Is your U.S.-based business owned by a non-U.S. citizen? Then you need to know about IRS Form 5472. Does your non-U.S. company do business in the U.S.? Then you, too, need to learn more about Form 5472.
Discover what Form 5472 is, who needs to file it, what it includes, and the crucial role it plays in keeping your business compliant with the U.S. government.
What Is IRS Form 5472?
Put simply, IRS Form 5472 is a form that foreign or foreign-owned companies must use to report certain transactions to the Internal Revenue Service (IRS).
Or, in the IRS' slightly more complex terms:
Corporations file Form 5472 to provide information required under sections 6038A and 6038C when reportable transactions occur with a foreign or domestic related party.
Why? In a nutshell, Form 5472 is designed to help the IRS keep tabs on foreign and foreign-owned businesses by documenting relevant transactions. And with those transactions reported, the IRS can ensure proper taxation.
Get help with your taxes with a free tax consultation from Incfile.
Who Should File Form 5472?
According to the IRS, a reporting corporation (i.e., a corporation that has to file Form 5472) is either:
- a U.S.-based corporation that's at least 25% foreign-owned; or
- a foreign corporation that's doing business within the United States.
It's that straightforward — if your company meets one of those criteria, it needs to file Form 5472. If it doesn't meet either of those criteria, however, it's not required to do so.
Exceptions for Filing Form 5472
While many businesses are required to file Form 5472, some scenarios can exempt certain entities from doing so. For example, those exemptions can include:
- No reportable transactions: If a reporting corporation did not engage in any reportable transactions with related parties during the tax year, it may be eligible for an exception. (More on what qualifies as a reportable transaction below.)
- Qualified foreign corporations: Some foreign corporations engaged in a U.S. trade or business might be classified as "qualified foreign corporations," thereby exempting them from filing Form 5472. It can be difficult to determine which companies are eligible to be designated as qualified foreign corporations, so we recommend talking with a business accounting and tax expert to find out if your business qualifies.
- Domestic corporations: A U.S. corporation that's less than 25% foreign-owned (i.e., a domestic corporation) isn't required to file Form 5472.
Understanding these exceptions is vital for businesses to accurately determine their filing requirements and avoid unnecessary penalties for non-compliance.
FAQs About Form 5472 and Your Business
As with any complex tax form, business owners often have numerous questions about IRS Form 5472 and its implications. We're here to give you the answers you're looking for and help you stay compliant.
What Transactions Are Reported on Form 5472?
IRS Form 5472 requires the disclosure of various transactions conducted by a reporting corporation with its related parties. These transactions are known as reportable transactions, and they include the exchange of cash, property, or services, loans, and other financial arrangements.
Specifically, the IRS states that reportable transactions include:
- Any transaction listed under Part IV of the Instructions for Form 5472, such as sales and rents
- Any transaction listed in Part V, such as amounts paid or received in connection with the formation or acquisition of the entity
- Any transaction listed under Part VI, such as non-monetary transactions
Don't have time to read through all the IRS's instructions? Here's a quick rundown of transactions that qualify as reportable:
- Sales or purchases of inventory: Any sales or purchases of inventory items between the reporting corporation and its related parties
- Tangible and intangible property transfers: Transactions involving the transfer of tangible or intangible property between related parties
- Loans and advances: Any loans or advances between the reporting corporation and related parties, as well as the terms and conditions of those loans and advances
- Royalties and license fees: Payments and receipts of royalties, license fees, or other such arrangements between related parties
- Services rendered or received: Any services rendered or received between the reporting corporation and related parties, as well as the amounts involved
- Other financial transactions: Additional financial arrangements, such as interest payments, guarantees, and so on
What Is the Penalty for Filing Form 5472?
Failure to comply with the filing requirements of IRS Form 5472 can result in severe penalties. In particular, the IRS states that a fine of $25,000 can be imposed on any reporting corporation that fails to file Form 5472 in the appropriate time and manner.
Translation? If your company qualifies as a reporting corporation and you'd like to keep it from losing $25,000, you must file Form 5472 exactly as the IRS instructs.
What Is the Difference Between IRS Form 5471 and 5472?
IRS Form 5471 and 5472 are both essential forms used to report foreign ownership and transactions involving foreign corporations. However, they serve different purposes and apply to different entities, namely:
- Form 5471 is filed by U.S. citizens and residents who are officers, directors, or shareholders in foreign corporations
- Form 5472 is filed by foreign-owned U.S. corporations or foreign corporations that do business in the U.S.
Does an LLC Have to File Form 5472?
Fortunately for Limited Liability Company (LLC) owners everywhere, LLCs only have to file IRS Form 5472 if they qualify as a reporting corporation and have made reportable transactions within the relevant tax year.
What Is Form 5472 Reasonable Cause Statement?
In certain situations, a business might miss the deadline for filing IRS Form 5472 or face compliance-related difficulties due to extenuating circumstances or events beyond its control.
In such cases, the IRS provides an opportunity to explain the reasonable cause for non-compliance through Form 5472 Reasonable Cause Statement.
When Must Form 5472 Be Filed?
Form 5472 is typically due on the same day as the tax return, including extensions.
However, for a foreign-owned U.S. corporation with no permanent establishment in the U.S., the deadline might differ — get in touch with your tax filer to find out which filing deadline applies to you.
Can Form 5472 Be Electronically Filed?
Yes, you can file Form 5472 electronically.
The only exception is if you're a foreign-owned U.S. disregarded entity, in which case you cannot file electronically. If that applies to you, the IRS has instructions for when and where to file instead:
Fax:
855-887-7737
Mail:
Internal Revenue Service
1973 Rulon White Blvd
M/S 6112 Attn: PIN Unit
Ogden, UT 84201
What Are Form 5472 Related Parties?
By the IRS's definition, a related party is:
- Any direct or indirect 25% foreign shareholder of the reporting corporation
- Any person who is related to the reporting corporation
- Anyone who is related to a 25% foreign shareholder of the reporting corporation
- Any other person who is related to the reporting corporation
And when the IRS says "related," they're referring to the meaning outlined in sections 267(b), 707(b)(1), and 482 of the Internal Revenue Code.
Master Form 5472 to Stay Compliant
IRS Form 5472 is an essential compliance requirement for foreign-owned U.S. corporations as well as foreign corporations engaged in U.S. trades. By reporting transactions with related parties, businesses can play a crucial role in maintaining corporate transparency.
Understanding the criteria for filing, potential penalties for non-compliance, and the types of reportable transactions is paramount for business owners who want to avoid tax mistakes.
But remember that understanding and filing Form 5472 is only part of staying compliant — whether you need to submit Form 5472 or not, you'll certainly need to file an annual report. Our streamlined filing service can help you do so quickly and accurately.
Carrie Buchholz-Powers
Carrie Buchholz-Powers is a Colorado-based writer who’s been creating content since 2013. From digital marketing to ecommerce to land conservation, she has experience in a wide range of fields and loves learning about them all. Carrie is fond of history, animals and beauty in equal measure. In her free time, she enjoys knitting, playing video games and exploring Colorado's prairies and mountains with her husband.
