Are you an expatriate who needs to worry about reporting a foreign corporation on Form 5471?

Form 5471

Ask any expat about his or her decision to move to another country and you’ll be treated to beautiful stories about adventures, and the local people and culture. Taking a leap of faith to immerse oneself in another culture can be scary, but it can also be comforting to know that there are thousands of Americans happily living abroad and carving out successful lives for themselves and supporting their families while doing so.

However, inquire about an expat’s taxes and you’re likely to get another side of the story. The U.S. government is one of only two in the world that insists its citizens pay taxes regardless if they are living outside of United States borders.

The good news is that the federal government only wishes to collect what it considers to be the country’s fair share of taxes. The Internal Revenue Service (IRS) doesn’t wish to burden you by taxing income that has already been taxed by your new home country once. To this end, you can claim either the Foreign Tax Credit or the Foreign Earned Income Exclusion when you file your Form 1040 from abroad. 

The bad news? If you’re a company executive overseeing a foreign corporation, then you have yet another layer of paperwork to take care of. This rule is for expats who are officers, directors, business owners and sometimes even shareholders.

Here’s four quick facts about Form 5471:

  • The form is formally titled the Information Return of U.S. Persons with Respect to Certain Foreign Corporations
  • If you own at least 10 percent of a foreign corporation, this form applies to you
  • It must be filed if you assumed temporary control of a foreign corporation with at least 30 days at the helm
  • Company shareholders must file for all stocks they own shares of at the end of the year if they owned those shares for at least 30 days

Closing the loopholes

It’s no surprise that different countries refer to corporations using a wide range of terminology. The U.S. government; however, only cares about its own definition. So, even if the country you live in calls you something other a shareholder or an officer, if you act in that capacity according to American standards, then you must file Form 5471 with your expat taxes.

Going it alone

The form may sound pretty straightforward, but it is definitely more complex than you might imagine, and shouldn’t be attempted without assistance from an expat tax specialist. There are 41 pages of instructions for Form 5471 and after reading it all and trying to digest it, you might think it’s easier just to pack everything back up and return to the United States.

There are separate schedules labelled A through R, a wide variety of filer categories for just about any situation and whole host of other reporting requirements.

This is where a tax professional who specializes expat taxes can be invaluable. These professionals are well educated about not only who has to file Form 5471, but how and when how to complete it and how it impacts your overall tax liability.

Related Topics: I-751, Every Thing about Form I-751


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