Penalties for Late Filing of Form 5471

WASHINGTON - Taxpayers required to file Form 5471, Information Return with Respect to a Foreign Corporation, will be subject to penalties for filing late or incomplete forms under a new assessment procedure.

Form 5471 is required to be filed by U.S. individuals, partnerships, corporations, and trusts with five percent or more stock ownership in a foreign corporation. The IRS developed the form to consolidate the filing requirements of Internal Revenue Code sections 6035, 6038 and 6046.

The IRS said that taxpayers who failed to file complete and timely Forms 5471 will be notified in writing from the Philadelphia Service Center as to what is needed to avoid being penalized. Taxpayers should send the missing information promptly or establish reasonable cause of failing to do so. The IRS said the most common examples of noncompliance include:

• Forms 5471 which indicate that required information will be furnished upon request or audit;
• Submitting one financial statement that consolidates data from two or more foreign corporations;
• Submitting a computer-generated copy of Form 5471 that does not conform to Form 5471 and has not been approved by the IRS, and,
• Failure to provide financial statements on controlled foreign corporations.

Internal Revenue Code section 6038 and 6679 provide penalties for failure to comply with Form 5471 filing requirements. To supplement existing foreign tax credit reduction penalties provided by IRC 6038(c) the Tax Equity and Fiscal Responsibility Act of 1982 established a penalty, under section 6038(b) , of $1,000 for each failure to submit a timely or complete Form 5471. The penalty under section 6038(b) starts at $1,000, but can reach a maximum of $25,000 for each Form 5471, if the delinquency or deficiency in the form is not corrected after a notice is mailed by IRS.

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