Taxed E&P
- Tracks income already taxed to U.S. shareholders
- Prevents double taxation on distributions
- Multiple PTEP groups and categories
- Complex tracking requirements
Schedule Q – CFC Income Groups
- Added for Section 960 foreign tax credits
- Groups income by type for credit allocation
- High-tax exception calculations
- Updated in December 2024 instructions
Filing Requirements and Deadlines
Form 5471 is attached to and filed with your annual income tax return. The filing deadline depends on your entity type and tax year.
Filing Deadlines
For the most current filing dates, see our federal income tax deadlines resource.
| Filer Type | Standard Deadline | With Extension | Notes |
|---|---|---|---|
| Individuals (U.S.-based) | April 15 | October 15 | File with Form 1040 |
| Individuals (living abroad) | June 15 | October 15 | Automatic 2-month extension |
| C Corporations | April 15 | October 15 | File with Form 1120 |
| S Corporations | March 15 | September 15 | File with Form 1120-S |
| Partnerships | March 15 | September 15 | File with Form 1065 |
Extension Rules
Form 5471 extension is tied to your underlying tax return extension. File Form 7004 (corporations/partnerships) or Form 4868 (individuals) to extend. Remember: An extension provides additional time to file, not additional time to pay any tax due.
Filing Procedures
- Complete Form 5471 and all required schedules for your category
- Attach Form 5471 to your income tax return
- File by the due date (including extensions) for that return
- File a separate Form 5471 for each foreign corporation
- Keep copies and supporting documentation for 7+ years
E-Filing: Form 5471 can be e-filed when attached to an e-filed income tax return. However, all required schedules must be included, and certain complex situations may require paper filing.
Penalties for Non-Compliance
Form 5471 Penalty Structure
Per foreign corporation, per year
Additional $10,000 for each 30-day period after 90-day IRS notice
How Penalties Accumulate
| Time Period | Penalty Increment | Cumulative Total |
|---|---|---|
| Initial failure to file | $10,000 | $10,000 |
| 91+ days after IRS notice | +$10,000 | $20,000 |
| 121+ days after notice | +$10,000 | $30,000 |
| 151+ days after notice | +$10,000 | $40,000 |
| 181+ days after notice | +$10,000 | $50,000 |
| 211+ days after notice | +$10,000 | $60,000 (Maximum) |
Other Consequences
- Foreign Tax Credit Reduction: 10% reduction, plus 5% for each additional 3-month period (up to 100%)
- Criminal Penalties: IRC Section 7203 (failure to file – misdemeanor), Section 7206 (fraud – felony)
- Extended Statute of Limitations: Remains open indefinitely for unfiled returns
- Audit Risk: Non-compliance triggers IRS scrutiny
Penalty Relief Options
Reasonable Cause Defense
- Demonstrate ordinary business care
- Reliance on qualified professional
- Full disclosure to advisor is critical
- Case-by-case determination
Delinquent Submission Procedures
- Available if not under examination
- File with reasonable cause statement
- Certify no tax evasion
- Sign under penalties of perjury
Streamlined Procedures
- For non-willful failures
- 3 years of tax returns
- 6 years of FBARs
- Non-willfulness certification
Quiet Disclosure Risk
Do NOT simply begin filing forward without addressing prior year failures. “Quiet disclosure” is considered improper and may be investigated. Use the IRS’s proper procedures (Delinquent Submission or Streamlined) to come into compliance.
Complete Penalty Guide
For detailed information on penalty relief programs, reasonable cause statements, and what to do if you haven’t filed, see our Form 5471 penalties and relief guide.
Recent Legal Developments: The Farhy Decision
In 2023-2024, the Tax Court issued a significant ruling in Farhy v. Commissioner that affects how Form 5471 penalties are collected.
