U.S. Taxpayer Married a Nonresident Alien? You Might Need to Report Their Foreign Corporation to the IRS on Form 5471! 

Congratulations! Getting married is full of love, joy, memory making, and a healthy dose of stress. But imagine your new spouse, a nonresident alien (NRA),owns shares in a foreign corporation, such as a family company, a holding company, or even a local shop. Your own U.S. tax reporting obligations now have a significant and unexpected complication.

Many Americans “lovepats” are unaware that marriage to an NRA can trigger IRS filing requirements—even if they don’t personally own any shares and have nothing to do with their new spouse’s business endeavors.  

Understanding Downward Attribution and Form 5471

When the IRS determines who owns a foreign corporation for U.S. tax purposes, it looks beyond direct ownership. The law includes “attribution” and “constructive ownership” rules that can treat a person as owning shares held by certain related individuals or entities.

This matters for identifying a Controlled Foreign Corporation (CFC). A CFC is a foreign company more than 50% owned by U.S. shareholders, each holding at least 10%. U.S. shareholders of CFCs generally must file Form 5471 and may have to report certain income from the CFC on their U.S. tax return.

“Downward attribution” refers to a rule that can treat a U.S. person as owning shares actually held by a foreign person. For mixed-nationality couples, this could mean that shares owned by a nonresident alien spouse might be attributed to the U.S. spouse.

Understanding these downward attribution rules is key to determining whether Form 5471 for U.S. citizens married to nonresident aliens applies to you.

The TCJA Era (2018–2025): When Downward Attribution Was Allowed

The Tax Cuts and Jobs Act (TCJA) repealed Section 958(b)(4) effective for tax years of foreign corporations beginning after December 31, 2017.

This change allowed downward attribution from foreign persons to U.S. persons. For the first time, a U.S. citizen could be treated as owning shares in a foreign company held by a nonresident spouse or other foreign entity.

For example, if you owned a U.S. company and your nonresident spouse owned a foreign corporation, the IRS could treat your U.S. company as constructively owning the foreign company’s shares. That could make the foreign company a CFC and trigger Form 5471 for U.S. citizens married to nonresident aliens, even when there was no direct ownership. That has changed as of December 31, 2025, due to the new OBBBA. But for the years 2017-2025, there is no retroactive change to the rules. 

The Reporting Trap: What is Form 5471, Category 3 Filing?

Under U.S. tax law, certain U.S. persons who acquire an interest in a foreign corporation must report the acquisition on Form 5471, Category 3, as mandated by Internal Revenue Code (IRC) § 6038 and Treas. Reg. § 1.6038-2.

But you got married, you didn’t acquire anything but a new spouse, right? 

Here’s the twist: 

• When you marry an NRA spouse, you are considered to have indirectly acquired an interest in their foreign corporation. 
• This doesn’t mean you own the shares. However, under IRS reporting purposes, you now have an indirect interest that must be disclosed under IRC § 6046 and Treas. Reg. § 1.6046-1. 
• The IRS considers the date of marriage as the acquisition date for reporting purposes. 

Does This Make the Foreign Corporation a CFC? 

No. This is a common misconception that this automatically makes the foreign corporation a Controlled Foreign Corporation (CFC). Here is the breakdown: 

• Spousal attribution from an NRA does NOT apply for CFC determination under IRC § 958(b). 
• This means the foreign corporation does not become a CFC just because of your marriage. 
• But Category 3 reporting still applies, requiring Form 5471 filing per IRC § 6046(a)(1)(B).

What About Indirect Ownership in Family Foreign Corporations? 

If the NRA spouse has indirect ownership in other family-owned foreign corporations, the U.S. spouse does not automatically acquire an indirect interest for Category 3 reporting purposes. However, if the NRA spouse owns these shares through an entity or trust where the U.S. spouse has a financial interest, additional reporting requirements (FBAR, 8938, 3520) may arise. It is important to evaluate the structure carefully to ensure proper compliance. 

What Do You Need to Report on Form 5471? 

If you’ve acquired an indirect interest in a foreign corporation due to marriage, you may need to file Form 5471 and complete: 

• Schedule O, Part I – Reporting the stock acquisition (as required under Treas. Reg. § 1.6046-1(c)(1)). 
• Other relevant sections of Form 5471 depending on your total direct or indirect ownership. 
• Note that there is a threshold under which you may be exempt from reporting. If your NRA spouse holds less than a 10% interest by vote or value, you will not be required to file under Category 3. 
• Review the full requirements of Category 3 reporting on page 7 of the Instructions for Form 5471 (Rev. 12-2024).  

It can be a challenge to request a private foreign company provide such sensitive financial data to the American spouse of one of its shareholders, but it is nonetheless required. 

Are There Penalties for not Filing Form 5471?

Failing to file can result in hefty penalties*—starting at $10,000 per form, as outlined in IRC § 6038(b). 

Filing late, incorrectly, or with missing information can lead to: 

• Penalties of $10,000 per late or incomplete Form 5471. 
• Additional $10,000 penalties for each 30-day period of continued noncompliance (up to $50,000). 
• Increased IRS scrutiny and potential audits.

*Note that as of this publication (Feb 2025) the IRS is not likely to automatically assess penalties for late or incomplete reporting due to a number of significant wins in U.S. tax court. That does not mean these penalties do not exist, but means that the IRS would have to pursue the taxpayer in court to collect rather than sending out the previously common automatic penalty notices. 

(Farhy v Commissioner; Mukhi v. Commissioner; Safdieh v Commissioner) 

What If You’re Out of Compliance? 

If you’ve missed a required Form 5471 filing or previously reported incorrect information, don’t panic! The IRS offers relief programs, such as: 

• The Streamlined Filing Compliance Procedures, for taxpayers who non-willfully failed to report. 
• Delinquent International Information Return Submission Procedures (DIIRSP), for those who have no additional tax due but failed to file required forms.

Final Thoughts: Don’t Overlook This Form 5471 Reporting Requirement 

Many U.S. taxpayers unintentionally fall into noncompliance simply because they don’t realize their spouse’s foreign business interests are relevant to their tax filings. If you’ve recently married an NRA, take the time to assess your reporting obligations and work with a tax professional to ensure compliance. 

When in doubt, disclose—because when it comes to the IRS, better safe than penalized!

Need some peace of mind navigating through this? Book your free intake session today.