If your US company has a foreign owner or foreign shareholders, then the company probably must file form 5472 with the IRS. While it is an information return that does not trigger any tax payments, it has high penalties for failing to file it.

Who must file Form 5472?

US companies with significant foreign ownership must file this form to report certain transactions. This includes foreign-owned single-member LLCs.

It also includes foreign-owned multi-member LLCs and C Corporations where at least 25% of the shareholders or partners are non-US persons.

The company must file Form 5472 for every year that it has reportable transactions. (More about reportable transactions below.)

The Form 5472 due date is April 15, together with your company’s 1120 form. If you file an extension for your corporate tax return, it is due together with the tax return on October 15.

Penalties for not filing Form 5472

The IRS has high penalties for not filing the form or filing something that the IRS thinks is substantially incomplete.  The penalty is $25,000 per year per form. It also applies to failure to maintain the required records.

This is a major incentive to file and to do it correctly.

What if you haven’t filed the form in the past when you should have? Or suspect that you may have made mistakes when submitting, maybe inadvertently omitted something you didn’t know needed to be included? We can help you correct or catch up with your filings. As licensed CPAs we can represent clients in case of IRS pushback on these issues.

What are reportable transactions?

The foreign-owned company must list all reportable transactions on the form 5472.

Now, what are reportable transactions?

The IRS defines a “Reportable Transaction” very broadly. Basically, it includes any type of activity between a foreign owner and their US corporation, with no minimum or limit in value.

Furthermore, it includes transactions between “related parties” and the US company. Related parties can be family members or other companies owned by the same owner.

Examples of reportable transactions:

  • The exchange of money or property, including payments, rental income, sales transactions, remuneration, commission payments, capital contributions, and capital reductions
  • The use of US company property, such as real estate, by a foreign owner or related party
  • Loans and/or interest payments between the corporation and a foreign owner

To put this into simpler terms, if you

  • Receive money from the LLC into your personal account
  • Contribute money to the LLC (capital contributions)
  • Pay for an expense on behalf of the LLC (such as the franchise tax or registered agent fees)
  • Or have any transactions involving the LLC

… then you need to file 5472.

As you can see, you must report any amounts paid or received in connection with the formation, dissolution, acquisition, or disposition of the LLC. This includes contributions to and distributions from the LLC (Part V of the form).

Furthermore, for this form you need to calculate the asset value at the end of the year.

How to file Form 5472

An LLC owned by a non-US person must first obtain a US Employer Identification Number (EIN) to complete Form 5472.  Unfortunately, you cannot e-file Form 5472. It must be submitted by paper or fax.

The instructions for the form are rather complex and difficult to understand, even for native English speakers familiar with the US tax system.

We help hundreds of foreign companies with their US tax filings every year. Schedule a consultation with our Incorporations Specialists. They are experts in this filing requirement.

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