Automatic Penalties for Late Forms 5471 and Related Forms

Editor: Alistair M. Nevius, J.D.

The IRS has begun informing taxpayers that starting January 1, 2009, it will automatically assess Sec. 6038 penalties for each late-filed Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, and late filing penalties under Sec. 6651 for related forms.

The Service is now sending out letters notifying taxpayers with late-filed Forms 5471 from prior years that starting January 1, 2009, it plans to automatically assess a separate $10,000 late filing penalty for each late Form 5471 filed after the income tax return due date (including extensions) or each Form 5471 that does not include complete and accurate information, in addition to the income tax return late filing penalty, even if no income tax is due on the income tax return. In addition to the monetary penalty, the IRS says it may also apply a 10% reduction in foreign taxes available for the Secs. 901, 902, and 960 foreign tax credit and deemed paid credit.

Note that penalties could possibly be assessed on any late-filed Form 5471 attached to a Form 1040, Form 1041, or Form 1065, as well as Form 1120. CPAs should discuss any outstanding or late Forms 5471 with their clients and file as soon as possible to avoid the automatic assessment. Taxpayers may want to consider requesting reasonable cause abatement of any penalties that get assessed.

Form 5471 should be filed as an attachment to the taxpayer’s federal income tax return, including those filed electronically. Certain U.S. citizens and U.S. residents who are officers, directors, or shareholders in certain foreign corporations are responsible for filing the Form 5471. The categories of persons potentially liable for filing Form 5471 include U.S. citizens and resident alien individuals, U.S. domestic corporations, U.S. domestic partnerships, and U.S. domestic trusts. The filing requirements for Form 5471 relate to persons who have a certain level of control in certain foreign corporations as described on pages 1–3 of the Form 5471 instructions.

A Form 5471 guide is available to AICPA Tax Section members as a resource to further explain the issues involved with this information reporting requirement. Additional information is also available from the IRS on the Form 5471 filing requirements and instructions.