Form 5471 Penalties.

• Author: Weber, Neal A.

It is extremely important that taxpayers timely file federal income tax returns that include Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations, regardless of whether the return shows a balance due. Form 5471 is used to satisfy the reporting requirements of Sec. 6038 and related regulations as they apply to foreign corporations. Failing to comply with the Sec. 6038 reporting requirements will result in a penalty of $10,000 for each annual accounting period for which such failure exists, and the penalty will apply even if the income tax return shows no tax due. In addition to the monetary penalty, a 10% reduction may be applied to the foreign taxes available for credit under Secs. 901, 902, and 960.

An IRS Service Center that receives a late-filed income tax return will automatically impose penalty charges in the amount of $10,000 for each Form 5471 attached to the late-filed income tax return. While the taxpayer will be notified of the penalty assessment and given an opportunity to request abatement for reasonable cause, if abatement is denied interest will be charged on the penalty. In some cases, the IRS levies taxpayers' bank accounts to ensure payment of the penalty. Thus, filing income tax returns late...