International Tax Compliance (foreign forms)

Service description

International tax compliance covers the U.S. information returns a business or individual owes because of foreign ownership or foreign operations — Form 5471 for a U.S. person's interest in a foreign corporation, Form 5472 for a foreign-owned U.S. corporation's transactions with related parties, and the income inclusions, like the tax on net CFC tested income (the provision widely known as GILTI), that flow from owning a controlled foreign corporation. These are information and inclusion obligations layered on top of the regular income tax return, not a substitute for it.

Common industries

Any business with a foreign parent, a foreign subsidiary, or significant foreign ownership or operations.

ROI

These forms carry steep penalties for late or missing filings — compliance is insurance against assessments that dwarf the prep cost.

Benefit

Prepare the U.S. international information returns (e.g., 5471/5472) and manage cross-border reporting for businesses with foreign operations or owners.

Why get it

These are information returns, not tax bills, but the penalty for filing one late or incomplete is fixed and steep regardless of whether any tax was actually owed — so the exposure exists even for a business with no unreported income.

When you benefit

Filed annually, attached to the income tax return of the U.S. person or foreign-owned domestic corporation that owes the filing.

What it costs

Usually a flat fee per form and per foreign entity in scope, since each one requires its own schedules.

When you pay

Commonly billed once the ownership structure and related-party transactions for the year are known, due at filing alongside the return. Additional forms discovered mid-engagement — a newly formed subsidiary, for instance — are typically billed separately.

Other costs

Reconstructing an entity's ownership history or related-party transactions for a first-year filing can add work beyond a routine year's preparation.

Risks to know

A late or substantially incomplete Form 5471 or Form 5472 draws a fixed penalty per form per year that applies whether or not any tax was underpaid, and continues to grow the longer the IRS's notice goes unanswered. The statute leaves little room for the penalty to scale down with the size of the business.

When risks arise

The penalty clock starts at the original filing deadline, not when the omission is discovered, and grows again after the IRS sends notice and a further period passes without a response. Because these are information returns rather than the main tax return, a missing form can go unnoticed until a much later audit uncovers it.

The process

The preparer maps the ownership structure to determine which forms are required, gathers each foreign entity's financials and related-party transaction detail, and prepares the returns and required schedules. It calculates any income inclusion, such as the CFC tested-income inclusion, that flows to the U.S. owner. The business reviews the completed forms before they're filed with the federal return.

Your commitment

The business identifies every foreign entity it or a related U.S. person owns an interest in, and shares each entity's financial statements, ownership percentages, and records of transactions with related parties during the year. New foreign entities, or changes in ownership, should be flagged as soon as they happen rather than at filing time.

Documents to gather

• Ownership chart showing every foreign entity and the percentage owned
• Financial statements for each foreign entity in scope
• Records of transactions between the foreign entity and related U.S. parties
• Prior-year Forms 5471, 5472, or related schedules, if any

Helpful reading

• Penalty relief for Forms 5471, 5472, and 8865 — The Tax Adviser
• Key international tax issues for individuals and businesses — The Tax Adviser

Further research

• 26 U.S. Code § 6038 — Information reporting with respect to certain foreign corporations and partnerships
• 26 U.S. Code § 6038A — Information with respect to certain foreign-owned corporations
• 26 U.S. Code § 951A — Net CFC tested income included in gross income of United States shareholders (the provision known as GILTI)
• About Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations