Form 5471 and Extended Statute for Entire Return

Understanding Form 5471

Form 5471, officially called the Information Return of U.S. Persons with Respect to Certain Foreign Corporations, is an information return (as opposed to a tax return) for certain U.S. taxpayers with an interest in certain foreign corporations. The purpose of it isn’t to file tax information, but rather so the IRS has a record of which U.S. citizens and residents have ownership in foreign corporations. Because this form is an informational form, it most likely doesn’t affect how much you have to pay in taxes, unless you fail to file, in which case you will be required to pay a penalty. There are exceptions to this norm, for example, if you are a shareholder of a Controlled Foreign Corporation (CFC) Form 5471 may affect your income in the form of the GILTI tax (Global Intangible Low-Taxed Income), subpart F income inclusions or other anti-deferral regimes within the U.S. income tax rules and regulations. Reporting requirements may be as simple as what percentage of stock the taxpayer owns and company information, to as detailed as reporting the corporation’s entire income from financial statements and balance sheets.

Form 5471 is required by U.S. Person Shareholders, Directors and Officers of International/Foreign Corporations who have an ownership interest or control. The requirements of reporting foreign corporations and other entities falls under Internal Revenue Code sections 6038. Form 5471 should be attached to the U.S. filer’s federal income tax return and is generally due when the U.S. filer’s income tax return is due, including extensions. Furthermore, filing a complete Form 5471 should avoid any IRS penalties and not cause the statue of limitations to be extended beyond the three-year period.

Latest Guidance from the IRS

However, on October 22, 2021, the IRS released CCM 202142009, concluding that the extension of the statute of limitations for failure to report Subpart F income applies to a taxpayer’s entire tax return, not just the Subpart F related items. As discussed above, generally, the IRS must assess a tax within three years after the filing of a tax return. There are, however, several exceptions to this rule that extend the statute of limitations. Relevant to this memorandum, IRC § 6501(e)(1)(C) provides a six-year statute of limitations if a taxpayer omits amounts that must be included in income under the Subpart F rules.

Given the increase IRS audit focus in this area, we recommend reviewing all filed Form 5471 and client fact patterns to determine whether any subpart F income has been omitted on originally filed returns. As these requirements evolve, we advise that CPA firms continue to monitor IRS guidance and seek assistance with tax filing reviews and/or calculation of subpart F inclusions to ensure proper filing.

We appreciate your continued trust in McGuire Sponsel as a technical resource to your firm. If you have any questions about this update or other international tax compliance issues, do not hesitate to reach out to our Global Business Services team.