Form 5471 (Foreign Corporation) COVID Penalty Refund

Form 5471 reports U.S. ownership of foreign corporations and carries a $10,000 per-failure penalty under §6038(b), with continuation penalties up to $50,000 per failure. Penalties assessed during Jan 20, 2020 – July 10, 2023 may be eligible for refunds under Kwong. File Form 843 by July 10, 2026. Refund eligibility is not guaranteed; Kwong is being appealed.

Who qualifies

Form 5471 is required from U.S. persons who are officers, directors, or shareholders in certain foreign corporations. The §6038(b) penalty starts at $10,000 per missed filing per year, with continuation penalties reaching $50,000 per filing. Filings are due with the U.S. shareholder's parent return (typically Form 1040 or Form 1120). Penalties assessed during the disaster window may be eligible under the Kwong reasoning.

  • Account transcript shows a §6038(b) penalty assessment tied to a missing or late Form 5471, dated between Jan 20, 2020 and July 10, 2023.
  • The Form 5471 was due with a parent return (Form 1040 or Form 1120) due within the disaster window.
  • Both initial and continuation penalties may be eligible for the same Kwong-based challenge.

How much could I get back?

Form 5471 penalty exposure can be among the highest in the IRC: a U.S. shareholder of multiple foreign corporations across multiple missed years could face $50,000–$250,000+ in cumulative §6038(b) penalties. Per-filing scale means even modest noncompliance carries large dollar exposure. Refund eligibility and amounts cannot be guaranteed.

Why this specifically

Form 5471 has been the subject of ongoing tax-court litigation about whether the IRS even has assessment authority for §6038(b) penalties (Farhy v. Commissioner). On top of that substantive question, Kwong adds a separate procedural ground. For U.S. shareholders of foreign corporations with disaster-window assessments, multiple defense theories are now in play.

FAQ

How does the Farhy v. Commissioner ruling interact with Kwong?

Farhy questioned whether §6038(b) penalties are assessable at all without a separate Tax Court proceeding. That's a separate substantive defense. Kwong adds a procedural defense based on the disaster-period deadline suspension. They can work together — consult substantive tax counsel.

Does this apply to Category 4 (control) vs Category 5 (10% shareholder) filers?

Yes — the §6038(b) penalty applies regardless of which Form 5471 filing category. The Kwong reasoning is procedural and category-agnostic.

What if our 5471 was filed late but no penalty has been assessed yet?

Form 843 addresses penalties already assessed on the account transcript. If no §6038(b) assessment exists, there is nothing to refund or abate. The IRS sometimes assesses 5471 penalties years after the original due date, so re-check the transcript periodically.