International Tax Compliance Without the IRS Letters
You have foreign investments or foreign owners. The IRS has 5+ forms that might apply. Miss one? $10,000 to $25,000 penalty. Per form. Per year.
The Short Version
International tax compliance is about information reporting. The IRS wants to know about your cross-border business activities. If you own foreign corporations or partnerships, or if you’re a foreign person with U.S. investments, there are specific forms required. The penalties for not filing are among the harshest in the tax code.
- U.S. owners of foreign corporations: Form 5471 (penalties: $10,000-$60,000)
- U.S. owners of foreign partnerships: Form 8865 (penalties: $10,000-$60,000)
- Foreign-owned U.S. LLCs/corporations: Form 5472 (penalties: $25,000+, no cap)
- Nonresident aliens with U.S. income: Form 1040-NR
- Foreign bank accounts over $10,000: FBAR (FinCEN 114)
Who Has US International Tax Obligations?
International tax obligations fall into two main categories: U.S. persons with foreign investments (“outbound”) and foreign persons with U.S. investments (“inbound”). The forms are different. The penalties are similar. Both require attention.
U.S. Persons with Foreign Investments (Outbound)
- U.S. citizens or residents owning foreign corporations → Form 5471
- U.S. persons with foreign partnership interests → Form 8865
- U.S. persons with interests in foreign trusts → Form 3520/3520-A
- Expats with foreign businesses or investments
- Americans with foreign bank accounts over $10,000 → FBAR
- U.S. businesses with foreign subsidiaries
Foreign Persons with U.S. Investments (Inbound)
- Foreign-owned single-member LLCs → Form 5472
- Foreign corporations with U.S. activities → Form 5472
- Nonresident aliens with U.S. income → Form 1040-NR
- Foreign investors in U.S. real estate (FIRPTA)
- Foreign entrepreneurs establishing U.S. presence
- E-commerce businesses with foreign ownership
Not Sure Which Forms Apply?
This is common. The overlap between forms is confusing. One structure might require three different information returns. We can assess your situation and tell you exactly what’s needed. No charge for the initial assessment.
Form 5472: Foreign-Owned U.S. Businesses
Form 5472 is required for U.S. corporations and LLCs that are at least 25% foreign-owned and have “reportable transactions” with foreign related parties. Since 2017, this includes foreign-owned single-member LLCs that were previously disregarded for U.S. tax purposes.
Who Must File Form 5472
- U.S. corporations with 25%+ direct or indirect foreign ownership
- Foreign-owned single-member LLCs (even with no income)
- Foreign corporations engaged in a U.S. trade or business
- Any of the above with a “reportable transaction” during the year
What Triggers a Reportable Transaction
Almost everything. Capital contributions. Loans (even interest-free). Rent. Service payments. Use of property. If money or value moved between the U.S. entity and its foreign owner, it’s reportable. Even a $1 capital contribution counts.
Form 5472 Penalty: $25,000 Per Form, No Cap
The penalty for failure to file Form 5472 is $25,000 per form, per year. After IRS notice, an additional $25,000 applies for each 30-day period of continued non-compliance. Unlike other international forms, there is no maximum cap. Multiple years of non-filing can result in six-figure penalties.
Form 5472 Resources
Form 5471: U.S. Shareholders of Foreign Corporations
Form 5471 reports information about foreign corporations controlled by or significantly owned by U.S. persons. If you’re a U.S. citizen, resident, or entity with ownership in a foreign corporation, you may have a filing requirement regardless of whether the corporation earned any income.
Categories of Filers
- Category 1: U.S. shareholders of Specified Foreign Corporations (SFCs)
- Category 2: Officers or directors who are U.S. persons (in certain circumstances)
- Category 3: U.S. persons acquiring stock resulting in 10%+ ownership
- Category 4: U.S. persons with “control” (>50%) of a foreign corporation
- Category 5: U.S. shareholders of Controlled Foreign Corporations (CFCs)
2026 GILTI Changes (OBBBA)
Starting in 2026, the GILTI (Global Intangible Low-Taxed Income) regime transitions to NCTI (Net Controlled Foreign Corporation Tested Income). The Section 250 deduction for GILTI is permanently reduced from 50% to 40%, resulting in a higher effective tax rate. The foreign tax credit haircut is reduced from 20% to 10%.
Section 962 Election
Individual U.S. shareholders of CFCs can elect under Section 962 to be taxed at corporate rates on GILTI and Subpart F income. This can reduce effective tax rates and enable foreign tax credit utilization. The election requires careful analysis since it creates a deemed dividend on actual distribution.
