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IRS to Automatically Assess Penalties for Late-Filed Forms 5471

Form 5471 is utilized by certain U.S. persons (including U.S. businesses) and U.S. residents who are officers, directors or shareholders in certain foreign corporations. Form 5471 is an information form and is generally required to be sent in with the corresponding income tax return of the filer. There has always been a $10,000 penalty for each Form 5471 that was not filed but should have been. This penalty has not been consistently enforced.

The IRS has announced that it will automatically assess appropriate penalties on late-filed Forms 1120 with Form(s) 5471 attached beginning January 1, 2009. U.S. persons who have a certain level of control in certain foreign corporations are required to file Form 5471. The form must be filed by the due date of the income tax return (including extensions).

If the income tax return and attached Form(s) 5471 are filed late, a separate penalty applies to each Form 5471 that should have been filed timely but was not. The income tax return late-filing penalty applies as well as a $10,000 penalty for each late filed Form 5471. The $10,000 penalty also applies if the form does not include complete and accurate information. A 10% reduction of foreign taxes available for credit may also be applied in addition to the $10,000 penalty. These penalties apply even if there are no income taxes due with Form 1120. Any outstanding or late Form 5471s should be filed as soon as possible to avoid the automatic assessment of penalties.

Due to many Form 1120 required to be filed electronically, the IRS will be able to easily determine which returns are filed late.

The automatic assessment of penalties could impact financial statements as well. Since the penalty will now be automatically assessed on any late-filed forms, a 5471 penalty may need to be accrued as a liability in the financial statements of the business.

If you have further questions, please contact Mike Calahan, Paul Lau or your Blackman Kallick representative.

This publication is part of Blackman Kallick’s marketing of professional services, and is not written tax advice directed at the specific facts and circumstances of any person and/or entity. Contents of this publication are of a general nature, and you should not act on this information without obtaining professional advice from your business advisor that is appropriately tailored to your individual needs and circumstances. This written advice is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.