This has significant impact to US shareholders of foreign corporations. If you fall under this category and didn’t file Form 5471, the entire return remains open, even if you properly stated all your income.
So you filed your tax return and now you turn on your mental clock and countdown the time the IRS can audit your report. You mentally rely on the prevailing wisdom that the IRS has three years to audit your return.
Not so fast! True, most returns have a three year expiration date, but that doubles to six years if you omitted more than 25% of your income. This means that if you’re understating your income by 25%, your statute of limitations for the return is six years.
The six year rule also applies if the income omitted is more than $5,000 of foreign income.
And if you fail to file? The clock doesn’t even begin, so technically the IRS can audit it forever. This also includes failure to file a required form.
This has significant impact to US shareholders of foreign corporations. If you fall under this category and didn’t file Form 5471, the entire return remains open, even if you properly stated all your income. The IRS can make an adjustment on any part of the return until the required form is filed and then the statute of limitations begins.
Penalties for failing to file form 5471 is $10,000 per return. If the form is filed late, incomplete or inaccurate other penalties can apply.
Form 5471 is a complex form. It can be difficult getting all the information and often the information is in a foreign language. Simply translating the statements is not enough since financial information is presented differently in most European countries in comparison to the United States. It requires, “converting” the statements from IFRS into the US format (GAAP) and taking into account currency exchange rates. There are other adjustments that can be required such as depreciation differences.
It is worth your while to use a competent accountant who is knowledgeable in preparing this form. Save time and money by downloading the Taxfyle app now and start chatting with a CPA who can help you, for free.
Aron Epstein CPA, proud and busy father, occasional skier, leader of pleasant life!
