Dormant foreign corporations not subject to complicated Form 5471 filing requirements

The reporting requirements for IRS Form 5471 are complex, including ‘category of filer’ and required schedules.  However, very few taxpayers know that there are special simplified filing rules for a foreign dormant corporation.

Although not widely published, IRS Revenue Procedure 92-70, which is still in effect, provides SEVEN specific conditions that must ALL be met in order for a foreign corporation to be considered dormant:

  1. The foreign corporation conducted no business and owned no stock in any other corporation other than another dormant foreign corporation
  2. No shares of the foreign corporation (other than the directors’ qualifying shares) were sold, exchanged, redeemed, or otherwise transferred, nor was the foreign corporation party to a reorganization
  3. No assets of the foreign corporation were sold, exchanged, redeemed, or otherwise transferred, except for minimis transfers described in 4 and 5 below
  4. The foreign corporation received or accrued no more than $5,000 of gross income or gross receipts
  5. The foreign corporation paid or accrued no more than $5,000 of expenses
  6. The value of the foreign corporation’s assets as determined pursuant to the US generally accepted accounting principles (but not reduced by any mortgages or other liabilities) did not exceed $100,000
  7. No distributions were made by the foreign corporation; and

The foreign corporation either had no current or accumulated earnings and profits or had only de minimis changes in its beginning and ending accumulated earnings and profits balances by reason of income or expenses specified in 4 or 5 above

If your foreign corporation satisfies all of the above requirements then you only need to complete page 1 of Form 5471 for each dormant foreign corporation; this includes your name and address, tax year, identifying number, category of filer, and the total percentage of the foreign corporation’s voting stock you owned at the end of its annual accounting period.

If you are filling out a Form 5471 for your dormant corporation, you MUST note at the top of the document that ‘Filed Pursuant to Rev. Proc. 92-70 for Dormant Foreign Corporation’.

We have compiled Form 5471 basic information and the top 12 Form 5471 most common errors to avoid. Currently, the US government has 5 solutions to correct many Form 5471 errors.

If you have any further questions about your reporting requirements on this, or any other offshore reporting form, contact us online to schedule a free confidential strategy session consultation.

Patel Law Offices has consulted with hundreds of clients regarding their offshore compliance issues. Patel Law Offices is a law firm dedicated to helping clients resolve complicated tax, criminal tax, and international tax problems. Our firm assists (and defends) clients and their advisors to legally disclose (and legitimize) foreign assets.

Patel Law Offices offers a free strategy session to discuss how to resolve your legal problem. Conveniently schedule online today...

For foreign asset problems complete our questionnaire and online scheduler.

For other tax problems complete our questionnaire and online scheduler.

For estate planning complete our questionnaire and online scheduler.

For probate/estate administration complete our questionnaire and online scheduler.

For other legal problems visit our website and online scheduler.