What the Court Ruled
- The IRS lacks statutory authority to administratively assess Section 6038(b) penalties
- The IRS cannot use its normal collection powers (levies, liens) without first going to court
- To collect Form 5471 penalties, the IRS must file a civil lawsuit
What This Means for Taxpayers
Important Clarification
Farhy does NOT:
• Eliminate Form 5471 penalties (they still exist)
• Remove the filing requirement
• Protect against criminal penalties
• Close the statute of limitations for unfiled returns
Farhy DOES:
• Change how the IRS must collect penalties (civil suit required)
• May make IRS more selective in pursuing penalties
• Provide additional procedural protections for taxpayers
Strategic Implications
While the Farhy decision is a procedural victory for taxpayers, compliance with Form 5471 requirements remains strongly recommended. The penalty itself is unchanged, the filing requirement continues, and non-compliance still creates significant risk. The IRS may adapt its enforcement strategies in response to this ruling.
Form 5471 vs Form 5472 vs Form 8865
Understanding the differences between international tax forms helps ensure proper compliance. Each form addresses a different direction of cross-border investment.
| Feature | Form 5471 | Form 5472 | Form 8865 |
|---|---|---|---|
| Direction | Outbound (U.S. → Foreign) | Inbound (Foreign → U.S.) | Outbound (U.S. → Foreign) |
| Filer | U.S. person | U.S. corporation | U.S. person |
| Subject Entity | Foreign corporation | U.S. corporation | Foreign partnership |
| Ownership Threshold | 10%+ (varies by category) | 25% foreign ownership | 10%+ interest |
| Initial Penalty | $10,000 | $25,000 | $10,000 |
| Maximum Penalty | $60,000 | No cap | $60,000 |
| IRC Sections | 6038, 6046 | 6038A, 6038C | 6038, 6046A |
When Multiple Forms Apply
- U.S. corporation with foreign parent and foreign subsidiary: Form 5472 (inbound) + Form 5471 (outbound)
- U.S. person with foreign corporation and foreign partnership: Form 5471 + Form 8865
- Foreign corporation with U.S. branch: Form 5472 and possibly Form 1120-F
Related Guide
For comprehensive coverage of Form 5472 requirements for foreign-owned U.S. entities, see our Complete Guide to Form 5472.
Section 962 Election for Individual Shareholders
Section 962 provides a valuable planning opportunity for individual U.S. shareholders of CFCs. The election allows individuals to be taxed at corporate rates (21%) on Subpart F and GILTI inclusions instead of individual rates (up to 37%).
How Section 962 Works
- Make the election annually on your timely filed Form 1040
- Attach a statement with required information
- Calculate tax as if you were a corporation
- Claim Section 250 deduction (50% through 2025, 40% starting 2026 under NCTI)
- Foreign tax credits available under Section 960 (90% creditable starting 2026)
Section 962 Comparison
| Factor | Without Section 962 | With Section 962 |
|---|---|---|
| GILTI Inclusion | $200,000 | $200,000 |
| Section 250 Deduction | N/A | ($100,000) – 50% |
| Taxable Amount | $200,000 | $100,000 |
| Tax Rate | 37% | 21% |
| Tax Liability | $74,000 | $21,000 |
| Potential Savings | – | $53,000 |
Section 962 Considerations
While Section 962 can provide significant immediate tax savings, there are important considerations:
• Future distributions from the CFC will be taxed at individual rates
• Complex basis and E&P tracking is required
• State tax treatment varies significantly
• Professional guidance is strongly recommended for this election
State Tax Implications
CFC income, including GILTI and Subpart F inclusions, may be subject to state taxation. Treatment varies significantly by state.
State GILTI Treatment
| State | GILTI Treatment | Notes |
|---|---|---|
| California | Generally taxable | May allow foreign tax credits |
| New York | Complex rules | Partial exclusions available |
| Texas | No income tax | Franchise tax considerations |
| Florida | No income tax | – |
| Illinois | Taxable | Limited foreign tax credits |
Planning Considerations
- Residency Changes: Moving between states may affect CFC income taxation
- State CFC Definitions: Some states have different CFC definitions than federal
- Section 962 Impact: State treatment of the election varies
- Pass-Through Entities: Multi-state apportionment rules may apply
How to File Form 5471
Step-by-Step Filing Process
Determine Filing Requirements
Identify your category of filer (1-5), verify ownership percentages using attribution rules, and check for multiple category status.
Gather Financial Information
Obtain the foreign corporation’s financial statements, convert to U.S. GAAP if needed, and translate to functional currency.
Calculate E&P, GILTI, and Subpart F
Compute earnings and profits under U.S. tax rules, calculate GILTI tested income and QBAI, and identify Subpart F income categories.
