Joint Form 5471s for Multiple Category 2 Filers Without Using Powers of Attorney

One favorite way to wiggle out of any responsibility is to mooch off someone else's hard work.Form 5471 filing is no exception. Go look at Item H on the first page of Form 5471. Joint Form 5471s are a thing. And specifically they are a thing for U.S. officers and directors of a foreign corporation who find themselves with an inescapable Category 2 filing requirement.There are two ways a Category 2 filer can file a joint Form 5471 with someone else: with or without using a power of attorney.This week I discuss the simple method: just do it, and don't bother with a power of attorney. The simple method is The Way.

Introduction

If you have figured out that you are a Category 2 filer, there are three ways to satisfy the requirement to file Form 5471:

• File your own Form 5471;
• File a joint Form 5471 with another Category 2 filer; or
• Prove that your Category 2 filing obligation is eliminated by an exception.

Let's talk about filing a joint Form 5471.There are two methods of filing a joint Form 5471:

• the normal method; and
• the powers of attorney method.

Generally, if you can identify another Category 2 filer who has the same filing requirement as you, then the two of you can file a joint Form 5471. One officer or director prepares and files Form 5471. The other officer or director is named at Item H on the Form 5471, and attaches a statement to his or her income tax return.

Authority

The Regulations

The Regulations authorize multiple Category 2 filers to file a joint Form 5471. Reg. §1.6046-1(e)(1) says:

Return Jointly Made. Any two or more persons required under paragraph (a) of this section to make a return with respect to one or more shareholders of the same corporation . . . may in lieu of making several returns, jointly make one return.

Persons required to make a return "under paragraph (a)" are U.S. persons who are officers or directors of a foreign corporation. See Reg. §1.6046-1(a)(2). The strikeout text authorizes a jointly-filed Form 5471 for Category 3 filers, who are required to file Form 5471 under Reg. §1.6046-1(c) for 1963 and later events.

The Instructions

The Instructions for Form 5471 discuss joint Form 5471s in two different places. The first place to look is under the heading "Multiple filers of same information." The second place to look is under the specific instructions to Item H, which I will discuss below.

Multiple filers of same information.One person may file Form 5471 and the applicable schedules for other persons who have the same filing requirements. If you and one or more other persons are required to furnish information for the same foreign corporation for the same period, a joint information return that contains the required information may be filed with your tax return or with the tax return of any one of the other persons.

The key to understanding this is to focus on the existence of three elements:

• "the same filing requirements" for the
• "same foreign corporation" for the
• "same time period."

Category 2 filers report the acquisition of "enough" stock by a U.S. person during the year. Two U.S. persons who are officers of a foreign corporation for the entire year will have identical reporting requirements as to stock acquisitions during the year. If one of the reporting thresholds of Reg. §1.6046-1(a)(2)(i) (meaning a Category 3-level stock acquisition by a U.S. person) occurred, then every U.S. person serving as an officer or director of the foreign corporation at that moment will have a Category 2 filing requirement, and will therefore be eligible to file a joint Form 5471.

Who does the work? Who is the freeloader?

Having determined that there are two Category 2 filers that share the same reporting obligations, the next question is to decide which of the two should be the filer, and which person should be the person on whose behalf the Form 5471 is filed.Who is the motorcycle, and who is the sidecar?This is a decision guided by two simple principles:

• Do as little work as possible.
• Give the job to the most reliable person.

You know which of these two principles is more important. Suck it up and do the work yourself if you have even a hint that the other person might be unreliable.

What the Form 5471 Filer Does

The person who files the joint Form 5471 has discharged his or her filing obligation created by IRC §6046 and Reg. §1.6046-1(a)(2) by actually filing a Form 5471. That's easy.In order to discharge the other person's filing obligation for Form 5471, the person preparing and filing Form 5471 also needs to add the person on behalf of whom the Form 5471 is filed.That is done by completing Item H on page 1 of Form 5471. The information requested is simple and self-evident.Interestingly, the person named in Item H does not need to necessarily formally consent to be added at Item H.This can be inferred from the fact that a separate mechanism exists for filing a joint Form 5471 where a power of attorney is given by the "on behalf of" Category 2 filer to the Category 2 officer or director who actually files the Form 5471.

What the "On Behalf Of" Filer Does

Make sure Item H is completed correctly

Make sure that the person who wants someone else to do the Form 5471 dirty work is named on the other person's Form 5471 at Item H.This is where the reliability principle comes into play. Failure here means the "on behalf of" person has not filed Form 5471 and is exposed to a $10,000 penalty.

Attach a statement to Form 1040

The Category 2 officer or director who is named in Item H must attach a statement to his or her income tax return noting that a filing requirement exists for 5471 and that the filing requirement is satisfied by a joint Form 5471. The statement gives the IRS enough information to find that joint Form 5471 in the bowels of the government's databases.This is required by the Instructions for Form 5471, not by the Regulations. The Instructions for Form 5471, at the specific instructions for Item H, tell you what the statement must contain.

Filing requirements for persons identified in Item H.Except for members of the filer's consolidated return group, all persons identified in Item H must attach a statement to their tax returns that includes the following information.

The name, address, and EIN (or reference ID number) of the foreign corporation(s).

A statement that their filing requirements with respect to the foreign corporation(s) have been or will be satisfied.

The name, address, and identifying number of the taxpayer on the return with which the information was or will be filed.

The IRS Service Center where the return was or will be filed. If the return was or will be filed electronically, enter “e-file.”

Exception.If the person who is filing Form 5471 on behalf of others is married to a person identified in Item H and they are filing Form 1040 jointly, the statement described above does not have to be attached to the jointly filed Form 1040.

Conclusion

The normal method of filing a joint Form 5471 for a Category 2 filer could not be easier.

• One Category 2 officer or director will file Form 5471, as required. It will identify the U.S. persons acquiring "enough" stock in the foreign corporation to trigger the Category 2 filing requirement.
• The other Category 2 officers or directors will be named in Item H of the joint Form 5471.
• The Category 2 officers and directors named in Item H will attach statements to their personal income tax returns, with the information specified in the Instructions for Form 5471.