How it works
U.S. persons who are officers, directors, or shareholders of a foreign corporation file Form 5471 with their return under filing categories that depend on ownership and control. Category 5 (a U.S. shareholder of a controlled foreign corporation) requires the most schedules, including income statement, balance sheet, and earnings and profits. The base penalty for a missing form is 10,000 dollars per corporation per year, plus a reduction in foreign tax credits, and the return stays open until the form is filed.
Why it matters
Owning 10 percent of a small company abroad, or being a director of one, triggers the requirement, and many taxpayers with an overseas business do not know it exists. GILTI and Subpart F inclusions are computed through this form.
Example
A U.S. citizen owns 60 percent of a Canadian consulting corporation. It is a controlled foreign corporation; she files Form 5471 annually and may owe U.S. tax on its income before distribution.
Related: controlled foreign corporation, GILTI. Read more: Form 5471 requirements.
