When an Irvine software company contacted LSL CPAs for help, their IRS Form 5471 tax problems were much more severe than they thought. A few years before working with LSL CPAs, they established a satellite company in India to conduct business there. Since the Indian Corp did not conduct business in the United States or generate income, the owners figured it didn’t matter whether they filed IRS Form 5471.
Since the corporation was losing money, the Irvine software company believed they did not need to bother with IRS Form 5471 disclosure requirements. Why would the IRS care if there was no tax liability and the foreign company wasn’t making any money? The Irvine software company’s owners did not realize how seriously the Internal Revenue Service takes such disclosure requirements. The question is not whether the foreign investment is making money but whether the foreign investment exists in the first place.
The penalty for failing to file IRS form 5471 is $10,000.00 per each form that was required to be filed but was not. After seven years of overseas business, the penalty, if assessed, would have added up to over $70,000. The owners of the US parent also failed to realize that the penalties could be assessed against them as the majority shareholders of the foreign-based business.
The Irvine software company was smart enough to contact LSL CPAs for help before the IRS had assessed the non-disclosure penalty. The outcome would have been quite different if they had come after the penalty assessment. Employing the Offshore Voluntary Disclosure Program, the international tax consultants could file amended returns to include IRS Form 5471 for the company under a very specific clause in the OVDP (the acronym for the Offshore Voluntary Disclosure Program ) code.
In the OVDP’s frequently asked questions (FAQs), question 13 provides a guideline that allows a company to avoid the IRS Form 5471 failure to disclose penalties if they file under the umbrella of the OVDP. Once the voluntary disclosure was made, the company was no longer subject to the non-disclosure penalties, and the $70,000.00 potential assessment was voided. This vast savings was based on a technicality that only an experienced international tax accountant would know. If your company is in a similar position, don’t hesitate to contact LSL CPAs for help.
This content contains accurate information. However, It is inherently limited due to the length of the article and the complexity of the foreign disclosure issues being discussed. It is important to note that this article presents only a partial view of the subject matter.
