Form 5472: Filing Instructions and Requirements

Form 5472, titled “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business,” is a disclosure document required by the Internal Revenue Service. Its purpose is to monitor financial activities between certain U.S. entities and their foreign affiliates. This form provides transparency into transactions that could have implications under U.S. tax law, ensuring oversight of funds and other exchanges across international borders.

The form is an informational return, not a tax assessment. The information provided is used by the IRS to verify compliance with tax regulations and track dealings between U.S. entities and their significant foreign owners or related parties.

Determining Your Filing Requirement

A filing obligation for Form 5472 is triggered when two conditions are met: the entity must be a “reporting corporation,” and it must have engaged in a “reportable transaction” with a related party. A reporting corporation is a U.S. corporation that has at least one direct or indirect 25% foreign shareholder at any point during the tax year. If there are no reportable transactions, a filing is not required.

The rules for determining ownership are detailed and encompass both direct holdings and indirect interests attributed through various relationships. For instance, if a foreign individual owns a foreign corporation that, in turn, owns a U.S. corporation, the foreign individual’s ownership is considered for the 25% test. A U.S. corporation must analyze its entire ownership chain to determine if a foreign shareholder meets this threshold.

The filing requirement also applies to foreign-owned U.S. disregarded entities (DEs). A DE is a business entity, such as a single-member Limited Liability Company (LLC), that is not recognized as a separate entity from its owner for tax purposes. For Form 5472 reporting, a U.S. DE that is wholly owned by a foreign person is treated as a domestic corporation separate from its owner. This means the DE must file Form 5472 to report transactions with its foreign owner and other related parties.

For example, if a U.S. corporation with a 30% foreign shareholder pays that shareholder a dividend, it must file Form 5472. Likewise, if a foreign corporation’s U.S. LLC receives funds from its parent to purchase property, the LLC must file Form 5472 to report the transfer.

Key Definitions for Form 5472

Related Party

A “related party” is defined broadly and includes several categories of individuals and entities. A primary example is any 25% foreign shareholder of the reporting corporation, which includes the direct and indirect owners that trigger the filing requirement.

The definition also incorporates relationships defined in the Internal Revenue Code, such as family members, a corporation and an individual who owns more than 50% of it, and two corporations that are members of the same controlled group. For instance, if a U.S. corporation is 30% owned by a foreign corporation, that foreign corporation is a related party. If that same foreign corporation also owns a separate foreign subsidiary, that subsidiary is also considered a related party to the U.S. corporation.

Reportable Transaction

A “reportable transaction” is any exchange listed in Part IV of Form 5472 between the reporting corporation and a foreign related party. These transactions are not limited to cash payments and can include a wide array of financial and commercial activities. Common examples include sales of inventory, sales of tangible property, rents, royalties, commissions, and amounts loaned or borrowed.

The scope of these transactions captures any value transfer, including those with non-monetary consideration or where the consideration was less than full value. For example, if a reporting corporation provides services to its foreign parent company and receives no payment, this is still a reportable transaction. The corporation would need to report the exchange and provide an estimate of its fair market value.

There is no minimum dollar amount for a transaction to be considered reportable. The existence of any one of these specified transaction types with a foreign related party during the tax year is sufficient to trigger the filing requirement.

Information and Documentation to Prepare

Filing Form 5472 requires gathering specific information that corresponds to the various parts of the form.

• Part I: Requires basic identifying information about the reporting corporation. This includes the corporation’s name, U.S. Employer Identification Number (EIN), address, total assets, and principal business activity code.
• Part II: Focuses on the 25% foreign shareholders. For each direct and indirect 25% foreign shareholder, you must provide their name, address, U.S. identifying number (if any), and their principal country of business or organization.
• Part III: Requires similar information for every related party, whether foreign or domestic, with whom the reporting corporation had a reportable transaction. A separate Form 5472 must be filed for each foreign related party with whom transactions occurred.
• Part IV: Is where the monetary value of transactions with the foreign related party is reported. The form lists various types of transactions, and the reporting corporation must enter the total dollar amount for each applicable category.
• Part V: Is specifically for reporting corporations that are foreign-owned U.S. DEs. This section requires reporting of transactions between the DE and its foreign owner or other related parties to capture the flow of funds.
• Part VI: Addresses non-monetary and less-than-full consideration transactions. If the reporting corporation engaged in any such exchanges, it must provide a detailed description of the transaction and an estimate of its fair market value.
• Parts VII, VIII, and IX: Request additional information related to specific international tax provisions. This can include details related to the Base Erosion and Anti-Abuse Tax (BEAT), such as reporting base erosion payments.

Penalties for Non-Compliance

Failing to comply with Form 5472 filing requirements has serious consequences. The IRS imposes monetary penalties for failing to file on time, filing an incomplete or inaccurate form, or failing to maintain the required records to support the information reported.

The initial penalty for a failure to file a complete and accurate Form 5472 by the due date is $25,000 per required form. Because a separate form is required for each related party, a corporation could face multiple penalties in a single year. An incomplete form that is missing required information may be treated by the IRS as a failure to file.

If the failure to file continues for more than 90 days after the IRS mails a notice, an additional continuation penalty of $25,000 applies for each 30-day period that the failure continues. There is no stated maximum for this continuation penalty. In cases of willful failure or the submission of fraudulent information, criminal penalties, including fines and imprisonment, may be pursued.

Filing Procedures and Deadlines

Form 5472 is not filed on its own; instead, it must be attached to the corporation’s U.S. income tax return for the year in which the reportable transactions occurred. For most corporations, this means attaching it to Form 1120, “U.S. Corporation Income Tax Return.”

The due date for Form 5472 is the same as the due date for the income tax return to which it is attached, including any extensions. For a corporation with a tax year ending on December 31, the deadline is April 15 of the following year. If the corporation files an extension for its income tax return, the due date for filing Form 5472 is also extended.

A special rule applies to foreign-owned U.S. DEs that may not otherwise have an obligation to file a U.S. income tax return. These entities must still file a Form 5472 if they have reportable transactions. To do so, they are required to file a pro forma Form 1120 with Form 5472 attached, which serves as a vehicle to transmit the required form to the IRS.

In addition to filing the form, reporting corporations are required to maintain sufficient records to establish the accuracy of the information reported. These records must be permanent, accurate, and complete, and they must be sufficient to show the nature and amount of the transactions with related parties.