Complete Required Schedules
Fill out all schedules required for your category, following the instructions carefully and cross-referencing between schedules.
Attach to Tax Return
Include Form 5471 with your annual income tax return and file by the applicable deadline (with extension if needed).
Maintain Documentation
Keep supporting records for 7+ years, including foreign corporation records, calculations, and any elections made.
Documentation Checklist
Professional Form 5471 Preparation Services
Why Work With SDO CPA for Form 5471 Compliance
Our experienced CPAs help U.S. persons with foreign corporate interests navigate complex Form 5471 requirements with a focus on accuracy, compliance, and strategic planning.
Complete Preparation
Full Form 5471 preparation for all categories and schedules
CFC Analysis
CFC status determination and ownership analysis
GILTI & Subpart F
Income calculations and reporting compliance
Section 962 Planning
Election analysis and implementation support
Penalty Relief
Reasonable cause assistance for delinquent filings
Year-Round Support
Ongoing guidance for international tax compliance
Service Levels
| Service Level | Description | Typical Complexity |
|---|---|---|
| Basic | Category 2/3 filing, limited schedules | Single event reporting |
| Standard | Category 4/5 filing, single CFC | Ongoing annual compliance |
| Complex | Multiple CFCs, GILTI calculations | Multi-entity structures |
| Remediation | Delinquent filings, penalty relief | Multi-year catch-up |
Our Professional Credentials
- Licensed CPA firm in Texas serving clients nationwide
- Experience with complex international tax compliance
- Big Four background (EY/KPMG) with CFC expertise
- Focus on foreign corporation reporting requirements
Note on Professional Standards
SDO CPA adheres to all AICPA professional standards and Texas State Board of Public Accountancy regulations. We provide professional tax compliance services based on current tax law and regulations. Results depend on individual circumstances and proper documentation.
Common Form 5471 Mistakes to Avoid
Learning from common mistakes can help you avoid costly penalties and compliance issues:
Top 12 Filing Mistakes
- Not Knowing You Have a Filing Requirement: Many U.S. persons are unaware of Form 5471 obligations, especially expats and immigrants with foreign business interests.
- Misclassifying Your Category: Filing under the wrong category results in incomplete reporting. Multiple categories often apply simultaneously.
- Thinking Dormant Corporations Don’t Require Filing: Form 5471 is required even if the foreign corporation had no activity during the year.
- Confusing Form 5471 with Form 5472: Form 5471 is outbound (U.S. to foreign); Form 5472 is inbound (foreign to U.S.). Different forms for different directions.
- Missing Required Schedules: Each category has specific schedule requirements. Incomplete filings are treated as failures to file.
- Incorrect E&P Calculations: Earnings and profits must be calculated under U.S. tax rules, not book income or foreign GAAP.
- Ignoring Attribution Rules: Constructive ownership through family members and entities affects category determination.
- Not Reporting All Related Party Transactions: Schedule M requires comprehensive disclosure. Undisclosed transactions trigger audit risk.
- Missing GILTI or Subpart F Inclusions: These income inclusions are required even without actual distributions from the CFC.
- Filing Late Without Extension: Late filing triggers automatic $10,000 penalty with no reasonable cause defense for lateness alone.
- Quiet Disclosure of Prior Year Failures: Don’t just start filing forward. Use proper IRS procedures for delinquent returns.
- DIY Without Professional Guidance: Form 5471 is among the most complex IRS forms. Professional preparation often prevents costly errors.
Compliance Considerations
Given the potential $60,000 penalty per form and the complexity of CFC regulations, many U.S. persons with foreign corporate interests work with qualified tax professionals for Form 5471 preparation.
Frequently Asked Questions About Form 5471
Who must file Form 5471?
Form 5471 must be filed by U.S. citizens, residents, corporations, partnerships, trusts, and estates who are officers, directors, or shareholders in certain foreign corporations. Filing is required if you meet the criteria for any of the five categories of filers based on your ownership percentage, control, or position in the foreign corporation.
What is a Controlled Foreign Corporation (CFC)?
