Form 5472: who has to file it

Form 5472 is filed by a reporting corporation that had a reportable transaction with a related party. A reporting corporation is either a 25% foreign-owned US corporation, which since the 2017 regulations includes a foreign-owned US disregarded entity, or a foreign corporation engaged in a trade or business in the United States.

A company is 25% foreign owned if at least one direct or indirect foreign shareholder holds 25% or more of the voting power or the value of its stock at any point in the year. A related party is broader than an owner: it includes any 25% foreign shareholder, anyone related to the company or to that shareholder under sections 267(b) or 707(b)(1), and anyone related under section 482.

This is the one that catches founders abroad. A US LLC with one foreign owner is normally a disregarded entity: it files no income tax return of its own. The 2017 regulations made it a reporting corporation anyway, for this purpose only.

So the LLC files a pro forma Form 1120 with Form 5472 attached. The IRS asks for very little of the 1120 itself — the name and address of the LLC and items B and E on the first page, which is where the EIN goes, so the LLC needs an EIN before it can file. Its tax year follows its owner’s US tax year, or the calendar year if the owner has none.

And the transactions that trigger it are not just sales. For a disregarded entity, Part V covers amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to it and distributions from it. Funding your own LLC, or taking money back out, is reportable.

A normal reporting corporation attaches Form 5472 to its income tax return and files by that return’s due date, including extensions.

A foreign-owned disregarded entity cannot do that, because it has no return to attach it to, and it cannot file Form 5472 electronically. The IRS asks these filers to write "Foreign-owned U.S. DE" across the top of the pro forma Form 1120 and send it by fax to 855-887-7737, or by mail to the Internal Revenue Service, 1973 Rulon White Blvd, M/S 6112, Attn: PIN Unit, Ogden, UT 84201. That is a dedicated address: not the one in the Form 1120 instructions.

An extension is Form 7004, filed by the regular due date, with the Form 1120 code entered in Part I line 1 and the same "Foreign-owned U.S. DE" marking.

A reporting corporation that fails to file Form 5472 when due and in the manner prescribed is assessed a penalty of $25,000. The same penalty applies for failing to keep the records the regulations require, and filing a substantially incomplete Form 5472 counts as failing to file it.

If the failure continues more than 90 days after the IRS notifies you, another $25,000 applies, and it keeps applying for each related party for each 30-day period the failure continues. This is not a percentage of tax owed: an LLC with no income and no tax can still be looking at $25,000.

There are exceptions, and the first is the one that matters most: no reportable transactions, no Form 5472. Specifically, a reporting corporation is not required to file if it had no reportable transactions of the types in Parts IV and VI and, for a foreign-owned US disregarded entity, none of the type in Part V either.

A second exception covers companies whose transactions are already reported: where a US person controlling the foreign related corporation files Form 5471 with Schedule M showing all the reportable transactions for the year. Note that one exception in the instructions, exception 6, does not apply to foreign-owned US disregarded entities at all.