Question 1

What is form 5472?

Accepted Answer

Form 5472 is an Information Return that is used to report 25% or more foreign ownership of a foreign-owned LLCs, US Corporations or a Foreign Corporation Engaged in a US Trade or Business. Form 5472 is issued by the IRS (Internal Revenue Service) which is the U.S.'s tax collection agency and administers the Internal Revenue Code enacted by Congress.

Question 2

Who must file form 5472?

Accepted Answer

There are 3 entity types that must file form 5472:
1. Foreign-owned LLCs*
2. US Corporations
3. Foreign Corporation Engaged in a US Trade or Business. 
4. Foreign Sole Proprietor Person Engaged in a US Trade or Business.
* Foreign-owned LLCs include Single Member LLC and Multi Member LLC.

Question 3

Form 5472 for Foreign-owned U.S. LLC / Corporation / Foreign Sole Proprietor

Accepted Answer

Single Member LLC or Multi Member LLC or a 25% Foreign-Owned U.S. Corporation (FOCC) or a Foreign Corporation Engaged in a U.S. Trade or Business or a Foreign Sole Proprietor Engaged in a US Trade or Business must file form 5472.

While a foreign-owned U.S. DE has no income tax return filing requirement, as a result of final regulations under section 6038A, it is required to file a pro forma Form 1120 with Form 5472 attached by the due date (including extensions) of that Form 1120. 
The only information required to be completed on Form 1120 is the name and address of the foreign-owned U.S. DE and items B and E on the first page. The foreign-owned U.S. DE has the same tax year used by its owner for U.S. tax filing requirements or, if none, the calendar year. 
Foreign Corporation Engaged in a U.S. Trade or Business must file form 5472 and form 1040NR.

Question 4

What is the deadline to file form 5472?

Accepted Answer

In general, the deadline to the LLC's annual federal tax return including forms 1120 & 5472 and all related schedules and statements is April 15 of each year for the previous tax year. This means that the deadline to file the 2022 tax return is April 15, 2023. If April 15 falls on a weekend, the deadline will be extended to April 18.

Question 5

What are the penalties for not filing form 5472?

Accepted Answer

A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.
Note.
 Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472.

Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $25,000 penalty and each member is jointly and severally liable.
If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $25,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.
Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.

Question 6

Form 5472: Reporting corporation

Accepted Answer

A reporting corporation is either:
 • A 25% foreign-owned U.S. corporation (including a foreign-owned U.S. disregarded entity (DE)), or
 • A foreign corporation engaged in a trade or business within the United States.

25% foreign owned. 
A corporation is 25% foreign owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year.

25% foreign shareholder.
Generally, a foreign person (https://www.irs.gov/instructions/i5472#en_US_202112_publink1000283648)(defined later) is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either:
 • The total voting power of all classes of stock entitled to vote, or
 • The total value of all classes of stock of the corporation.

The constructive ownership rules of section 318 apply with the following modifications to determine if a corporation is 25% foreign owned. Substitute “10%” for “50%” in section 318(a)(2)(C). Do not apply sections 318(a)(3)(A), (B), and (C), so as to consider a U.S. person as owning stock that is owned by a foreign person.

Direct 25% foreign shareholder.
A foreign person is a direct 25% foreign shareholder if it owns directly at least 25% of the stock of the reporting corporation by vote or value.

Ultimate indirect 25% foreign shareholder.
An ultimate indirect 25% foreign shareholder is a 25% foreign shareholder whose ownership of stock of the reporting corporation is not attributed (under the principles of sections 958(a)(1) and (2)) to any other 25% foreign shareholder. See Rev. Proc. 91-55, 1991-2 C.B. 784.

Question 7

Form 5472: Related party

Accepted Answer

A related party is:

• Any direct or indirect 25% foreign shareholder of the reporting corporation,
 • Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,
 • Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or
 • Any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.

“Related party” does not include any corporation filing a consolidated federal income tax return with the reporting corporation.
The rules in section 318 apply to the definition of related party with the modifications listed under the definition of 25% foreign shareholder,(https://www.irs.gov/instructions/i5472#en_US_202112_publink1000287562) earlier.

Question 8

Form 5472: Reportable transaction

Accepted Answer

A reportable transaction is:
 • Any type of transaction listed in Part IV (for example, sales, rents, etc.) for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the reporting corporation’s tax year;
 • Any transaction or group of transactions listed in Part IV, if:
   1. Any part of the consideration paid or received was not monetary consideration, or
   2. Less than full consideration was paid or received; or

• Any transaction listed in Part V.

Transactions with a U.S. related party, however, are not required to be specifically identified in Parts IV, V, and VI.

Question 9

Form 5472: Foreign Person

Accepted Answer

A foreign person is:
 • 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.

Question 10

Form 5472: Disregarded entity (DE)

Accepted Answer

A DE is an entity that is disregarded as an entity separate from its owner for U.S. income tax purposes under Regulations sections 301.7701-2 and 301.7701-3. See the instructions for Form 8832.

Question 11

Form 5472: Foreign-owned U.S. DE

Accepted Answer

A foreign-owned U.S. DE is a domestic DE that is wholly owned by a foreign person. For tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, a foreign-owned U.S. DE is treated as an entity separate from its owner and classified as a corporation for the limited purposes of the requirements under section 6038A that apply to 25% foreign-owned domestic corporations. See the final regulations at IRS.gov/irb/2017-03_IRB#TD-9796.(https://www.irs.gov/irb/2017-03_IRB#TD-9796)

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