US taxes: Do I need to file Form 5471 as a shareholder of a Canadian corporation?

If a U.S. citizen and resident who is an officer, director or shareholder of a non-US corporation and owns at least 10 percent of this corporation, he or she must file a U.S. federal tax return include Form 5471, which is one of the most complicated tax forms known to prepare.

The required information in Form 5471 may be as minimal as the identification of the US shareholder and the name and address of the non-us corporation – or as extensive as a comprehensive balance sheet and income statement converted from foreign currencies into US dollars and also converted into a GAAP method of accounting.

Is the Form 5471 just an informational form to IRS?

Although Form 5471 is mostly an informational form and it most likely doesn’t affect how much you have to pay in taxes – unless you fail to file, in which case you’ll have to pay a penalty, still 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).

When to file the Form 5471?

The form 5471 is due with the income tax return of the affected shareholder. For most corporations, that would be March 15th or the extended due date. For most individuals, that would be April 15th or, if you are an expat (a U.S. citizen or green-card holder living or working outside the United States), June 15th.

How is the penalties for the failure to file Form 5471?

The IRS issues automatic assessed penalties for the failure to file Form 5471 and the penalties can be tough. They start out at $10,000 and go up exponentially from there – depending on how many Form 5471s a taxpayer may have to file, how late in the year they file, and how many years they are non-compliant. The penalty is limited to a maximum of $50,000.

Please be aware that, some people may not be concerned about filing of Form 5471 – since they expect that the firm’s Net Operating Losses would protect from potential problems with the IRS. However – because the failure to file Form 5471 results in a penalty (and not a tax), NOLs would not offer any protection.

Can I ask for a Form 5471 filing extension?

Yes, you can require an extension of filing Form 5471, then they would file an extension on Form 4868 for their regular tax return and then the 5471 will go on extension as well.

In short, when it comes to international information reporting, the Form 5471 is one of the most complicated international reporting forms. It is important to properly assess and evaluate the business information before attacking the form and then carefully and methodically moving through each section. If it gets too overwhelming, you can ask our Wiser Accounting tax specialists to assist you.

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