Do You Own a Foreign Corporation? Understanding GILTI, Subpart F, and Form 5471

Can one small filing mistake cost your company six‑figure penalties? U.S. owners of foreign corporations face that risk each year. Knowing the rules behind Global Intangible Low‑Taxed Income (GILTI), Subpart F, and the complex Form 5471 helps protect profits and peace of mind.

Table of Contents

1. What Counts as a Controlled Foreign Corporation?

2. Why Form 5471 Matters

3. Unpacking Subpart F Income

4. Breaking Down GILTI

5. Key Filing Deadlines and Penalties

6. **Links to foreign bank accounts reporting compliance

7. Practical Steps for Owners

8. How Anu Agrawal CPA Inc Can Help

9. FAQs

What Counts as a Controlled Foreign Corporation?

A controlled foreign corporation, or CFC, exists when U.S. shareholders own more than 50 percent of a non‑U.S. company’s voting power or value. Shareholders include individuals, partnerships, and U.S. companies. Once the ownership line crosses 10 percent, special reporting rules begin. Share totals update each time stock transfers, new shares issue, or redemptions occur. Tracking these metrics on a rolling basis prevents surprise filings.

Why Form 5471 Matters

Form 5471 tells the IRS about a foreign corporation’s income, assets, and ownership. The form attaches to the shareholder’s U.S. return. Skipping it brings penalties starting at $10,000 per form per year. Large data requests—from balance sheets to earnings—let the IRS measure hidden profits abroad. Accurate completion shows respect for foreign bank accounts reporting compliance rules and lowers audit odds.

Unpacking Subpart F Income

Subpart F targets passive and certain easily shifted profits, such as rental income, interest, and some types of services income. U.S. shareholders pay tax on these earnings even when they never receive a dividend. The law stops owners from deferring tax by parking passive cash offshore. Calculations start with finding relevant categories, then subtracting qualified exceptions like active rents for real estate developers.

Breaking Down GILTI

GILTI applies a minimum tax on a CFC’s high‑return income. The rule compares total income to a deemed 10 percent return on tangible assets. Any excess falls into the GILTI basket and enters the shareholder’s U.S. tax return each year. Corporations may offset GILTI with a special 50 percent deduction and partial foreign tax credits. Individual owners can make an election to use similar relief or operate through a U.S. C‑corp blocker.

Key Filing Deadlines and Penalties

Form 5471 follows the same due dates as the owner’s tax return. April 15 applies to calendar‑year individuals, with a six‑month extension available. Late forms rack up $10,000 penalties within 90 days. If the form remains outstanding, the IRS adds $10,000 every 30 days up to $50,000. Add in extra interest on unpaid Subpart F and GILTI tax, and costs climb quickly.

6. Links to foreign bank accounts reporting compliance

Owning a CFC often means holding corporate funds in non‑U.S. banks. Those accounts count toward the $10,000 aggregate threshold for FinCEN 114 (FBAR). Filing FBAR alongside Form 5471 completes foreign bank accounts reporting compliance. A gap between the two filings invites scrutiny. For high‑balance accounts, Form 8938 (FATCA) may also apply, layering more detail onto the same data.

Practical Steps for Owners

First, map ownership. Keep spreadsheets showing share percentages, acquisition dates, and transfers. Next, set up monthly closing entries for the foreign books, translated into U.S. dollars at average rates. Then, flag Subpart F categories and GILTI calculations in each trial balance. Finally, prepare draft Form 5471 figures at least two months before the filing deadline to allow time for review.

Cloud accounting tools speed this process. Integrate banking feeds, translate foreign currencies automatically, and tag accounts linked to GILTI or Subpart F buckets. Daily visibility catches spikes in passive income early, letting owners plan estimated payments.

How Anu Agrawal CPA Inc. Can Help

The team combines foreign tax compliance expertise with user‑friendly software. Our portal syncs foreign ledgers, bank feeds, and exchange rates into live dashboards. Each quarter, clients receive draft GILTI and Subpart F figures alongside Form 5471 schedules. The firm also handles FBAR e‑filing, keeping full foreign bank accounts reporting compliance under one roof.

Clients appreciate the plain‑language approach. Advisors explain each line item and suggest tactics—like electing Section 962 or restructuring ownership—to trim tax. For California residents, state reporting tips reduce duplication and keep penalties away.

FAQs

1. How is GILTI tax calculated?
   GILTI equals net CFC income minus a 10 percent deemed return on tangible foreign assets, adjusted by qualified expense items.
2. Can an individual avoid double tax on GILTI?
   Yes. Electing Section 962 lets individuals claim corporate‑level foreign tax credits and deductions, reducing their final U.S. tax burden.
3. Does every CFC owner file Form 5471?
   Any U.S. shareholder owning at least 10 percent of a CFC’s vote or value must file. Certain officers or directors of foreign corps may file, too.
4. What happens if I skip FBAR while filing Form 5471?
   Omitting FBAR leaves a gap in foreign bank accounts reporting compliance and raises red flags that could trigger separate fines.
5. How often should I review foreign books?
   Monthly reviews catch pass‑through income spikes and ensure timely estimates. A quarterly deep dive with an accountant fine‑tunes Subpart F and GILTI positions.