Form 5472
IRS Form 5472 is an IRS information return that must be filed by any 25% foreign-owned corporation or any foreign corporation engaged in business or trade in the US.
Failure to submit Form 5472 will result in a penalty of $25,000 initially and $25,000 every month thereafter until successfully submitted to the IRS.
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What Is Form 5472?
Foreign-owned businesses and foreign business owners that have a 25% stake or greater in a US company or any foreign corporation engaged in business or trade in the US must file IRS Form 5472.
This form is known as an “information tax return” and is used by the US government to keep track of businesses owned by foreign governments, businesses, and individuals.
Who Should File Form 5472?
The Internal Revenue Service (IRS) requires all corporations to file Form 5472 if they are more than 25% foreign-owned. A foreign-owned corporation that is engaged in business or trade would also need to file Form 5472.
A separate IRS Form 5472 must be filed for each foreign or domestic related party with which the reporting corporation engaged in reportable transactions during the year.
The IRS requires this form if you have any one of the following situations:
- A foreign entity owning at least 25% interest in a US-based corporation
- A foreign entity owning at least 25% ownership interest in a US LLC that’s treated as a disregarded entity
- A foreign entity that trades or does business with a US business entity having reportable transactions
Reportable Transactions
Reportable transactions are any monetary transactions that a foreign-owned business takes part in. The following are examples of reportable transactions listed in part IV of Form 5472:
- Sales of stock in trade
- Sales of tangible property
- Sales leases
- Consideration for services
- Loan guarantees
- Purchases of stock
- Purchases of tangible property
- Amounts loaned
- Interest paid
- Premiums paid for insurance and reinsurance
Form 5472 Due Dates and Penalties
Form 5472 must be filed each year along with the foreign-owned business’s income tax information by no later than April 15 (or as late as October 15 with an approved extension).
Failure to submit Form 5472 will result in a penalty of $25,000 initially and $25,000 every month thereafter until successfully submitted to the IRS.
Related Parties
“Related parties” are those individuals who have a direct or indirect interest in the foreign-owned business that is being reported on Form 5472. Related parties must also file Form 5472.
The IRS has identified several related party transactions that may trigger penalties under Section 6700 of the Internal Revenue Code. These include:
- A transfer of assets between related parties
- Acquisition of property by a related party
- A loan made to a related party
- A payment to a related party for goods or services
- Distribution of profits to a related party
Exemptions to Filing Form 5472
There are exemptions to filing Form 5472 for foreign-owned businesses, including if:
- The company had zero reportable transactions for the year.
- The company is a foreign sales corporation for a tax year and files Form 1065-FSC, be careful. (Note that this exception does not apply to domestic subsidiaries of foreign companies.)
- You're filing as a foreign corporation, which doesn't have a permanent establishment in America under an income tax treaty, and you file the proper paperwork (i.e., Form 8833).
- The foreign corporation meets the requirements of Section 883 and has fully complied with the requirements of Sections 883, 887, and 888; then, it may be exempt from paying taxes on its worldwide income.
Disregarded Entities
A single-member LLC is treated as a “disregarded entity.” This means that taxes aren’t accessed on the business itself. Instead, the income passes through to the owner’s individual tax return. In this way, the business entity is “disregarded” by the IRS.
Disregarded entities that are owned by foreign persons can’t be exempted from filing Form 5472 by filing Form 5471 or by qualifying as a foreign sales corporation.
A disregarded entity owned by a foreign person will be required to file Form 5472 along with Form 1120 and Form 1040-NR.
Form 5472 Instructions
You can find the most recent IRS Form 5472 instructions on the IRS website.
Form 5472 FAQ
The IRS requires Form 5472 to be filed if it determines that a US corporation has a foreign shareholder that owns 25% or more of a US company or LLC. If a foreign business does business in the US, it is also required to fill out this form.
The IRS requires all companies or LLCs to file IRS Form 5472. Each foreign entity/owner or member of the company/LLC must file a copy of this form.
The purpose of Form 5472 is to make it possible for the US government to keep track of foreign entities having a 25% or greater stake in a US company. This is to ensure that these entities follow US tax laws and pay their tax obligations according to reporting requirements and tax filing status.
A reportable transaction is any transaction. The IRS requires that all US companies with foreign owners file Form 5472, which provides information about any transactions involving foreign entities and their US subsidiaries. IRS code sections 6038A and 6038C list these transactions.
A reportable transaction is any transaction that must be reported on Form 5472 by a foreign person or by foreign corporations having more than a 25% stake in a US company. There are a few types of transactions that are always reportable for tax purposes, such as sales and exchanges of property worth more than $10,000.
The IRS requires LLC members to file Form 5472 if any of the following apply:
- Your LLC has a foreign owner who holds at least 25% membership interest in the LLC.
- Your LLC is foreign and engages in a U.S trade or business.
- Your LLC has one or more owners who are not US citizens.
- Your LLC's activities involve the sale of goods or services to customers located outside the United States.
The IRS publishes a guide on its website that walks through the process of filing Form 5472. It includes sample forms, Form 5472 instructions, and a link to the IRS online efile system where you can submit the form electronically.
Note: Per Form 5472 instructions, "If you file your income tax return electronically, see the instructions for your income tax return for general information about electronic filing. If you are a foreign-owned U.S. DE, you cannot file Form 5472 electronically."
Yes, but only under certain circumstances. Foreign shareholders must meet two requirements:
- The corporation must be a domestic corporation.
- The foreign shareholder must not be a US citizen or resident alien.
If both criteria are met, the foreign shareholder is considered a “nonresident alien individual” who may hold shares in the corporation without being subject to US taxation or having to file Form 5472.
Every year, you must file a form called Form 5472 if your US company or LLC is treated as a disregarded entity that is more than 25% owned by a foreign entity(s). The exceptions would be if the company had no reportable transactions during the year. Or the company filed Form 1120-FSC because it was considered a foreign sales company.
