What is a Form 5472 and when it is required to be filed?
by: Anthony Parent
IRS Form 5472 is used for the reporting foreign corporation to disclose information about certain reportable transactions that occur with foreign or domestic related parties.
When is Form 5472 required to be filed?
A corporation that is 25% foreign-owned, or a foreign corporation that is engaged in business or trade with the United States. In order to be 25% foreign owned, it has to have at least one (direct or indirect) 25% foreign shareholder, who is a foreign person that owns (directly or indirectly) at least 25% of either the voting power or the value of the stock of the foreign corporation.
A foreign corproation that engaged in a Reportable Transaction: These reportable transactions are listed in Part IV of the form, which is two pages long. The list includes: purchases and sales of stock in trade or tangible property other than stock in trade; platform contributions or cost sharing transactions payments made or received; rents or royalties paid or received; and a few more, including commissions, insurance premiums, etc. These are required to be listed whether the consideration was purely monetary, partly other consideration, or if less than full consideration was paid or received.
Existence of Related Party: This can be many things, including 25% foreign shareholders, any person related to the reporting corporation or to one of the 25% shareholders or pretty much any other person who is related: the meanings here are described more in the sections of code. The guidance of an expert tax attorney is essential here to determine which people fall into one of these categories.
Key IRS Form 5472 definitions
Foreign person: This is an individual person who is not a citizen or resident of the U.S, or who is a citizen or resident of a possession of the United States but not a citizen otherwise. It can also be a business entity that is not organized or created in the U.S, or a foreign estate or trust. A foreign government that is engaged in commercial activity can also be considered a foreign person.
Direct and Ultimate Indirect 25% foreign shareholders: If one of the foreign persons described above owns 25% of the stock of the reporting corporation, that person can be considered a direct shareholder. The ultimate indirect foreign shareholder is one whose 25% holdings are not attributable to any of the other 25% shareholders. This is another area where a tax attorney who is well versed in making these determinations is indispensable.
Making sense of all these requirements and definitions regarding IRS Form 5472 can be difficult and intimidating.
Since the penalties for not filing or filing an inaccruate an IRS Form 5472 start at $10,000 per yeart, it is essential that you not let any confusion delay your preparation of the return and its timely and accurate filing. If you need assistance with any unfiled or misfiled forms, contact us for a complimentary, confidential consultation. Call us at 888-727-8796 or email firstname.lastname@example.org.