Tax Law Center Blog

The IRS continues to aggressively enforce penalties related to Form 5471, one of the most complex and punitive international reporting requirements for U.S. taxpayers. Form 5471 is required for certain U.S. shareholders of foreign corporations, and the consequences for late, incomplete, or incorrect filings can be financially devastating.

Failure to file Form 5471 or filing an incomplete form triggers a $10,000 penalty per form, per year, as explained in Large Penalties: Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations. The penalties can escalate quickly—if the form isn’t properly submitted within 90 days of an IRS notice, additional $10,000 penalties apply for each subsequent 30-day period, up to $50,000 per form.

Even filing a substantially incomplete form can trigger these penalties. As we discussed in Substantially Completed Form 5471 is Required to be Filed, taxpayers must ensure that all required schedules, ownership information, and financial details are provided, or they may still be considered noncompliant despite submitting the form.

Fortunately, relief options exist. Taxpayers who qualify may be able to avoid or reduce penalties by demonstrating reasonable cause. Our article on Penalty Relief for International Information Forms 5471, 5472, and 8865 outlines how to utilize the IRS’s Delinquent International Information Return Submission Procedures (DIIRSP) to correct filing failures before an audit begins.

Recent court decisions have highlighted the complexities surrounding Form 5471 penalties. In Taxpayer Wins Form 5471 Penalty Case, a taxpayer successfully challenged the IRS’s authority to automatically assess penalties, though this remains an evolving area with inconsistent court outcomes.

For U.S. shareholders of dormant foreign corporations, the IRS provides some relief. Under Rev. Proc. 92-70, eligible taxpayers can submit a simplified version of Form 5471, avoiding the full complexity and penalties otherwise imposed. For details, see our post on IRS Provides Form 5471 Information-Filing Relief for Dormant Foreign Corps.

Form 5471 reporting obligations are not optional, and noncompliance—even unintentional—can expose taxpayers to significant penalties, extended audit windows, and litigation. With the IRS deploying advanced data tools to detect offshore activity, U.S. taxpayers with foreign corporations must take these obligations seriously.

At Patel Law Offices, we assist clients in assessing their Form 5471 filing requirements, preparing or amending filings, pursuing penalty relief, and defending against improper penalties. Proactive compliance is the only reliable way to avoid the severe financial consequences the IRS routinely imposes for international reporting failures.

If you have an interest in a foreign corporation (even a dormant one) contact us today to review your reporting history and protect yourself from unnecessary penalties.