Who this is for
- US citizens, green card holders and US companies that owned or controlled a company abroad and missed Form 5471
- Owners who filed Form 5471 late or without its required schedules
Not covered here
- Whether you must file Form 5471 and which filer category applies
- Unreported company income and the streamlined procedures
- Forms 8858, 8865, 3520, 8938 and FBARs
What is the penalty for not filing Form 5471?
The penalty is $10,000 for each foreign company, for each annual accounting period the information was not filed on time. No tax has to be owed for it to apply (IRS instructions; 26 U.S.C. 6038(b)).
| Penalty | When it applies | Amount |
|---|---|---|
| Initial penalty | Form 5471 information not filed, or not complete, by the return's due date with extensions | $10,000 per company per year |
| Continuation penalty | Failure continues more than 90 days after the IRS mails a notice | $10,000 per 30-day period or fraction, up to $50,000 per failure |
| Most per form | Initial plus full continuation penalty | $60,000 per company per year |
| Schedule O penalty | Category 2 or 3 filers: information on forming, buying or selling the company's shares not filed (section 6046) | $10,000 per reportable transaction, plus continuation penalties up to $50,000 |
| Foreign tax credit reduction | Same failure, where you control the company or it is a controlled foreign corporation you are a shareholder of (section 6038) | 10% of foreign taxes available for credit, plus 5% more for each 3-month period after the 90 days notice period, within limits in section 6038(c)(2) |
The reduction applies to the foreign taxes you claim as a credit for that year, whatever company or country they came from; for a US corporation that owns the company, it also cuts the taxes it is treated as having paid through each foreign company it must report on. It is limited to the greater of $10,000 or that company's income for the year, and any dollar penalty for the same failure is subtracted from it, so the two do not fully add up (IRS manual). It matters only if you claim foreign tax credits. Certain penalties may be waived for some owners of a foreign-controlled company under Rev. Proc. 2019-40 (IRS instructions).
A case is not simple when there are several companies or years, an IRS letter has already arrived, the company's income was never reported, or you own the company through a US corporation. Gather each company's financial statements for every missed year, ownership records, your filed US returns, any IRS letters, and the dates you learned of the requirement.
Whether you needed Form 5471 at all, and which category, is covered in US owners of foreign companies.
How fast do Form 5471 penalties add up?
The penalty is counted per company, per year, per filer. Three companies missed for four years is twelve forms, and each can carry its own penalty. A year in which a Category 2 or 3 filer formed, bought or sold shares can also carry the Schedule O penalty.
When two owners of the same company each fall in a filer category, each has their own filing duty. One person may file a joint Form 5471 for others who have the same or lesser filing requirements for the same company and period. The filer lists the others in item H (the box on page 1 for people the form is also filed for), and each person listed attaches a statement to their own return, with their own Schedule P if they are a Category 1a, 1b, 4, 5a or 5b filer. A married couple filing one joint Form 1040 does not need that statement (IRS instructions). If no one filed for anyone, each owner can face a separate penalty.
The IRS instructions also warn that if you agree to let someone else file for you and they do not file a correct form, the penalty can still fall on you.
Does a late or incomplete Form 5471 count as not filed?
Yes, it can. The penalty applies to a failure to furnish the required information on time, and the credit reduction applies to anyone who fails "to file or report all of the information required" (IRS instructions). The IRS manual assesses the initial penalty for each form not timely filed with complete and accurate information.
A Form 5471 page 1 without the schedules your category requires, such as financial statements or related-party transactions, is a common way this happens. To fix an incomplete form you already filed, file a corrected Form 5471 marked "Corrected" with an amended return and a statement of the changes.
Why does a missing Form 5471 keep my whole tax return open?
The IRS's time to assess tax on a return does not run out until three years after the missing Form 5471 information is furnished (26 U.S.C. 6501(c)(8)). Until then, the return for that year stays open.
If the failure was due to reasonable cause and not willful neglect, only the items related to the missing information stay open. Without reasonable cause, the IRS manual says the extended period covers the entire return, including items unrelated to the company. Filing the form starts the three years running. For how far back the IRS can go on other foreign forms, see catching up on missed foreign reporting.
