IRS Announces Increased Enforcement on Form 5471

On April 16, 2019, the Large Business and International (LB&I) Division of the Internal Revenue Service (IRS) announced a new compliance campaign to focus on the separate detach filing of Forms 5471 by US shareholders of controlled foreign corporations (CFCs) rather than attaching the form to the accompanying tax returns, so-called “loose-filed Forms 5471.”

The loose-filed Form 5471 campaign seeks to improve compliance with the requirement to file Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations. Certain US shareholders of CFCs are required to file Form 5471 by attaching it to a tax return. For taxpayers who failed to attach required Forms 5471 to their tax returns, this campaign cautions that amended returns should be filed with Forms 5471 attached.

This campaign addresses the practice by some taxpayers of filing a Form 5471 without an applicable tax return, and further highlights LB&I’s focus on examining offshore dealings and on curtailing noncompliance. The campaign does not address whether filing an amended return with the Form 5471 appropriately attached will enable taxpayers to mitigate consequences that might otherwise follow from perceived compliance defects.

The goal of this campaign is presumably to improve compliance with the requirement to attach a Form 5471 to an income tax return. Taxpayers need to be aware of the campaign and whether they have any exposures. If taxpayers do have any issues that may be subject to the campaign, they should have an “audit ready” file on those issues in case of an audit. Please also note that the Internal Revenue Code section 6501(c)(8) provides that the failure to file Form 5471 results in the statute of limitations remaining open for the entire return.

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