Form 5471 Penalties (2019)
Form 5471 Penalties: The Form 5471 Penalties can be tough. In recent years, the IRS has increased enforcement of foreign accounts compliance, including reporting foreign corporations. Unlike other international reporting forms such as the FBAR and 8938 — which are primarily used to report value — the Form 5471 is a complex form. It is a bookkeeping return, and requires the filer to include assets, liabilities, equity, Subpart F, GILTI and more. The failure to report the form timely may result in offshore penalties. In addition, if the entity has its own offshore account, assets, or investments in an FFI, it may need to file a separate FBAR or 8938. These penalties can be reduced or avoid using one of the IRS offshore voluntary disclosure programs.
Form 5471 Penalty
The Form 5471 Penalty is on the rise.
Common issues and questions we receive regarding IRS Form 5471 penalties:
- When is IRS Form 5471 Due?
- What if I do not file the form timely?
- What 5471 Penalties does the IRS Issue?
- Can I go to Jail?
- How can I get into compliance?
Form 5471 Penalties
This is because many individuals are not even aware that they are required to file form, and/or may not be able to obtain or access the information necessary to completely fill out the form.
With that said, it is typically better to at least give it your best shot and file the form either timely or if untimely (using one of the IRS Voluntary Disclosure Programs) as opposed to not filing it at all — and facing the severe penalties the IRS can and does issue with respect to Form 5471.
What is Form 5471?
Form 5471 is an international informational return. It is an IRS form utilized by U.S. Taxpayers to report their foreign business interest.
Depending on the type of foreign business interests a person has, they may have to file a form 5471, 8865 (and/or possibly other forms such as a 8621)
If you qualify (and are lucky), you may be able to avoid filing form 5471 and instead qualify to file Form 8938, which has its own pros and cons – but is typically easier to prepare than form 5471 is.
When is Form 5471 Due?
For individuals, Form 5471 is due at the same time your tax returns due. Therefore, if you file an extension for your individual tax return, you include four 5471 along with your extension.
What if you do Not File Form 5471?
If you do not file IRS Form 5471, you may be subject to significant fines and penalties. In a recent summary prepared by the National Taxpayer Advocate, non-compliance with Form 5471 (and Foreign Trusts, Form 3520-A) are two non-compliance issues that often server as catalysts for the iRS to issue large penalties.
What are the Form 5471 Penalties?
Failure to file information required by section 6038(a) (Form 5471 and Schedule M)
A $10,000 penalty is imposed for each annual accounting period of each foreign corporation for failure to furnish the required information within the time prescribed. If the information is not filed within 90 days after the IRS has mailed a notice of the failure to the U.S. person, an additional $10,000 penalty (per foreign corporation) is charged for each 30-day period, or fraction thereof, during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000 for each failure. Any person who fails to file or report all of the information required within the time prescribed will be subject to a reduction of 10% of the foreign taxes available for credit under sections 901, 902, and 960. If the failure continues 90 days or more after the date the IRS mails notice of the failure to the U.S. person, an additional 5% reduction is made for each 3-month period, or fraction thereof, during which the failure continues after the 90-day period has expired. See section 6038(c) (2) for limits on the amount of this penalty.
Failure to file information required by section 6046 and the related regulations (Form 5471 and Schedule O)
Any person who fails to file or report all of the information requested by section 6046 is subject to a $10,000 penalty for each such failure for each reportable transaction. If the failure continues for more than 90 days after the date the IRS mails notice of the failure, an additional $10,000 penalty will apply for each 30-day period or fraction thereof during which the failure continues after the 90-day period has expired. The additional penalty is limited to a maximum of $50,000.
Criminal penalties under sections 7203, 7206, and 7207 may apply for failure to file the information required by sections 6038 and 6046. Note. Any person required to file Form 5471 and Schedule J, M, or O who agrees to have another person file the form and schedules for him or her may be subject to the above penalties if the other person does not file a correct and proper form and schedule.
Penalties may be imposed for undisclosed foreign financial asset understatements. No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See sections 6662(j) and 6664(c) for additional information
What Can You Do?
Presuming the money was from legal sources, your best options are either the Traditional IRS Voluntary Disclosure Program, or one of the Streamlined Offshore Disclosure Programs.
Golding & Golding (Board-Certified Tax Law Specialist)
We specialize exclusively in international tax, and specifically IRS offshore disclosure.
We have successfully represented clients in more than 1,000 streamlined and voluntary offshore disclosure submissions nationwide and in over 70-different countries. We have represented thousands of individuals and businesses with international tax problems.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe.
- Learn more about the Board-Certified Tax Lawyer Specialist credential
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We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants and Financial Professionals worldwide.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Sean M. Golding is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Golding & Golding Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
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Sean holds a Master's in Tax Law from one of the top Tax LL.M. programs in the country at the University of Denver. He has also earned the prestigious IRS Enrolled Agent credential. Mr. Golding's articles have been referenced in such publications as the Washington Post, Forbes, Nolo, and various Law Journals nationwide.