My income was reported, only Form 5471 is missing: which route fits?
The IRS's delinquent international information return procedure fits if you are not under civil examination or criminal investigation and the IRS has not contacted you about the missing forms (IRS). You file the late forms through normal procedures. The IRS says amended returns filed this way are not automatically audited, though normal audit selection still applies.
This route files the forms; it does not by itself fix unreported income. If the company's income should have been on your return (for example a controlled foreign company's income taxed to you before any dividend) and was not, compare the other routes in streamlined or delinquent foreign reporting. If you live abroad and are behind on returns too, see the Streamlined Foreign Offshore Procedures.
What goes in a late Form 5471 package?
One complete Form 5471, with every schedule your category requires, for each company and each missed year, attached to an amended income tax return for that year (IRS). If the income tax return itself was never filed, Form 5471 goes with that return, since the form is filed with your income tax return (IRS instructions).
- List every company and every year a form was due.
- Rebuild each company's books for those years; see books for a small foreign company's information return.
- Complete each Form 5471 and its schedules, including item H if one owner files for others.
- Attach each form to the amended (or late original) return for its year.
- Attach a signed reasonable cause statement to each late form for which you claim reasonable cause.
- Keep copies and proof of mailing.
Will the IRS still charge the penalty if I file on my own?
It may. The IRS says penalties may be assessed during processing without considering the attached reasonable cause statement, and you may need to answer its letter and resubmit your reasonable cause information (IRS).
A penalty notice gives a deadline to respond. The IRS manual says a denied reasonable cause request gets a determination letter, and Appeals offers a review of international penalties after assessment and before payment. Filing quickly also matters: the continuation penalty has no reasonable cause exception.
Whether the IRS may assess this penalty itself, rather than collect it through a court, has been disputed in court in recent years. This page describes the penalty as the IRS instructions and manual state it.
Does first-time abatement remove a Form 5471 penalty?
No, not directly. The IRS manual says first-time abatement does not apply to event-based filings such as Form 5471.
There is one narrow exception for a corporation or partnership filer: when the penalty was assessed automatically with a late Form 1120 or 1065, and that return's late-filing penalty was removed under first-time abatement (or the return would have qualified but had no such penalty because no tax was due or it was fully paid), the Form 5471 penalty may be removed too if there were no similar penalties and no late Form 1120 or 1065 in the three prior periods. If that return's penalty was removed for reasonable cause, the Form 5471 penalty may follow it. Otherwise relief rests on reasonable cause.
What makes a Form 5471 reasonable cause statement stronger or weaker?
A statement is stronger when it shows you used ordinary business care and still missed the form, and weaker when it rests only on not knowing or on someone else. The IRS manual says people doing business abroad must exercise ordinary business care in finding their filing duties.
| Weaker | Stronger |
|---|---|
| "I did not know about the form" | Specific facts on why you missed it and when you learned |
| "My preparer was supposed to file it" alone; the manual says relying on another person is not enough | What you told the adviser, what they said, and why relying on it was reasonable |
| Records unavailable year after year | Records truly beyond reach for a stated period, then filed promptly |
| Some years still unfiled | Every open year filed before asking for relief |
| Repeated misses over many years | A first miss, fixed soon after discovery |
For Form 5471, the written statement must state all the facts and carry a declaration that it is made under penalties of perjury. The IRS may wait until all delinquent years are filed before considering reasonable cause for any of them (IRS manual). For a general reasonable cause outline, see catching up on missed foreign reporting.
Is there a shorter Form 5471 for a dormant company?
For a timely filed form, yes: a company that meets the dormancy definition in Rev. Proc. 92-70 can use a summary filing. You complete only page 1, label the top margin "Filed Pursuant to Rev. Proc. 92-70 for Dormant Foreign Corporation", and include the filer information, items A through C, the tax year, the company's accounting period and items 1a through 1d (IRS instructions).
Two cautions. By using the summary filing, you agree to provide any requested information within 90 days on audit, or the penalty can apply. And the IRS manual describes the procedure only for a timely filed Form 5471, so a late year may not get the shortcut; filing the full form for that year avoids the question.
Example
These examples are illustrative. Figures are in US dollars.
