Updated on December 13, 2023
Reviewed by a Greenback Expat Tax Accountant
Are you required to file IRS Form 5472? For many expat business owners, the answer is yes. In this guide, we’re looking at the instructions for Form 5472—and everything else you may need to know about this complex issue.
Key Takeaways
- Form 5472 is an IRS tax form used to report certain transactions of foreign corporations.
- The IRS requires businesses to file Form 5472 if they are aUS corporation or US disregarded entity with at least 25% foreign ownership or a foreign corporation doing business in the US.
What Is Form 5472?
Form 5472 is an IRS tax form that certain foreign-owned businesses, including foreign corporations, must file. These entities are required to file Form 5472 annually and provide information about their ownership structures and transactions, including changes made to the ownership of the business.
Who Should File Form 5472?
The IRS requires each of the following types of businesses to file Form 5472:
- A US corporation with at least 25% of its stock owned by a foreign person or entity
- A US disregarded entity with at least 25% of its stock owned by a foreign person or entity
- A foreign corporation engaged in a trade or business inside the US
In addition, various other “related parties” may be required to file their own copy of Form 5472 if they engage in any reportable transactions with the corporation. Those reportable transactions include:
- Sale of stock
- Purchase of stock
- Sale of tangible property
- Purchase of tangible property
- Sales leases
- Consideration for services
- Loans
- Loan guarantees
- Interest paid
- Premiums paid for insurance or reinsurance
The rules for what qualifies as a “related party” can be tough to interpret. The same is true for determining whether a corporation is 25% foreign-owned.
Exceptions from Filing Form 5472
Most businesses that fit the above categories are required to file Form 5472 every year. However, there are some exceptions, such as if:
- The corporation has no reportable transactions in a given tax year
- The corporation is considered a foreign sales corporation and files Form 1120-FSC
- The corporation is based in a country with a US tax treaty, has no permanent establishment in the US, and files Form 8833
- The corporation has a gross income exemption under section 883 and has fully complied with the reporting requirements of sections 883 and 887
Those aren’t the only exceptions—just a few common ones. Consult a qualified tax professional for further information.
The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.
IRS Form 5472 Examples
To better understand what businesses should file Form 5472, let’s look at some examples.
Example 1
Matt, Sarah, and Jack each own an equal stake in Company A, a US domestic corporation. Matt and Sarah are both US citizens, while Jack is an Australian citizen.
Because Jack is a foreign owner who owns more than 25% of the company (roughly 33%), Company A would be required to file Form 5472.
Example 2
Company B is a US-based LLC that has elected to be taxed as a disregarded entity. Company B is owned by Company C, a foreign corporation based in Mexico.
Because Company B is a disregarded entity owned by a foreign company, it would be required to file Form 5472.
Example 3
Company D is a corporation based in South Korea that has a presence in the US and sells products primarily to the US market.
Because Company D is a foreign corporation deemed to be “engaged in a trade or business inside the US,” it must file Form 5472.
Take Note
In all three examples above, other “related parties” connected to each company would likely also have to file their own copies of Form 5472.
What Information Is Required on Form 5472?
Form 5472 can seem like a fairly straightforward form that requires very little information, but it has some nuances. This form is used to disclose a range of information about the reporting company and its transactions, including:
- Articles of organization or incorporation
- Principal business activity for the company
- Details of all reportable transactions
- Foreign shareholders’ names
- Foreign shareholders’ countries of citizenship
- Foreign shareholders’ addresses
Form 5472 Due Date
The Form is due at the same time as your company’s income tax return (Form 1120). For the 2023 tax year, that would mean April 15th in 2024.
However, if you file a six-month extension for your Form 1120, Form 5472 will also be postponed to the same date—which is October 15th, for the 2023 tax year. The consequences of filing your taxes late can be severe.
Due to final regulations under section 6038A, foreign-owned US disregarded entities are now required to file a pro forma Form 1120 with Form 5472 attached. The due date is the same as Form 1120, and an extension of time to file can also be requested by filing Form 7004.
Unlike US corporations required to file Form 5472, foreign-owned US DE’s cannot e-file their return and must fax or paper file their return to the IRS.
You must file a new Form 5472 every year your company meets the filing requirements.
Form 5472 Penalties
The standard penalty for failing to file Form 5472 on time is a $25,000 fine. There is an additional fine of $25,000 if you fail to file Form 5472 within 90 days of being notified by the IRS.
Take Note
Filing an incomplete or inaccurate Form 5472 is considered a failure to file.
How to File Form 5472
Filing Form 5472 is a complicated process with plenty of opportunities to make mistakes. Even deciding whether you’re required to file Form 5472 can be complex. We recommend enlisting a qualified tax professional to help you rather than attempting to file Form 5472 alone. An example of the recent form can be seen below.
To learn more about how to file Form 5472, see the Form 5472 instructions provided on the IRS website.
Filing Form 5472 Doesn’t Have to Be Complicated
We hope this guide has helped you understand the requirements and instructions for Form 5472. However, if you still have questions, we have answers. In fact, we can even fill out and file your expat tax return on your behalf.
Have questions about the process or next steps? Contact us, and one of our Customer Champions will happily address all your concerns. If you’re ready to be matched with a Greenback accountant, click the get started button below.
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As an expert in international taxation and compliance, I bring a wealth of knowledge and experience in navigating the complexities of IRS forms for expatriates and foreign-owned businesses. I have a deep understanding of the intricacies involved in reporting transactions of foreign corporations, particularly focusing on IRS Form 5472.
Now, let's delve into the key concepts discussed in the article you provided:
Form 5472 Overview: Form 5472 is an IRS tax form designed for certain foreign-owned businesses, including foreign corporations. It mandates annual reporting, requiring these entities to disclose information about their ownership structures and transactions, specifically changes made to the ownership of the business.
Who Should File: The IRS mandates filing Form 5472 for:
- U.S. corporations with at least 25% foreign ownership.
- U.S. disregarded entities with at least 25% foreign ownership.
- Foreign corporations engaged in business within the U.S.
Additionally, "related parties" engaging in reportable transactions with the corporation may also be required to file their own copies of Form 5472.
Reportable Transactions: Various transactions trigger the filing requirement, including:
- Sale or purchase of stock.
- Sale or purchase of tangible property.
- Sales leases.
- Consideration for services.
- Loans, loan guarantees.
- Interest and premiums paid for insurance or reinsurance.
Exceptions from Filing: Some exceptions exist, such as when a corporation has no reportable transactions in a given tax year or falls under specific categories like a foreign sales corporation with Form 1120-FSC.
Form 5472 Information: The form requires details like articles of organization or incorporation, principal business activity, and information about foreign shareholders, including names, countries of citizenship, and addresses.
Due Date and Penalties: Form 5472 is due simultaneously with the company's income tax return (Form 1120). The standard penalty for failing to file on time is $25,000, with additional fines for late filing. Extensions are possible, but non-compliance can result in severe consequences.
How to File: Filing Form 5472 is complex, and it's recommended to seek the assistance of a qualified tax professional. Incomplete or inaccurate filings are considered failures, emphasizing the need for precision in compliance.
This summary aims to provide a comprehensive overview of the critical aspects related to IRS Form 5472 and its filing requirements. If you have further questions or need assistance with the filing process, feel free to ask.
