Form 5471 is a tax form that the IRS requires U.S. persons to file if they own shares in a foreign corporation. But wait, you might be thinking, “I’m a Canadian, why would I need to file this form?”
To start, if you are a Canadian who owns shares in a U.S. corporation (For our purposes, consider this to mean a closely-held US corp), you might be considered a U.S. person for tax purposes, which means you may need to file Form 5471.
So how else can you become a “U.S Person”? For simplicity, if you are a U.S. citizen, hold a green card, or spend a certain amount of time in the United States each year, you may be considered a U.S. person. And if you own shares in a foreign corporation (Read: A Canadian who owns a CCPC, and you decide to hang out in the US for over 183 days, for example) you might need to file Form 5471 to report your ownership and transactions with the corporation.
Filing Form 5471 is important, mostly because the IRS says it is, AND because the penalty for not filing is painfully large ($10,000USD). The IRS uses the filings to keep track of your foreign investments and ensure that you are paying the right amount of taxes on them. The form is pretty detailed and requires you to provide a lot of information about the foreign corporation and your ownership of it. It is generally a pretty complex and involved filing, so get ready to pull out a lot of paperwork to get it completed.
Some of the information you may need to report on Form 5471 includes the name and address of the foreign corporation, the percentage of shares you own, and any transactions you have with the corporation. You may also need to provide financial statements for the corporation, including income, assets, and liabilities.
If you fail to file Form 5471 when required, the penalties can be significant. You could face penalties of up to $10,000 for each year you fail to file, plus additional penalties for continued noncompliance. Maybe consider engaging a tax pro if you think you might need to file Form 5471.
Overall, the Form 5471 is just one of many tax forms that you might need to file if you have foreign investments. So, if you’re a Canadian who owns shares in a U.S. corporation, make sure to do some reading to see if you need to file these.
This is not formal tax advice. I’m not your CPA. It’s possible, or dare I say even probable, that the comments and opinions expressed here contain material errors, or that important stuff has been left out. Don’t use this info to make important decisions. Hire a pro to help you.