Form 5471 Resources
Form 8865: Foreign Partnership Interests
Form 8865 is the foreign partnership equivalent of Form 1065. U.S. persons who control, own significant interests in, contribute property to, or experience ownership changes in foreign partnerships must file this form.
Four Categories of Filers
- Category 1: U.S. person controlling >50% of the partnership
- Category 2: U.S. person owning 10%+ of a U.S.-controlled partnership
- Category 3: U.S. person contributing property worth $100,000+ or resulting in 10%+ ownership
- Category 4: U.S. person with a 10% reportable event (acquisition, disposition, or change)
Each category has different schedule requirements and penalty structures. Categories 1 and 2 require the most extensive reporting, including Schedules K-2 and K-3 for international items.
Form 8865 Resources
Form 1040-NR: Nonresident Alien Tax Returns
Form 1040-NR is the U.S. income tax return for nonresident aliens with U.S.-source income. If you’re not a U.S. citizen or resident alien but have income from U.S. sources, you may need to file.
Common Filing Triggers
- Rental income from U.S. real estate
- Business income from U.S. activities
- Employment income for work performed in the U.S.
- Scholarship or fellowship income (taxable portion)
- Dividends, interest, or royalties from U.S. sources
- Capital gains from U.S. real property (FIRPTA)
Treaty Benefits
Many countries have tax treaties with the U.S. that reduce or eliminate withholding on certain types of income. Proper treaty position documentation (Form W-8BEN) is required. We can help identify applicable treaty benefits and ensure proper compliance.
Form 1040-NR Resources
FBAR and FATCA: Foreign Account Reporting
U.S. persons with foreign financial accounts have two separate reporting requirements: FBAR (FinCEN 114) and Form 8938 (FATCA). They serve different agencies and have different thresholds.
FBAR (FinCEN 114)
- Threshold: Aggregate foreign account balances exceed $10,000 at any point during the year
- Deadline: April 15 (automatic extension to October 15)
- Filed with: FinCEN (not IRS), electronically at fincen.gov
- Penalties: Up to $16,536 non-willful; $165,353 or 50% of balance for willful violations
Form 8938 (FATCA)
- Thresholds vary: $50,000-$200,000 depending on filing status and residence
- Filed with: IRS, attached to Form 1040
- Covers: Broader range of foreign financial assets beyond bank accounts
- Penalties: $10,000 initial, up to $50,000 for continued non-filing
Must File Both?
Often yes. FBAR and Form 8938 have different thresholds and report to different agencies. Many taxpayers with significant foreign accounts must file both. The accounts reported may overlap, but the forms are not duplicative.
FBAR Resources
U.S. Expat Tax Services
Americans living abroad remain subject to U.S. taxation on worldwide income. The tax code provides exclusions and credits to reduce double taxation, but they require proper planning and documentation.
Key Expat Provisions
- Foreign Earned Income Exclusion (Form 2555): Exclude up to $130,000 (2026) of foreign earned income
- Foreign Housing Exclusion/Deduction: Additional exclusion for qualifying housing costs
- Foreign Tax Credit (Form 1116): Credit for taxes paid to foreign governments
- Totalization Agreements: Avoid double Social Security taxation with treaty partners
- State Tax Considerations: Some states continue to tax former residents
Expatriation Reporting (Form 8854)
U.S. citizens who renounce citizenship and certain long-term residents who terminate their status must file Form 8854. “Covered expatriates” may be subject to exit tax on unrealized gains. This is a complex area requiring careful planning.
International Tax Penalties
International information return penalties are among the harshest in the tax code. They apply per form, per year, and often stack. The statute of limitations doesn’t begin until the forms are filed.
| Form | Initial Penalty | Continuation Penalty | Maximum |
|---|---|---|---|
| Form 5471 | $10,000 | $10,000 per 30 days after notice | $60,000 |
| Form 5472 | $25,000 | $25,000 per 30 days after 90 days | No cap |
| Form 8865 | $10,000 | $10,000 per 30 days after notice | $60,000 |
| Form 8938 | $10,000 | $10,000-$50,000 | $60,000 |
| FBAR (non-willful) | Up to $16,536 | Per account, per year | Varies |
| FBAR (willful) | $165,353 or 50% | Per account, per year | Greater of $165,353 or 50% of balance |
Penalty Relief Options
- Reasonable Cause: Penalties may be abated if failure was due to reasonable cause and not willful neglect
- Streamlined Filing Compliance Procedures: Reduced penalties (0% for foreign residents, 5% for domestic) for non-willful taxpayers
- Delinquent Information Return Submission: File late returns without penalty if IRS hasn’t contacted you and no unreported income
- First-Time Penalty Abatement: Available for taxpayers with clean compliance history
Unlimited Statute of Limitations
Under IRC Section 6501(c)(8), the statute of limitations on assessment does NOT begin until international information returns are filed. If you never file, the IRS can assess taxes and penalties indefinitely. This is one of the most severe consequences of non-compliance.
