Form 5472 Filing Instructions and Requirements

Form 5472, “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business,” is an informational return required by the Internal Revenue Service (IRS). Its purpose is to create transparency by monitoring transactions between certain corporations and their foreign-related parties, which helps the IRS enforce U.S. tax laws concerning transfer pricing.

Who Must File Form 5472

The requirement to file Form 5472 applies to “reporting corporations,” which fall into two categories. The first is a U.S. corporation that is at least 25% foreign-owned. This threshold is met if a foreign shareholder directly or indirectly owns at least 25% of the company’s total voting power or stock value at any time during the tax year.

The second category is a foreign corporation engaged in a trade or business within the United States. This means the corporation is involved in considerable, continuous, and regular business activities in the U.S., not just isolated transactions.

A filing obligation is triggered for these corporations only when they have “reportable transactions” with a “related party.” A related party can be the 25% foreign shareholder or any person or entity related to the reporting corporation or its foreign shareholder. The definition is broad, covering entities connected through various forms of ownership or control. Reportable transactions include exchanges like sales of goods, rents, royalties, and loans.

A reporting corporation is not required to file if it had no reportable transactions during the tax year. An exception also exists for a foreign corporation without a permanent U.S. establishment under an applicable income tax treaty whose gross income is exempt from U.S. taxation. Additionally, if a U.S. person controlling the foreign reporting corporation files Form 5471, some duplicative reporting may be avoided.

Required Information and Form Completion

The form is divided into several parts requiring specific information about the reporting corporation, its foreign owners, and its related-party transactions.

Part I – Reporting Corporation

Part I gathers identifying information about the filing entity. You must provide the corporation’s name, U.S. Employer Identification Number (EIN), full address, and total assets, a figure taken from the balance sheet of the income tax return. You will also need to enter the principal business activity code and a description of that activity.

Part II – 25% Foreign Shareholder

This section requires information about each 25% foreign shareholder. For each shareholder, you must list their name, address, and any U.S. identifying number like an EIN or Individual Taxpayer Identification Number (ITIN). The form also asks for the principal country of business, country of citizenship or incorporation, and their country of tax residency.

Part III – Related Party

Part III focuses on the related party with whom the corporation had reportable transactions. You must provide the related party’s name, address, and principal business activity. You must also describe the relationship to the reporting corporation and list the principal countries where the related party conducts business.

Part IV – Monetary Transactions with Foreign Related Party

This part details the monetary value of transactions between the reporting corporation and the foreign related party. The filer must report the U.S. dollar value for various categories of transactions, including:

• Sales of inventory or other tangible property
• Platform contribution transaction payments
• Amounts paid and received for the formation, dissolution, or acquisition of an entity
• Sales of intangible property rights
• Rents, royalties, and license fees paid and received
• Consideration paid and received for services
• Interest paid and received
• Premiums paid and received for insurance or reinsurance

Each category must be reported with a reasonable estimate of its fair market value. If the actual amount is not determinable, an estimate must be provided, and the methodology used to arrive at these values should be documented.

Part V and VI – Other Required Information

Part V addresses nonmonetary transactions, such as exchanges of property or services, and requires a description and estimated fair market value. Part VI contains a series of questions to gather additional context, such as whether the corporation imported goods from the related party or if the foreign related party can be classified as a surrogate foreign corporation.

The Filing Procedure

Form 5472 is not filed on its own but must be attached to the corporation’s annual income tax return. For a domestic corporation, this is Form 1120, while a foreign corporation engaged in a U.S. trade or business uses Form 1120-F.

A separate Form 5472 must be filed for each foreign or domestic related party with whom the corporation had reportable transactions. If a corporation had transactions with three different related parties, it must attach three separate forms to its tax return.

The filing deadline for Form 5472 is the same as the corporation’s income tax return due date, including extensions. For a calendar-year corporation, the deadline is April 15, or October 15 with an extension filed using Form 7004.

Foreign-owned U.S. disregarded entities that do not otherwise have a filing obligation must still file Form 5472. This is done by filing a pro forma Form 1120 with only basic identifying information filled out, to which the required Form 5472 is attached.

Penalties for Non-Compliance

Failing to file Form 5472 on time or filing an incomplete form can lead to financial penalties. The initial penalty is $25,000 for each required information return. If a reporting corporation fails to furnish the required information, the IRS also has the authority to determine the treatment of transactions with the related party based on its own knowledge.

If the non-compliance continues for more than 90 days after the IRS mails a notice, an additional penalty of $25,000 is imposed. This continuation penalty applies for each 30-day period, or fraction thereof, that the failure continues after the 90-day period expires, and there is no stated maximum for this cumulative penalty.

A corporation may avoid these penalties if it can demonstrate the failure was due to reasonable cause. This requires showing that the taxpayer exercised ordinary business care and prudence but was still unable to comply. The determination is made on a case-by-case basis, and being unaware of the filing requirement is not sufficient.

Recordkeeping Requirements

Reporting corporations are subject to recordkeeping obligations under Internal Revenue Code Section 6038A. The corporation must maintain all records necessary to determine the correct tax treatment of transactions with its foreign related parties. These records must be permanent, accurate, complete, and readily accessible for IRS verification.

The documentation must be sufficient to establish the arm’s length nature of prices charged in related-party transactions. This includes documents related to profit and loss statements, pricing policies, production costs, loans, credit arrangements, service agreements, and any contracts with the related party.

The specific retention period can vary, but a general rule is to keep records that support an item of income, deduction, or credit for the period of limitations for that tax return. Failure to maintain or produce these records can result in penalties similar to those for filing failures.