Form 5471: if you own a company outside the United States

Many U.S. tax residents keep their company in their home country. That company pays no tax here, but its owner does have to report it.

Who must file

Form 5471 is filed by citizens, green card holders and tax residents who are directors, officers or shareholders of certain foreign companies, depending on their ownership. The most common case is someone who owns 10% or more of a foreign corporation, or who controls it.

What is reported

The company's information, its shareholders, balance sheet, income statement and transactions with the owner. Depending on ownership, it is also determined whether part of the company's earnings must be included on the owner's return even if no dividend was paid.

The penalty

Not filing, or filing incomplete, carries a $10,000 penalty per form per year, which can increase if the IRS requests it and the taxpayer does not correct it.

The period that does not close

Until Form 5471 is filed, the period the IRS has to examine that year's return stays open. A year that seemed closed can be examined many years later.

If you did not file

There are ways to catch up with less risk, such as the Streamlined filing compliance procedures when the failure was not willful. It is best to evaluate this before the IRS contacts you.