How We Help with International Tax Compliance
Assessment
We analyze your situation to determine which forms apply. We also check prior years for delinquent filings that may need attention. If scope changes, we discuss it first.
Preparation
We gather required information, prepare all forms and schedules, and coordinate with foreign accountants or advisors as needed. Upfront estimate before we start so you know what to expect.
Ongoing Support
Annual filing reminders, deadline tracking, and monitoring of tax law changes. We contact you when something changes. Not the other way around.
Why SDO CPA for International Tax
Big Four Background
Our team includes experience from EY and KPMG handling complex international structures. We apply that expertise to businesses and individuals with cross-border tax needs.
Full Form Coverage
We handle both inbound and outbound international tax. Form 5471, 5472, 8865, 1040-NR, FBAR, Form 8938. One firm for all your international compliance needs.
Penalty Relief Experience
We regularly assist with streamlined filing procedures, delinquent return submissions, and reasonable cause penalty relief requests. If you’re behind, we can help.
Year-Round Availability
International tax questions don’t wait for tax season. We respond to messages within 1 business day. Not just during filing season.
Transparent Pricing
Upfront estimate before we start so you know what to expect. No hourly billing surprises. If scope changes, we discuss it first. Clear communication about costs.
Nationwide Service
Texas-based, serving clients in all 50 states. Whether you’re searching for an international tax CPA near you or need remote service, we work virtually nationwide.
Frequently Asked Questions
What’s the difference between Form 5471 and Form 5472?
Form 5471 is filed by U.S. persons who own shares in foreign corporations. Form 5472 is filed by foreign-owned U.S. corporations and LLCs. Think of it this way: 5471 = U.S. looking outward (to foreign entity). 5472 = foreign looking inward (to U.S. entity).
Do I need to file if my foreign corporation had no income?
Yes. Form 5471 must be filed regardless of income if you meet the ownership thresholds. Zero income doesn’t eliminate the filing requirement. The IRS wants to know about the structure, not just the profitability.
What if I’ve never filed but should have?
You may be eligible for streamlined filing procedures or delinquent information return submission to reduce or eliminate penalties. The key is coming into compliance before the IRS contacts you. Acting voluntarily demonstrates good faith.
How much does international tax preparation cost?
International form preparation varies based on complexity. Simple Form 5472 filings for single-member LLCs cost less than complex Form 5471 filings with GILTI calculations and multiple schedules. We provide upfront estimates after analyzing your specific situation so you know what to expect.
Can you help with penalty abatement?
Yes. We regularly assist with reasonable cause penalty relief requests and streamlined compliance procedures. Many taxpayers qualify for penalty reduction or elimination when they can demonstrate reasonable cause for late filing.
What’s the deadline for international information returns?
Form 5471, 5472, 8865, and 8938 are due with your income tax return (typically April 15, extended October 15). FBAR is due April 15 with automatic extension to October 15. These forms attach to your regular return.
Do I need both FBAR and Form 8938?
Possibly. They have different thresholds and report to different agencies (FinCEN vs. IRS). FBAR applies at $10,000 aggregate. Form 8938 thresholds vary by filing status and residence. Many taxpayers must file both.
What triggers Form 5472 for a foreign-owned LLC?
Any “reportable transaction” between the LLC and its foreign owner triggers filing. This includes capital contributions, loans (even interest-free), service payments, rent, and use of property. Even $1 counts.
How do GILTI and Subpart F affect my U.S. taxes?
Both can cause U.S. taxation on foreign corporation income before distribution. GILTI applies broadly; Subpart F targets passive income. For 2026+, GILTI becomes NCTI with modified calculations under OBBBA.
What is a Controlled Foreign Corporation (CFC)?
A CFC is a foreign corporation where U.S. shareholders (10%+ owners) collectively own more than 50% by vote or value. CFC shareholders have Form 5471 filing obligations and may have current U.S. tax on the CFC’s income through GILTI and Subpart F.
What is the Section 962 election?
Section 962 allows individual U.S. shareholders of CFCs to be taxed at corporate rates on GILTI/Subpart F income. This can reduce effective tax rates and enable foreign tax credit use. The election requires careful analysis.
What are the penalties for international tax form non-compliance?
Penalties are severe: Form 5471 and 8865 carry $10,000 initial plus $10,000 per 30 days after notice (max $60,000). Form 5472 carries $25,000 initial plus $25,000 per 30 days (no cap). FBAR ranges from $10,000 to $100,000+ depending on willfulness.