What is Form 5472, and Should I Be Filing It?
Form 5472 must be filed when the corporation has a reportable transaction with the foreign shareholder. In general, most transactions with foreign shareholders are considered to be reportable. Some examples of reportable transactions include sales, rents, royalties, and interest
Form 5472 is required to be filed by U.S. corporations that have at least 25% foreign ownership and by foreign corporations that are engaged in a U.S. trade of business. It is an informational form that discloses the transactions the corporation has had throughout the tax year with foreign-related parties.
Penalties for failure to file Form 5472 can be severe. A penalty of $10,000 could be assessed on any reporting corporation that fails to file the form when due. Filing a substantially incomplete Form 5472 also constitutes a failure to file.
Please contact us right now if you have questions concerning your obligation to file Form 5472
FORM 5472 REVIEW
WHAT IS FORM 5472?
Form 5472 is used to provide information required under Code §§6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party. The reportable transactions are essentially related party transactions. Consequently, Form 5472 is an important tool in IRS audits relating to transfer pricing and Code §482. The form is both difficult to file and consequential if not done correctly. The IRS has kept up its enforcement campaign and additionally, the Tax Cuts and Jobs Act of 2017 (TCJA) made some rather significant changes to both the penalties and who is required to file a Form 5472.
DO I HAVE TO FILE FORM 5472?
A Form 5472 is only required when you have foreign ownership. A Green Card, or resident status, means that you are not considered to be foreign person. A foreign person, according to to the IRS’s instructions, is:
Someone who is not a citizen or resident of the US.
Someone who is a citizen or resident of the US possession, but not a citizen of the US.
A foreign partnership company or corporation that is not created or organized in the United States.
A foreign estate or trust described in IRC section 7701(a)(31) Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engage in the consumer of a commercial activity as defined in IRC section 892.
Does the Shareholder File Form 5472?
Form 5472 filing requirement is a requirment of the corporation. Penalties won’t be assessed to the non-US person, but to the U.S. Corporaton. Form 5471 is the form that’s required to be prepared for shareholders.
When Do I File Form 5472?
A Form 5472 is filed with your company’s Form 1120, 1120-S or other corporate income tax return. If you file an extension for your companies 1120-S to change the due date form March 15 to September 15th, your Form 5472 will be due on September 15th. A foreign-owned U.S. disregarded entity (DE) required to file Form 5472 can request an extension of time to file by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. The DE must file Form 7004 by the regular due date of the return. Because the Form 5472 of a DE must be attached to a pro forma Form 1120, the code for Form 1120 should be entered on Form 7004, Part I, line 1. “Foreign-owned U.S. DE” should be written across the top of Form 7004.
Recent Changes to Form 5472
The requirements for foreign-owned U.S. Corporations to file Form 5472 has been around for a long time, however, the IRS released TD9796 and added new regulations to the Code of Federal Regulations. These new changes went into effect on January 1st, 2017 and now also affect all foreign-owned Single-Member LLCs that are Disregarded Entities.
Starting in 2017, all foreign-owned Single-Member LLCs that are Disregarded Entities are now treated as Corporations for federal reporting requirements (submitting information) to the IRS. This doesn’t mean the LLC is paying tax like a Corporation, but rather, it’s simply reporting information like a Corporation.
A Single-Member LLC is automatically considered a Disregarded Entity by the IRS unless the LLC has made a special election to be taxed as a Corporation. The word “disregarded” simply means the IRS “ignores” the LLC for federal tax purposes and taxes the LLC the same way the owner is taxed. In addition to foreign-owned Single-Member Disregarded LLCs, the following types of LLCs also have to file Form 5472 and Form 1120 every year:
* a Single-Member LLC that is Foreign-owned and taxed as a Corporation.
* a Multi-Member LLC that is taxed as a Corporation and has at least 1 Foreign owner that owns 25% or more of the LLC Direct and Indirect Ownership: Form 5472 and Form 1120 requirements apply to foreign-owned Single-Member LLCs that are owned directly or indirectly.
* Directly owned means that the owner is a foreign person or a foreign company
* Indirectly owned means the LLC is owned by another Disregarded Entity LLC, which then owns the Single-Member LLC
FORM 5472 FILING HELP FROM FREEMAN TAX
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FORM 5472 FILING REQUIREMENTS
Federal and state laws change frequently. For current tax or legal advice, an attorney or CPA should be consulted.
The information contained in this article is not exhaustive, and is not a substitute for competent legal advice. If you have a question concerning a foreign account or offshore holdings, please contact us. The initial consultation is always free, and of course all communication will be confidential.