IRS Form 5471: Which Filing Category Applies To You?

When it comes to filing IRS Form 5471, it can be tricky for people to determine if they must file the form. The general purpose of the return is informational in nature, and the broad category of persons affected include U.S. Citizens and residents (wherever in the world they reside) who have relationships to foreign corporations, either as shareholders, directors, or officers.

In the directions for IRS Form 5471 under the "Who Must File" section, five categories of persons who must file IRS Form 5471 are described in detail, as well as listed in a chart. The first one of these categories has recently been repealed, but the remaining ones in IRS Form 5471 are simply known by their numbers: Category 2 Filer, 3, 4, and 5.

Category 2 Filer

This category of filer (a U.S. citizen or resident) must be an officer or director for a foreign corporation, to begin with—then to complete the requirement, that corporation must be one in which a U.S person (which is defined as a citizen or resident of the U.S, a domestic partnership or corporation, or a non-foreign estate or trust) has acquired at least 10% of the total value of the stock or 10% or more of the total voting power from all the classes of stock with voting rights. So, if you are a director or officer of a foreign corporation that is at least 10% owned by a U.S. person, you are a Category 2 Filer.

Category 3 Filer

If you are in this category, then you are the U.S. person described in category 2 that acquired the 10% stock and/or voting rights of the foreign corporation. You get into this category if you already owned some stock in the first place, but an additional acquisition pushes you over the 10% threshold. If you didn't own any stock in the first place, the amount you acquire must get you over the 10% requirement. It also works in reverse—you have a requirement to report if you got rid of enough of the foreign stock to put you under the 10%. If you become a U.S person while owning the required stock, that puts you into category 3, and lastly, if you are a person treated as a U.S. shareholder in regards to the corporation, you belong in this category.

Category 4 Filer

In order to get into this category, you must have control of a foreign corporation in some way. More specifically, you must be a U.S. person who owns at least 50% of the total value of a foreign corporation's stock or have at least 50% of the voting rights for it. You can be considered in control if you meet this threshold at any time during your tax year. Furthermore, if you're in control of one corporation A that, in turn, controls foreign corporation B, then that makes you also in control of the foreign entity.

Category 5 Filer

This last category is for U.S. shareholders of a certain type of foreign corporation known as a CFC, which stands for controlled foreign corporation. In order to be considered a CFC, more than 50% of its stock or voting rights must be owned by U.S. shareholders, so it's a bit circular. So if you are one of those U.S. persons who owns some of that 50% or more of the CFC, and you held that stock for an uninterrupted period of 30 days or more AND you owned it on the last day of the year, filing Category 5 is a requirement for you.

This is just the first layer of description of these filing categories for the near-comically time-consuming IRS Form 5471. These descriptions for IRS Form 5471 apply whether you are an expat U.S. citizen or permanent resident living abroad, or you are a citizen or resident living in the U.S. In addition, there are separate schedules J, M, and O. The chart included on page two in the instructions for the form shows which of the schedules must be included for each filing category.

If you're (understandably) confused, contact us. We can help you understand if you have a filing requirement, we can file for you, and can help if you realize that you should have filed in the past, but didn't. Call us at 888-727-8796 or email info@irsmedic.com.

For more about the hidden traps lurking behind Form 5471 filing categories and hidden traps, click here. Be sure to visit our video series on Controlled Foreign Corporations/Form 5471. We disucss the rather complicated story behind Form 5471 and Form 5471 penalties.

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