Posts

Form 5472 Introduction | International Tax Lawyer & Attorney

/in /by

In the complex landscape of US tax compliance, IRS Form 5472 plays a crucial role in reporting transactions between foreign-owned US corporations and their related parties. This article serves as a Form 5472 introduction. It explores the purpose of Form 5472, explains its filing requirements and warns about the potential consequences of noncompliance.

Form 5472 Introduction: What is Form 5472 ?

Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business, is an IRS form used to report certain transactions between a reporting corporation (including a reporting disregarded entity) and certain related parties.  The IRS uses information from Form 5472 to identify potential transfer pricing issues and ensure that transactions between related parties are conducted at arm’s length.

Form 5472 Introduction: Who Must File Form 5472 ?

There are generally three categories of entities that must file Form 5472. First, US corporations with 25% or more foreign owners. Pursuant to 26 U.S.C. § 6038A(c)(1), a US corporation is considered 25% foreign-owned if at least one foreign person owns, directly or indirectly, at least 25% of: (a) the total voting power of all classes of stock entitled to vote; or (b) the total value of all classes of stock of the corporation.

The second category of Form 5472 filers are foreign-owned disregarded entities (“FDE”). This is a relatively new addition to Form 5472 filers. This new category was added through Treasury regulations in the mid-2010s.

The final category of Form 5472 filers consists of foreign corporations which engage in trade or business within the United States.

Form 5472 Introduction: Key Concepts Related to Form 5472

Form 5472 requires understanding of at least three key concepts.  First of all, the definition of a “Reporting Corporation”.  Reporting Corporation is basically an entity that must file Form 5472.

The second and a very difficult concept is “related party”.  Related Party can be any direct or indirect 25% foreign shareholder or a person related to the reporting corporation or its 25% foreign shareholder.

The final and also very difficult concept is “reportable transactions”.  Reportable Transaction is any transaction listed in Form 5472 (and as interpreted by relevant Treasury regulations). Form 5472 covers a wide range of transactions.

Form 5472 Introduction: General Disclosure Requirements

In broad terms, the IRS requires Form 5472 filers to disclose the information about the nature and amounts of all reportable transactions between a reporting corporation and its foreign related parties.  

Form 5472 organizes the required information in various parts. Part I requires disclosure of information about the reporting corporation. Part II collects information about all 25% foreign shareholders. Part III discusses other Related Parties. Part IV focuses on the monetary transactions reporting corporations and foreign related parties. Part V is specifically about the reportable transactions of FDEs. Part VI discusses non-monetary and less-than-full-consideration transactions between the reporting corporation and the foreign related party. Finally, Parts VII, VIII and IX contain questions concerning other relevant information.

Form 5472 Introduction: Filing Deadlines and Extensions

Generally, Form 5472 must be filed with the reporting corporation’s income tax return by the due date (including extensions) of that return. For calendar year corporations, this is typically April 15th, with a possible extension to October 15th. Corporations that operate on a fiscal year must align the filing deadline with their income tax return deadline.

Form 5472 Introduction: Penalties for Form 5472 Non-Compliance

The IRS imposes severe penalties for failure to file Form 5472 or for filing an incomplete or inaccurate form.   First, there is a $25,000 initial failure to file penalty imposed on each form.

If the IRS notifies the taxpayer about the missing Form 5472 and the taxpayer fails to do anything afterwards for 90 days, then the IRS can assess an additional $25,000 penalty (or a fraction thereof) per each 30-day period.

Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.

Conclusion: Contact Sherayzen Law Office for Help With Form 5472 Compliance & Form 5472 Voluntary Disclosures

Navigating the complexities of Form 5472 compliance can be challenging and securing the help of an international tax lawyer is highly recommended.

Sherayzen Law Office is a leading firm in international tax compliance in the United States with extensive experience with Form 5472 and offshore voluntary disclosures concerning delinquent (late) Forms 5472. Whether you’re dealing with complex ownership structures, intricate related party transactions, or addressing past non-compliance, Sherayzen Law Office provides tailored solutions to meet your specific needs.

Contact Sherayzen Law Office today for professional help!

Form 5472 Penalties

/in , /by

In a previous article, we covered the basics of the IRS Form 5472. In this article we will explain the penalties that may apply for failure to comply with the form’s requirements.

Main Failure to File and Failure to Maintain Records Penalties

If a corporation fails to timely file the required Form 5472, a $10,000 penalty may be assessed. Furthermore, a reporting corporation that files a substantially incomplete Form 5472 will be deemed as having failed to file Form 5472, and penalties may apply.

An interesting twist in Form 5472 penalties is that, in addition to failure to file penalties, the IRS imposes substantial record-keeping penalties. A $10,000 penalty may be assessed for failure to maintain records, as required under IRS regulation Section 1.6038A-3. Under this regulation, “a reporting corporation must keep the permanent books of account or records… that are sufficient to establish the correctness of the federal income tax return of the corporation, including information, documents, or records (“records”) to the extent they may be relevant to determine the correct U.S. tax treatment of transactions with related parties.”

It is also important to note that, for the purposes of Form 5472 penalties, each member of a group of corporations filing a consolidated information return is treated as a separate reporting corporation, and each member is potentially subject to a separate $10,000 penalty, as well as being jointly and severally liable.

Additional Failure to File Penalties

If the IRS issues a failure to file notification, and the failure continues for more than 90 days after such notification, an additional penalty of $10,000 may apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period end.

Criminal Penalties

Under IRC Sections 7203 (Willful failure to file return, supply information, or pay tax), 7206 (Fraud and False Statements), and 7207 (Fraudulent returns, statements, or other documents), criminal penalties may potentially apply for failure to submit necessary information, or for filing false or fraudulent information.

Contact Sherayzen Law Office for Legal Help With Form 5472 Reporting Requirements

Complying with Form 5472 requirements and dealing with Form 5472 penalties usually requires professional review. Contact Sherayzen Law Office for tax assistance with Form 5472; our experienced international tax firm will determine whether you need to file Form 5472, explain how to comply with the form’s requirement, complete the form for you, and handle any necessary IRS negotiations.