Form 5472 is a United States Taxpayer’s return for:
- Any U.S. corporation that is at least 25% foreign-owned or
- Any U.S. corporation that has at least 25% foreign corporation engagement in a U.S. trade or business.
If a corporation has at least one direct or indirect foreign shareholder in one tax year that holds at least 25%, it is considered foreign owned. Foreign shareholders are considered to be any foreign person who holds 25% or more of the corporation’s voting power or stock.
- “An individual who is not a citizen or resident of the United States;
- An individual who is a citizen or resident of a U.S. possession who is not otherwise a citizen or resident of the United States;
- Any partnership, association, company, or corporation that is not created or organized in the United States;
- Any foreign estate or foreign trust described in section 7701(a)(31); or
- Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engaged in the conduct of a commercial activity as defined in section 892.”
However, the term “foreign person” does not include any foreign person who consents to the filing of a joint income tax return.
Who files Form 5472?
Corporations that have reportable transactions with foreign or domestic related parties must file Form 5472. The exception for U.S. corporations that are 25% foreign-owned but don’t have to fill out form 5472 are businesses that do not have reportable transactions.
Determining direct, indirect, and constructive ownership can be a complicated matter. For example, if you – a foreign individual – own 10% of a US Corporation and another US business that you are related to own 15% of the same US Corporation, then you might be considered the owner of those 15% shares, which will, in turn, cause the US Corporation to be 25% foreign-owned.
Be sure to talk to an experienced international tax attorney to discuss indirect and constructive ownership rules that could affect your business.
According to IRS, the following exempt a corporation from filing form 5472:
- “It had no reportable transactions of the types listed in Parts IV and VI of the form.
- A U.S. person that controls the foreign related corporation files Form 5471 for the tax year to report information under section 6038. To qualify for this exception, the U.S. person must complete Schedule M (Form 5471) showing all reportable transactions between the reporting corporation and the related party for the tax year. This exception does not apply to foreign-owned U.S. DEs.
- The related corporation qualifies as a foreign sales corporation for the tax year and files Form 1120-FSC. This exception does not apply to foreign-owned U.S. DEs.
- It is a foreign corporation that does not have a permanent establishment in the United States under an applicable income tax treaty and timely files Form 8833.
- It is a foreign corporation all of whose gross income is exempt from taxation under section 883 and it timely and fully complies with the reporting requirements of sections 883 and 887.
- Both the reporting corporation and the related party are not U.S. persons as defined in section 7701(a)(30) and the transactions will not generate in any tax year:
- Gross income from sources within the United States or income effectively connected, or treated as effectively connected, with the conduct of a trade or business within the United States; or
- Any expense, loss, or other deduction that is allocable or apportionable to such income.”
What are the Form 5472 Instructions?
U.S. corporations must list reportable transactions on the form. Reportable transactions include any type of monetary transaction whether paid or received between foreign parties and the corporation and the tax year such as:
- Sales of stock in trade
- Sales of tangible property other than stock
- Platform contribution transaction payments received
- Cost-sharing transaction payments received
- Rents received
- Royalties received
- Licenses of intangible property rights (things such as patents, trademarks, etc.)
- Technical, managerial, engineering, construction, scientific or like services
- Commissions received
- Amounts borrowed
- Interest received
- Premiums received for insurance or reinsurance
- Purchases of stock in trade
- Purchases of tangible property
In addition to reportable transactions, Form 5472 requires an Employer Identification Number (EIN).
When to file form 5472
U.S. corporations who have reportable foreign transactions must file form 5472 at the same time as their annual tax returns. Unlike other tax forms, this one must be mailed or faxed to IRS.
Corporations requesting an extension of time to file form 5472 must file Form 7004 by the due date of the return.
Are there penalties for not filing Form 5472?
IRS can fine corporations $25,000 for failing to file form 5472, filing it late, or filing it incorrectly. The agency will fine corporations an additional $25,000 if the corporation does not fix any IRS findings after 90 days of notification.
Curious how to avoid triggering an IRS audit? Read our article about what triggers an IRS audit here.