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What is Pro Forma Form 1120 and Why Do I Need It with Form 5472?

A Complete Guide to Tax Compliance for Foreign-Owned US Entities
🎯 Essential Understanding
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Pro Forma Form 1120 acts as a mandatory "cover sheet" for Form 5472 when foreign-owned US disregarded entities must report transactions. Even if your LLC has no income or business activity, you're still required to file both forms annually to avoid substantial IRS penalties of up to $25,000 per form.

Understanding Pro Forma Form 1120​

Pro Forma Form 1120 is a simplified version of the standard US Corporation Income Tax Return (Form 1120) that serves as an attachment vehicle for Form 5472. Unlike a complete tax return, the pro forma version requires only basic identifying information and acts essentially as a cover page.

📋 What "Pro Forma" Means

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Pro forma literally means "for the sake of form" in Latin. In this context, it means you're filing a simplified version of Form 1120 not to report income or calculate taxes, but to satisfy IRS regulatory requirements for foreign-owned disregarded entities.

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The IRS implemented this requirement through final regulations under section 6038A, effective for tax years beginning January 1, 2017. These regulations require foreign-owned US disregarded entities to file a pro forma Form 1120 with Form 5472 attached by the due date of that Form 1120.

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Key Characteristics of Pro Forma Form 1120

What You Must Complete
 

  • Entity name and address

  • Employer Identification Number (EIN)

  • Item B: Business activity code

  • Item E: Check appropriate boxes

  • Write "Foreign-owned U.S. DE" across the top

What You Don't Complete

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  • Income calculations

  • Deduction schedules

  • Tax computations

  • Balance sheet information

  • Most other standard Form 1120 sections

The Relationship Between Pro Forma Form 1120 and Form 5472​

Form 5472 cannot be filed independently by foreign-owned US disregarded entities. The IRS requires that Form 5472 must be attached to a pro forma Form 1120, creating an inseparable filing requirement.

🔗 Why They Must Be Filed Together
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Foreign-owned US disregarded entities have no regular income tax return filing requirement. Since Form 5472 must be attached to an income tax return, the IRS created the pro forma Form 1120 requirement specifically to provide this attachment point for compliance purposes.

Form 5472 Purpose and Requirements

Form 5472 provides information required under sections 6038A and 6038C when reportable transactions occur with a foreign or domestic related party. The form serves as an information return to help the IRS monitor cross-border transactions and prevent tax avoidance.

⚠️ Critical Filing Requirement
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Foreign owners of US disregarded entities (like single-member LLCs) must file Form 5472 along with a pro-forma Form 1120, regardless of US tax obligations. Even if the LLC generates no income, these forms are required to disclose ownership and related-party transactions.

Who Must File These Forms

The filing requirement applies to specific types of entities and ownership structures. Understanding whether you fall under these requirements is crucial for compliance.

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Entities Required to File

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✅ You Must File If Your Entity Is:
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  • A US single-member LLC owned by a foreign person

  • A US disregarded entity that is 25% or more foreign-owned

  • A US corporation that is 25% or more foreign-owned with reportable transactions

  • Any foreign-owned US disregarded entity with reportable transactions with related parties

📖 Key Definitions​
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  • Foreign Person: Any individual who is not a US citizen or resident, or any foreign corporation, partnership, trust, or estate.
     

  • Disregarded Entity: An entity with only one owner that the IRS does not recognize as separate from its owner for federal income tax purposes.
     

  • Reportable Transaction: Any exchange of money, goods, or services between the entity and its foreign owner or related parties.

Common Reportable Transactions

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Even if no revenue has been generated or no bank account has been opened, initial contribution forms the basis for these filings. The initial funding of the LLC, typically derived from personal funds of the owner to cover formation costs, is recognized as a reportable transaction.

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  • Capital Contributions: Money or property invested in the LLC

  • LLC Formation Costs: Registration fees, legal fees, initial setup expenses

  • Distributions: Money or property taken out of the LLC

  • Sales and Services: Business transactions between owner and LLC

  • Loans: Money borrowed from or lent to the LLC

  • Rent Payments: Property rented to or from the LLC

Filing Process and Requirements
The filing process involves several specific steps and rquirements that differ from standard corporate tax returns.

Step 1: Obtain an EIN
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Your LLC must have a US Employer Identification Number before filing. You must apply for an EIN by preparing and filing Form SS-4, which must be signed by a "Responsible Party" - the individual with control over the entity's funds and assets.

Step 2: Complete Form 5472
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Fill out all relevant sections of Form 5472, including Part I (general information), Part V (for disregarded entities), and any other applicable parts based on your specific transactions.

Step 3: Prepare Pro Forma Form 1120

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Complete only the name and address of the foreign-owned disregarded entity, EIN (Item B), business activity information (Item E), and write "Foreign-owned U.S. DE" across the top of the form.

Step 4: Attach and Submit
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Attach Form 5472 to the pro forma Form 1120 and mail to the special IRS address designated for foreign-owned disregarded entities. Electronic filing is not available for these entities.

