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What is IRS Form 5472? Has tax reform changed it?

by: Anthony Parent   2019-01-15

IRS Form 5472 is the information return of a 25% Foreign-owned U.S. Corporation or a Foreign Corporation Engaged a U.S. Trade of Business. The form is both difficult to file and consequential if not done correctly. The IRS has kept up its enforcement campaign and additionally, the Tax Cuts and Jobs Act of 2017 (TCJA) made some rather significant changes to both the penalties and who is required to file a Form 5472. In this article, we will discuss what hasn’t changed, and what we consider the most important things that have changed.


What is the purpose of Form 5472?

We could ask the IRS. But they’ll just say something that is true, yet unintelligible like:

Use Form 5472 to provide information required under sections 6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic-related party.


So what is the actual purpose of Form 5472?


It’s like this. If your US corporation has foreign owners and is 25% or more foreign owned, do you not see how it is possible to pull shenanigans and claim that what was revenue of the US corporation was really revenue of a related foreign company, thus reducing US taxes? And also do you see how someone could claim that expenses of the foreign corporation were actually the expenses of the US corporation, which also works to lower US taxes?



So the underlying purpose of the Form 5472 is to give the IRS insight into whether or not you are playing shenanigans with a foreign corporation or person — a foreign corporation or person that the IRS can not normally examine or audit.


I am a Green Card holder. Do I have to file a Form 5472?


A Form 5472 is only required when you have foreign ownership. A Green Card, or resident status, means that you are not considered to be foreign person. A foreign person, according to to the IRS’s instructions, is:

  • Someone who is not a citizen or resident of the US
  • Someone who is a citizen or resident of the US possession, but not a citizen of the US.
  • A foreign partnership association, company or corporations that is not created or organized in the United States
  • A foreign estate or trust described in IRC section 7701(a)(31)
  • Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engage in the consumer of a commercial activity as defined in IRC section 892.


Alert: A foreign person is not any foreign person who connects to the failing of a joint income tax return.


What is a reportable transaction?


In the most basic sense, a reportable transaction is a type of transaction that the IRS considers to be an indication that shenanigans may be afoot. A Form 5472 is where a foreign-owned US company lists all its reportable transactions, unless there is an exception.


What are some exceptions to the Form 5472 filing requirement?


  • The US corporation had no reportable transactions.
  • The person who controls the US corporation already filed a Form 5471 showing all reportable transactions that should appear on Form 5472 have already appeared on Schedule M for Form 5471.
  • A related corporation qualifies a a foreign sales corporation and field a Form 1120-FSC
  • The foreign corporation does not have a permanent establishment under an applicable tax treaty and a proper Form 8833 was filed.
  • Its income is exempt from income taxation under IRC section 883 because it is exempted transportation  and telecommunications satellite income that is taxed at 4% under IRC 887.
  • Neither the corporation or related party re considered to be US persons under IRC 7701(a)(3).


Who has to file a Form 5472, the foreign shareholder?


No. Unlike Form 5471 which is a shareholder requirement, Form 5472 filing is a requirement of the corporation. Penalties  won’t be assessed to the non-US person, but rather, the US corporation.


What is harder to file a Form 5471 or a Form 5472?


Typically filing Form 5471 is much more onerous.  The IRS’s Paperwork Reduction Act Notice supports this claim. The IRS gives estimates of around 60 hours to complete a Form 5471, meanwhile the time estimate for a Four 5472 is about 24 hours.


What are the penalties for not filing a Form 5472 or filing one late or incorrectly?


The penalties for not filing or filing something deemed substantially incomplete were increased from $10,000 per year per form to $25,000 per year per form by the Tax Cuts and Jobs Act of 2017 which amended IRC 6038A. The IRS could impose additonal $25,000 penalties if they request a Form 5472 and a proper one has not been filed.


When is a Form 5472 filed?


A Form 5472 is filed with your company’s Form 1120, 1120-S or other corporate income tax return. If you file an extension for your companies 1120-S to change the due date form March 15 to September 15th, your Form 5472 will be due on September 15th.


A foreign-owned U.S. disregarded entity (DE) required to file Form 5472 can request an extension of time to file by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. The DE must file Form 7004 by the regular due date of the return. Because the Form 5472 of a DE must be attached to a pro forma Form 1120, the code for Form 1120 should be entered on Form 7004, Part I, line 1. "Foreign-owned U.S. DE" should be written across the top of Form 7004.


The DE should send Form 7004 to:  


Internal Revenue Service

201 West Rivercenter Blvd.

PIN Unit: Stop 97

Covington, KY 41011

Or, the DE can fax (300 DPI or higher) the form to (855) 887-7737.
Caution:  For these entities, do not use the regular filing address listed in the Instructions for Form 7004.


Is there anything new I need to be aware of?


Yes. One of the biggest changes were see from tax reform now something called downward attribution. Downward attribution can surprise many foreign-owned businesses who have similar ownership of subsidiaries and related parties around the world.  The topic is complicated, but the bottom line is you must be aware of possible other reporting requirements like For 5471.

Will I got to jail for not filing a Form 5472?


While there are criminal penalties under IRC 7203 7206 and 7207, very few if any taxpayers have been prosecuted for failing to file a Form 5472. The larger risks taxpayers face is civil penalties - Form 5472 could just be the start.  Myriad other foreign informational returns may apply along with potential FBAR penalties for any foreign accounts owned by the corporation or shareholders. To lower or avoid civil penalties we typically use delinquent informational return procedures or a streamlined disclosure program.


What if I need more help with Form 5472?


Visit the IRS’s webpage on Form 5472 here.


Or contact us to speak with one of our international tax attorneys about your concerns in complete confidence.



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