A green card holder with one company abroad, three missed years
A green card holder owns all of a small Hong Kong trading company and reported its income each year but never filed Form 5471. Before any IRS contact, the owner files three amended returns, each with a complete Form 5471 and a reasonable cause statement.
- Year 1, Year 2, Year 3: an initial penalty of $10,000 each, $30,000 in total, if assessed and not relieved.
- If the IRS had mailed a notice for a year and the form was still missing more than 90 days later, $10,000 would be added for each 30-day period it stayed missing, up to $60,000 for that year.
- The IRS may assess the initial penalties before reading the statements; any notice can be answered by resubmitting the statement.
Two spouses who each own half of a Canadian company, two missed years
Two spouses, both US citizens, each own 50% of a Canadian company, so each has a filing duty for each of two years: four failures if neither files. If they have the same filing requirements, one spouse can file one joint Form 5471 per year listing the other in item H, with a separate Schedule I for each spouse, and the listed spouse completes their own Schedule P. Filing one joint Form 1040, they skip the separate item H statement.
A dormant company
A US citizen owns a company abroad that had no activity for two years and meets the Rev. Proc. 92-70 definition. A page-1 summary Form 5471 might be used for each year, but because the IRS manual describes the procedure only for timely filed forms, whether it is accepted for these late years needs checking.
Different for you?
- You are not sure you needed Form 5471 or which category applies: see US owners of foreign companies.
- The business abroad may need Form 8858 or 8865 instead: see information forms for a foreign company.
- The company's income was never reported: compare streamlined and delinquent routes and get cross-border tax help.
- You received an IRS penalty notice or letter about the forms: the delinquent procedure may no longer fit; get cross-border tax help before you file.
- Several companies, several years, or co-owners: the count and the joint filing choices need checking per form; get cross-border tax help.
- The books for the missed years do not exist: see books for a small foreign company's information return, and get bookkeeping help to rebuild them.
- The company was dormant in the missed years: whether the summary filing works for late years needs checking; get cross-border tax help.
- You live in Canada and own a Canadian corporation: see turning Canadian corporation books into Form 5471 and catching up on missed US returns from Canada.
- You live abroad and are behind on returns: see the Streamlined Foreign Offshore Procedures.
- The company's accounts abroad were never on an FBAR: see FBAR for company accounts abroad.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Initial penalty for failure to file required Form 5471 information Per annual accounting period of each foreign corporation for information required by section 6038(a) | $10,000 | IRS: Instructions for Form 5471 Checked |
| Form 5471 continuation penalty notice period Penalty increases when the failure continues more than this period after IRS notice | 90 days | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty For each period or fraction after the notice waiting period, per subsidiary annual accounting period | $10,000 | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty interval Measured after the notice waiting period | 30-day period or fraction | US Code: Section 6038(b)(2) Checked |
| Form 5471 continued-failure penalty increase cap Maximum additional section 6038(b)(2) penalty for the annual accounting period; initial penalty is separate | $50,000 | US Code: Section 6038(b)(2) Checked |
| Most section 6038(b) penalty per Form 5471 per year (initial plus continuation) Initial penalty maximum of $10,000 plus continuation penalty maximum of $50,000 per required Form 5471 per year | $60,000 | IRS: Internal Revenue Manual 20.1.9.3.4 Checked |
| Initial penalty for missing foreign corporation stock transaction information Each failure for each reportable transaction under section 6046, subject to reasonable cause | $10,000 | IRS: Instructions for Form 5471 Checked |
| Initial foreign tax credit reduction for missing Form 5471 information Section 6038(c) applies to specified foreign taxes; further reductions can apply after notice | 10% | US Code: Section 6038(c)(1) Checked |
| Additional foreign tax credit reduction per 3-month period of continued Form 5471 failure after notice For each 3-month period, or fraction, the failure continues after the 90-day period following IRS notice; limited by section 6038(c)(2) | 5% | IRS: Instructions for Form 5471 Checked |
| Assessment period after missing Form 5471 information is supplied The assessment period remains open until three years after required information is provided; reasonable-cause failures can limit this to related items | Three years | US Code: Section 6501(c)(8) Checked |
Primary sources
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.