IRS Form 5472 guide: key rules for foreign-owned US companies
If you're a foreign owner of a US company or a foreign entity doing business in the US you’ve probably come across Form 5472. You should use this form to report some or all of your financial transactions to the Internal Revenue Service (IRS).
In this guide, you’ll find information about who needs to file this form, which transactions you need to report, and how to get the paperwork right.
This content is brought to you by Taxes for Expats, a top-rated tax firm for overseas Americans, foreign nationals, and businesses with US tax filing requirements. Whether you’re living abroad or managing international business transactions, we have the experience and knowledge to help ensure your compliance with US tax laws.
What is Form 5472?
Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a US Trade or Business, plays a key role in ensuring tax compliance. It documents financial transactions between US corporations or foreign corporations engaged in US trade or business and their foreign shareholders.
On this form, you need to provide information required under sections 6038A and 6038C of the Internal Revenue Code when reportable transactions occur with a foreign or domestic related party.
Who is required to file Form 5472?
The requirement to file Form 5472 applies broadly to two categories of businesses:
- 25% foreign-owned US corporations – any US corporation with at least 25% of its shares owned by a foreign person at any point during the tax year
- foreign corporations engaged in US trade or business with reportable transactions during the tax year
Foreign owners of US disregarded entities (like single-member LLCs) must also file Form 5472 along with a pro-forma Form 1120, regardless of US tax obligations. Even if the LLC generates no income, these forms are required to disclose ownership and related-party transactions.
What triggers the filing requirements for Form 5472?
Form 5472 must be filed when a reporting corporation has entered into reportable transactions with a related party.
Reportable transactions
Reportable transactions are those that involve the exchange of goods, services, or financial assets between a reporting corporation and its related parties. These include:
- sales or purchases of tangible property
- sales or purchases of intangible property
- loans and interest payments
- rent and royalty payments
- other transactions affecting taxable income
Only those transactions that involve related parties, as defined by the IRS, are reportable. The IRS has strict rules about who qualifies as a related party, and failing to properly identify relationships can result in an inaccurate Form 5472.
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Example scenarios
Here are a few practical examples to help you understand when to file Form 5472:
Example 1: A US business has a 30% foreign shareholder in Canada. The company sells machinery to this shareholder. Since this is a reportable transaction between related parties, the company must file Form 5472.
Example 2: A foreign corporation based in Germany, operates in the US. If it pays royalties to its US subsidiary for intellectual property usage, it must file Form 5472 to report these payments.
Example 3: A US-based company with 25% foreign ownership has transactions with foreign parties – dividend payments to the foreign owner. Since these do not involve any goods, services, loans, or royalty payments, Form 5472 is not required. However, depending on the nature of the transactions, other tax forms might be needed, such as Form 1042 or Form 8938.
Example 4: A US person owns 15% of a foreign corporation. Although Form 5472 does not apply in this case, Form 5471 is required since the US person has at least a 10% ownership in a foreign corporation, and the company engages in reportable transactions.
What’s the difference between Form 5472 and Form 5471?
Form 5472 and Form 5471 are both used to report foreign transactions, but they serve different purposes and apply to different groups of US taxpayers.
Here’s a quick comparison:
| Criteria | Form 5472 | Form 5471 |
|---|---|---|
|
Who must file |
foreign-owned US corporations or foreign corporations engaged in US business |
US persons with certain interests in foreign corporations |
|
Purpose |
to report transactions between foreign owners and US corporations |
to report ownership, financial activities, and transactions of US persons in foreign corporations |
|
Ownership requirement |
at least 25% ownership in a US corporation |
at least 10% of a foreign corporation |
How to file Form 5472
Prepare to file
Before diving into the form, ensure you have all necessary information and documents at hand:
- the reporting corporation's name, address, and EIN
- details of the foreign shareholder(s) including name, address, and country of citizenship
- detailed information on all reportable transactions during the tax year
Fill out the form
Provide detailed information about the reporting corporation, the related foreign person, and each reportable transaction.
The form is divided into multiple parts, each requiring specific information:
- Part I asks for information about the reporting corporation.
- Part II focuses on the 25% foreign shareholder details.
- Part III and subsequent sections require details about the reportable transactions, broken down by type and amount.
Form 5472 preview
Submit the form by deadline or request an extension
Form 5472 should be filed with the reporting corporation's income tax return by the due date (including extensions) of that return. For corporations, this is typically the 15th day of the fourth month following the end of the company's tax year. You can request an extension with Form 7004.
Pro tip. The IRS allows electronic filing for both the income tax return and Form 5472.
Exceptions and special cases
Certain transactions and entities are exempt from the requirement to file Form 5472, including:
– transactions between the reporting corporation and a related party that do not affect the corporation's taxable income
– foreign corporations and disregarded entities that do not engage in a US trade or business during the tax year
– entities that are already reporting the same transactions on other specific IRS forms
Understanding these exemptions can save businesses from unnecessary paperwork and ensure compliance with US tax laws. Consult a tax professional to ensure your business remains on the right side of US tax laws.
Learn more: Filing instructions for Form 5472 (12/2024)
Penalties for Form 5472 non-compliance & how to avoid them
The IRS imposes strict penalties for any missteps related to Form 5472, including failure to file, late filing, or submitting an incomplete or inaccurate form.
The base penalty for not filing or for any instance of non-compliance is $25,000. Penalties apply per related party and can accumulate beyond $50,000 if not filed on time.
There’re several ways to alleviate or avoid penalties:
First-time penalty abatement (FTA): The IRS offers relief under its FTA policy for taxpayers with a history of compliance (it applies only under specific circumstances.)
Delinquent international information return submission procedures: Taxpayers who are not under criminal or IRS investigation can submit delinquent returns with a reasonable cause statement.
Streamlined filing compliance procedures: For taxpayers whose failure to report wasn’t willful, this provides an efficient process for resolving tax and penalty obligations.
Reasonable cause: If none of the above apply, taxpayers may use reasonable cause as a defense. To request penalty relief, you’ll need to provide a clear, concise explanation of the circumstances, backed by relevant documentation.
The IRS requires corporations to maintain records of all reportable transactions as long as they may be relevant for determining tax liability. Typically, these records must be kept for at least seven years after the filing date.
Get expert assistance with your Form 5472 filing
Whether you’re a foreign owner of a US LLC, a US corporation with foreign shareholders, or engaged in cross-border transactions, timely and accurate Form 5472 filing can prevent costly penalties and ensure smooth tax reporting.
If you’re uncertain about your filing obligations, reach out to a tax professional at Taxes for Expats. We’re here to help with personalized advice and guide you through the whole process.
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