📅 Critical Filing Deadline​
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April 15
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Forms must be filed by April 15 each year (or the due date based on your tax year). If you miss the April deadline, there is an automatic extension until October 15, but you must file Form 7004 to obtain the extension.​

Special Filing Requirements

Foreign-owned disregarded entities have unique filing requirements that differ from standard corporate returns.

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Dedicated Mailing Address

Foreign-owned U.S. DEs are required to use a special mailing address and do not use the mailing addresses provided in the Instructions for Form 1120. This dedicated address ensures proper processing of these specialized returns.

📮 Important Mailing Note

​Always verify the current mailing address in the most recent IRS Form 5472 instructions, as these addresses can change. Using the wrong address may result in processing delays or missed deadlines.

Extension Procedures

A foreign-owned U.S. DE can request an extension by filing Form 7004. Because Form 5472 must be attached to a pro forma Form 1120, the code for Form 1120 should be entered on Form 7004, and "Foreign-owned U.S. DE" should be written across the top.

Penalties and Consequences

The IRS imposes substantial penalties for non-compliance with Form 5472 and pro forma Form 1120 filing requirements.

💰 Severe Financial Penalties
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If Form 5472 is not filed on time or is incomplete, the IRS may impose a $25,000 penalty per form. The TCJA increased the penalty for failure to file a timely Form 5472 from $10,000 per form to $25,000 per form for tax years that begin after Dec. 31, 2017.

Multiple Form Requirements

If the LLC has transactions with multiple related parties, a separate Form 5472 is required for each, and penalties can add up quickly. For example, if the single member US LLC had transactions with two different related parties, two Forms 5472 would be required, and total penalties of $50,000 may be assessed if filed late.

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Penalty Relief Options

A U.S. DRE that failed to timely file should consider filing using the Delinquent International Information Return Submission Procedures (DIIRSP), which is available to taxpayers with reasonable cause who are not under IRS examination.

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Common Compliance Challenges

Many foreign-owned entity owners face specific challenges when navigating these filing requirements.

Frequent Misconceptions​

  • Believing inactive LLCs don't need to file

  • Thinking Form 5472 can be filed alone

  • Missing reportable transactions like formation costs

  • Using wrong mailing addresses

Key Compliance Tips

  • File even with zero business activity

  • Always attach Form 5472 to pro forma 1120

  • Report ALL transactions with related parties

  • Use the dedicated IRS mailing address

Record Keeping Requirements

Maintaining proper documentation is essential for supporting your Form 5472 filings and potential IRS inquiries.

✅ Essential Records to Maintain​
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  • Bank statements showing all transactions

  • LLC formation documents and receipts

  • Documentation of capital contributions

  • Records of distributions and withdrawals

  • Copies of filed forms and proof of mailing

  • Extension requests and correspondence with IRS

Practical Filing Guidance

Successfully completing and filing these forms requires attention to specific details and procedures.

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Pro Forma Form 1120 Completion

Compared with Form 5472, pro forma Form 1120 is straightforward. You only need to enter the name and address of the foreign-owned disregarded entity, EIN, business activity code, and write "Foreign-owned U.S. DE" across the top.

📝 Business Activity Codes
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Foreign-owned LLCs engaged in e-commerce activities such as Amazon FBA, dropshipping, eBay, or Shopify sales may use "Electronic Shopping & Mail-Order Houses" description and code 454110.

Form 5472 Key Sections

  • Part I: General information including name, address, EIN, and business activity

  • Part V: Specific to foreign-owned disregarded entities for reporting formation, contributions, and distributions

  • Part IV: Monetary transactions (typically not applicable to simple LLCs)

  • Part VI: Non-monetary transactions

  • Part VII: Additional information requirements

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Professional Assistance and Resources

Given the complexity and high penalty risks associated with these filings, many foreign-owned entity owners benefit from professional guidance.

⚠️ When to Seek Help​
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Consider professional assistance if you have complex ownership structures, multiple related party transactions, uncertainty about reportable transactions, or have missed previous filing deadlines. The cost of professional help is often minimal compared to potential IRS penalties.

Red Flags Requiring Immediate Attention

  • Missed filing deadlines from previous years

  • IRS correspondence regarding missing forms

  • Complex multi-entity ownership structures

  • Uncertainty about US tax residency status

  • Significant business income or expenses

 

Looking Forward: Staying Compliant

Ongoing compliance requires understanding that these are annual requirements regardless of business activity level.

🎯 Annual Compliance Commitment
 
Foreign-owned US disregarded entities must file Form 5472 and a pro forma Form 1120, even with zero activity. This is an annual requirement that continues as long as the entity exists.

Remember that these requirements apply even if your LLC is used for personal purposes and does not operate a US business, or if the owner changes tax residency status. The key is maintaining awareness of your ongoing obligations and ensuring timely compliance each year.

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Pro Forma Form 1120 and Form 5472 represent critical compliance requirements for foreign-owned US entities. While the forms may seem complex initially, understanding their purpose, requirements, and proper completion procedures helps ensure you meet your US tax obligations while avoiding substantial penalties. The investment in proper compliance protects your business interests and maintains good standing with US tax authorities.

🤝 Professional Assistance Available​

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