IRS Form 5472 is an information return required by any 25% foreign-owned firm or any foreign corporation doing business or trading in the United States.
Failure to file Form 5472 will result in a $25,000 penalty the first time, and $25,000 per month afterwards until Form 5472 is successfully submitted to the IRS.
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What Exactly Is Form 5472?
Foreign-owned firms and foreign business owners with a 25% or more shareholding in a US company or any foreign entity doing business or trading in the US must submit IRS Form 5472.
The US government uses this document, known as a “information tax return,” to maintain track of firms held by foreign governments, corporations, and people.
Who Should Submit Form 5472?
If a company has more than 25% foreign ownership, the Internal Revenue Service (IRS) requires it to submit Form 5472. A foreign-owned company engaged in commerce or trade must also submit Form 5472.
A separate IRS Form 5472 must be completed for each foreign or domestic related party with whom the reporting company transacted during the fiscal year.
The IRS needs this form if you fall into any of the following categories:
A foreign entity that owns at least 25% of a US-based firm.
A foreign entity that owns at least 25% of a disregarded entity in the United States.
A foreign entity that trades or does business with a US business entity and engages in reportable transactions.
Transactions Requiring Reporting
Any monetary transaction in which a foreign-owned firm participates is considered a reportable transaction. The following are some instances of reportable transactions from Form 5472’s Part IV:
Stock exchange sales
tangible property sales
Leases for sales
Service consideration
Loan assurances
Stock purchases Purchases of physical property
Loan amounts Interest paid
Insurance and reinsurance premiums paid
Due Dates and Penalties for Form 5472
Form 5472 must be submitted each year by April 15th, along with the foreign-owned business’s income tax information (or as late as October 15 with an approved extension).
Failure to file Form 5472 will result in a $25,000 penalty the first time, and $25,000 per month afterwards until Form 5472 is successfully submitted to the IRS.
Parties Involved
Individuals who have a direct or indirect stake in the foreign-owned firm stated on Form 5472 are referred to as “related parties.” Form 5472 must also be filed by related parties.
The IRS has identified various related party transactions that may result in fines under Internal Revenue Code Section 6700. These are some examples:
Asset transfer between related parties
Property acquisition by a connected party
A loan paid to a relative
A payment made to a connected person in exchange for goods or services.
Profit distribution to a linked party
Exemptions from submitting Form 5472
For foreign-owned enterprises, there are several exceptions to completing Form 5472, such as if:
For the fiscal year, the firm had no reportable transactions.
Be cautious if your firm is a foreign sales corporation for a tax year and submits Form 1065-FSC. (Please keep in mind that this exclusion does not apply to domestic subsidiaries of foreign corporations.)
You file as a foreign company that does not have a permanent presence in America under an income tax treaty, and you provide the necessary documentation (i.e., Form 8833).
If a foreign company satisfies Section 883 standards and has completely complied with Sections 883, 887, and 888, it may be excused from paying taxes on its global revenue.
Entities that are ignored
A one-member LLC is considered a “disregarded entity.” This implies that no taxes are levied on the company. Instead, the income is reported on the owner’s personal tax return. The corporate entity is so “disregarded” by the IRS in this manner.
Foreign-owned disregarded companies cannot be excused from submitting Form 5472 by filing Form 5471 or qualifying as a foreign sales company.
Form 5472, together with Forms 1120 and 1040-NR, will be needed to be filed by a disregarded entity controlled by a foreign person.