Form 5471 Information Return for US persons with regards to Certain Foreign Corporation

[dbtaxsolutions]

First of all, is this form found in proseries Basic? or professional? I can't see it in basic, not sure if I am missing something. 

The late filer penalty of 10 000 per return, has anyone encountered this late penalty and how to file for penalty abatement if possible? It doesn't motivate tp to file form 5471 for last 2 years (17/18). Thanks

[Terry53029]

I assume you have read the 5471 instructions for who must file, as I briefly looked at them, and your client must be quite wealthy

[dbtaxsolutions]

I don't think it's a matter of wealth, they are category 2 filers. US personas who owns more than 10% shares of foreign corporation.

[sjrcpa]

Attach your request for 5471 penalty abatement for a stated reasonable cause to the return when filing.

[dbtaxsolutions]

what would be a reasonable cause?  he became an green card holder sept of 2017, and he needs to file 2017. The problem is, both couples own the corporation, the other spouse filed on time, he didn't. he couldn't very well say he did not know about it?hmm

[itonewbie]

"It doesn't motivate tp to file form 5471 for last 2 years"

When it comes to F.5471, there're no carrots, just sticks.  Penalties (or the avoidance of which) are the motivation.  You think $10,000 per failure is bad?  It gets worse (see §6038 and its regs)...

• If your client doesn't file, the statute of limitations for assessing tax on the income tax return to which the F.5471 is related will be extended to 3 years after a complete F.5471 is filed unless reasonable cause can be established, in which case, the extension applies only to the items related.
• Your client may have other penalty and interest exposure on Subpart F income, Transition Tax, and GILTI.
• FTC may also be reduced.
• In addition to civil penalties, your client may also be exposed to criminal penalties if the failure is willful (in the event your client chooses not to file in spite of the filing obligation having been determined - and you are required under Circular 230 to advise him of that obligation and the penalty provisions).

FTA is generally not applicable to waiver of penalties with respect to F.5471 unless it's associated with an 1120.  To request abatement based on reasonable cause, your client will need to attach a written statement under penalties of perjury with all the facts laid out for the consideration of the district director or the director of the service center.  My understanding is that this is not an easy sell.

[dbtaxsolutions]

I understand. He is late filing 2017/2018 but as of 2019 he has zero ownership of that same corp.

[itonewbie]

But that does not negate those filing requirements for 2017 and 2018. Question also is whether his shareholdings were transferred, how, for what consideration, and when.

[dbtaxsolutions]

The couple owned it 50/50 since 2015 when corporation was organized, it just became necessary to file the form when they received their green card in end  2017

[itonewbie]

I was referring to your statement about him having 0 ownership of the CFC in 2019.

[itonewbie]

I was referring to your statement about him having 0 ownership of the CFC in 2019.

[Just-Lisa-Now-]

I see that its included in Professional for 2019, Ive never had a client that required this form, so I dont know anything about filing for penalty abatement, sorry.

[itonewbie]

To apply for a waiver for §6038 penalty based on reasonable cause, read this IRS article, which relies upon §1.6038-2(k)(3): https://www.irs.gov/businesses/corporations/forms-5471-automatic-assessment-of-penalties-under-irc-s...

You may also refer to See Flume v. Commissioner, T.C. Memo. 2017-21 for how the Court interprets the law and regulation.