IRS Form 5471

Tax Professionals' Resource
November 13, 2012 — 2,035 views  
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IRS Form 5471

Form 5471 should be used by individuals of the United States who are officers, shareholders or directors regarding certain foreign businesses and who are legally obligated to pay income tax. This informational return and its associated schedules have incorporated elements that allow foreign profits to be taxed by the US government before they are even allocated. Despite the fact that a foreign company may not have a stable foundation and any income source in the United States, the American government has the power to tax certain overseas companies because of their interest with people from the US. There are five categories of filers that are based on the control of an organization and stock possession. With each different category of filers, the definition is modified for a U.S. person. For the benefit of Form 5471, a U.S. person can be a citizen or resident, a domestic partnership, corporation, trust or estate.

The category one filing status has been declared null and void by the American Jobs Creation Act of 2004 section 413(c)(26).

Filers in category two are individuals who have obtained stocks that they have an unconditional right to receive even though in reality it is not issued as yet. They must own 10% or more of the foreign corporation’s total stock value or 10% or greater voting capacity from all classes of stocks with voting privileges.

Filers in category three are people who purchased stocks in a foreign corporation, yet when joined with any stocks already owned on date of acquisition fit the 10% stock obligation with respect to the foreign business. Regardless of stocks currently owned, individuals who acquire stock from a foreign company meet the 10% requirement. Additionally, people who are considered U.S. shareholders under section 953(c), people who become U.S occupants while satisfying their 10% stock ownership, and people who get rid of their foreign corporation stock to reduce interest to less than the stock ownership terms must file their return using this category.

People who were in control of a foreign corporation for a consecutive period of at least 30 days at the same time as the annual accounting period of the corporation should use category four. A U.S. person, under section 6013(g), is a nonresident alien who is regarded as a U.S. resident because an election is in effect or because the nonresident has becomes a U.S. resident or citizen during the tax year and he or she is married to a citizen or resident of the United States by year end.

Category five filers are U.S. Shareholders who indirectly, directly or constructively possess stock in a foreign corporation that is a CFC for a continuous period of at least 30 days during the tax year of that corporation and who possess that stock on the last day of the year. A CFC company is one that is overseas based, owned by shareholders from the United States, and has voting power over all the stocks or total stock value from the corporation at 50% and above according to the guidelines under sections 958(a) and (b). The U.S shareholders must be in possession of 10% or more voting ability over all the classes of voting stock of the CFC or must own any stock of a CFC that is also a captive insurance company as put forth by sections 953(c)(1)(B) and 957(b).

 

Tax Professionals' Resource