IRS Form 5472

In International Tax by Jason B. Freeman1 Comment

IRS Form 5472

Form 5472 is an information return used to fulfill federal reporting obligations under Internal Revenue Code (IRC) sections 6038A and 6038C. A reporting corporation that engages in a monetary or non-monetary reportable transaction with a foreign or domestic related party is required to file Form 5472 with its income tax return. Failing to timely file Form 5472 or maintain proper records results in a $25,000 penalty, with an additional $25,000 penalty for failing to rectify the deficiency within 90 days of IRS notification. Filing a substantially incomplete Form 5472 constitutes a failure to file.

Reporting corporations fall into two categories: (1) 25% foreign-owned U.S. corporations, or (2) foreign corporations engaged in a trade or business inside the United States. The first category applies when a corporation has at least one foreign shareholder owning at least 25% of the total voting power of all classes of voting stock, or 25% of the total value of all classes of stock.

Reportable transactions are any monetary transactions listed in Part IV of Form 5472 (e.g., sales, rents, commissions, interest, etc.) between reporting corporations and foreign related entities. Transactions involving non-monetary consideration, or the exchange of less than the full amount of consideration, are reportable under Part VI of the form.

Related parties are 25% foreign shareholders of the reporting corporation, or any persons related to (1) the reporting corporation, (2) a 25% foreign shareholder of the reporting corporation, or (3) any other person related to the reporting corporation. Corporations filing a consolidated federal  income tax return with the reporting corporation are not considered related parties.

Reporting corporations are exempt from filing Form 5472 in six situations.

  • No reportable transactions for the tax year.
  • A U.S. person controlling the foreign related corporation files Form 5471.
  • The related corporation qualifies as a foreign sales corporation and files Form 1120-FSC.
  • They are foreign corporations with no permanent establishment in the U.S. under any income tax treaty, and they file Form 8833.
  • They are foreign corporations whose entire gross income is tax exempt under section 883, and they satisfy all the reporting requirements of IRC sections 883 and 887.
  • The reporting corporation and the related party are not U.S. persons, and the transactions will not generate either gross income from sources in the U.S., or any expense, loss, or other deductions allocable or apportionable to such income.

Special rules for disregarded entities: a U.S. disregarded entity that is wholly owned by a foreign person cannot claim an exception from filing Form 5472 relying on the filing of Form 5471 or the qualification as a foreign sales corporation. Since this type of entity is not required to file an income tax return, it must instead file Form 5472 with a pro forma Form 1120.

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