A CFC is a foreign corporation where U.S. shareholders (those owning at least 10% of vote or value) collectively own more than 50% of the total voting power or value of the corporation’s stock. CFC status triggers additional reporting requirements including GILTI and Subpart F income inclusions.
What is the penalty for not filing Form 5471?
The initial penalty is $10,000 per foreign corporation per year. If you fail to file within 90 days after IRS notice, additional penalties of $10,000 accrue every 30 days, up to a maximum of $60,000 per form. Criminal penalties under IRC sections 7203, 7206, and 7207 may also apply in serious cases.
Do I need to file Form 5471 for a dormant foreign corporation?
Yes. Form 5471 must be filed even if the foreign corporation had no activity during the year. The filing requirement is based on ownership and status, not on business activity. The $10,000 penalty applies regardless of whether the corporation was active.
What is the difference between Form 5471 and Form 5472?
Form 5471 reports outbound investment (U.S. person owning foreign corporation), while Form 5472 reports inbound investment (foreign person owning U.S. corporation or foreign corporation with U.S. trade/business). Form 5471 has a $10,000 initial penalty; Form 5472 has a $25,000 initial penalty with no cap on continuation penalties.
What is GILTI and how does it affect Form 5471?
GILTI (Global Intangible Low-Taxed Income) is a category of CFC income that exceeds a 10% return on tangible assets. U.S. shareholders of CFCs must include their share of GILTI in gross income and report it on Form 5471 Schedule I-1, even without receiving actual distributions from the CFC.
What schedules are required for Form 5471?
Required schedules depend on your filer category. Category 2 filers need only Schedule O, while Category 4 and 5a filers may need 12+ schedules including A, B, C, E, E-1, F, G, G-1, H, H-1, I-1, J, M, O, P, Q, and R. Always check the instructions for your specific category.
Can Form 5471 penalties be waived?
Yes, penalties may be waived if you establish reasonable cause for the failure to file. This requires demonstrating ordinary business care and prudence. The IRS also offers Delinquent International Information Return Submission Procedures for taxpayers not under examination who can establish reasonable cause.
What is the Section 962 election and should I make it?
Section 962 allows individual CFC shareholders to be taxed at corporate rates (21%) on Subpart F and GILTI income instead of individual rates (up to 37%). This election can provide significant tax savings but involves complex calculations, future distribution considerations, and state tax implications. Professional guidance is strongly recommended.
When is Form 5471 due?
Form 5471 is due with your income tax return. For individuals, this is April 15 (or June 15 if living abroad). For S corporations and partnerships, this is March 15. For C corporations, this is April 15. Extensions for your tax return automatically extend the Form 5471 deadline. A separate Form 5471 is required for each foreign corporation. See our federal income tax deadlines for current dates.
What happens if I missed prior year Form 5471 filings?
You should not simply begin filing forward (“quiet disclosure”). Use the IRS’s Delinquent International Information Return Submission Procedures or Streamlined Filing Compliance Procedures to properly address prior year failures and potentially avoid penalties. These procedures require reasonable cause statements and non-willfulness certifications.
How does the Farhy decision affect Form 5471 penalties?
The Tax Court ruled in Farhy v. Commissioner that the IRS cannot administratively assess Form 5471 penalties and must pursue civil action instead. However, the penalty itself ($10,000-$60,000) remains in effect, filing requirements are unchanged, and compliance is still strongly recommended. The decision changes the collection mechanism, not the penalty amount.
Do state taxes apply to CFC income?
Many states tax GILTI and Subpart F income, though treatment varies significantly by state. Some states conform to federal treatment, others allow exclusions or deductions. States like California generally tax CFC income, while Texas has no income tax but has franchise tax considerations. A state-by-state analysis is recommended.
How much does professional Form 5471 preparation cost?
Costs typically range from $1,500-$2,500 for basic filings (Category 2/3 with limited schedules), $2,500-$3,500 for standard CFC reporting (Category 4/5 with single CFC), and $3,500-$5,000+ for complex situations with multiple CFCs and GILTI calculations. Multi-year catch-up filings may cost more.
Can I file Form 5471 electronically?
Yes, Form 5471 can be e-filed when attached to an e-filed income tax return. However, all required schedules must be included, calculations must be complete, and certain complex situations may require paper filing. Check with your tax professional about the best filing method for your situation.
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