Substantial Completion of IRS Form 5471

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Video transcript:
This is Parag Patel. Today, we are discussing form 5471 and substantial completion as required by the IRS. The IRS recently put out an international practice unit indicating what is the minimum information required in order to file a form 54 71. So today I'm discussing what those items are. So form 5471 is a long form. Today I'm just showing you that the most important part on page one; you have to obviously fill out the name of the person and the identify the-usually it's going to be the EIN number or their social security number of the person that's filing the form. Item B is one of the parts that the IRS has indicated that's required to be, completed. Meaning that if you don't complete item B, if you leave it blank, it's not considered filed. So you must file, you must complete, Item B, which is a category of the filer.
In this case, we have categories one through five. You have to pick one, to discuss another discussion. It's a complicated decision that needs to be carefully analyzed on what category you are, which will result in which schedules you had to file, but that item b needs to be completed. Similarly, item C and enter the total percentage, how much of the percentage of the foreign corporation is owned by the person filing this form? That needs to be completed as well. Next on the IRS has "hitlist" per-se: you have to fill out item a, which is the name and address of the Foreign Corporation and you have to fill out items B1 and B2, which is the, in this case the tax id number. And often a lot of foreign corporations don't have us tax ID numbers but, you have to fill out something.
Often, for when we fill out this form, we put in a 0001, some type of a number there. Just to keep track. And then the reference ID number. This could be the local ID number issued by the foreign corporation by the foreign country. And next you need to fill out the schedules that need to be completed. Your schedule B at the very bottom, sorry, schedule a and schedule B, then you have multiple parts of the schedule and then this form goes on and on and on to the income statement, a balance sheet. And, now, of course, all of these schedules are some of these requests, schedules that are required based upon what type of file or you are the category filer. Most importantly, this international practice unit indicates what needs to be minimally filed. And now if you don't include the items which I discussed today, then the IRS will consider this not filed, in which case the statute of limitations ever runs.
And of course if the IRS, if it ever discovers this, there could be subject to penalties in case of a non filing. So you cannot hide by the fact that you filed a kind of one filing with very little information. You have to have substantial completion, which is why the IRS put out this, this notice. I did want to spend a minute on penalties. If you do file a delinquent form, 5471, the IRS processing center that receives these 5471s automatically assesses a 10,000 per year, per form penalty. There's a really no discretion that they have. There-it's automatically assessed. Now there's defenses to these penalties such as a reasonable cause, abatement. Sometimes there is a, a link international information returned to mission program filing. You can file in this intent to try to get out of the penalties, but if you file with no protection, no explanation or nothing, you are going to expect to get hit with that penalty. That's it for today. I wanted to go over this, a substantial completion and answer it with the IRS. It's an important topic. We're also going to put out a blog entry on the very same topics, so look out for that. Thank you very much. Have a good day.