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Form 5472 Introduction | International Tax Lawyer & Attorney

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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!

IRS 2014 Final and Proposed Regulations Regarding Form 5472

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In 2014, the IRS issued both final (T.D. 9667), and proposed (REG-114942-14) regulations amending the rules for filing Form 5472, (“Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business”). Form 5472 is used to provide the information required under Internal Revenue Code (“IRC”) Sections 6038A and 6038C when reportable transactions occur during the taxable year of a reporting corporation with a foreign or domestic related party.

This article will briefly explain the final and proposed regulations affecting Form 5472; it is not intended to convey tax or legal advice. If you have questions regarding filing of Form 5472 or any international tax matters, please contact owner Eugene Sherayzen, an experienced tax attorney at Sherayzen Law Office, Ltd.

Form 5472 Final Regulation (T.D. 9667)

On June 10, 2011, under the above-mentioned IRC Sections, the IRS had previously published temporary regulations and a notice of proposed rulemaking by cross-reference to the temporary regulations in the Federal Register (76 FR 33997, TD 9529, 2011–30 IRB 57; REG–101352–11, 76 FR 34019) (2011 regulations), amending final regulations to provide that a duplicate filing of Form 5472 generally (previously required in Regulation Section 1.6038A-2(d)) would no longer be required, regardless of whether the filer files a paper or an electronic income tax return. This was determined because of advances in IRS electronic processing and data collections.

The 2014 final regulation, T.D. 9667, adopts the 2011 regulations without substantive change as final regulations, and removes the previous temporary regulations. The regulation became effective as of June 6, 2014.

Form 5472 Proposed Regulation (REG-114942-14)

On the same date as the final regulation was issued, the IRS concurrently issued proposed regulation (REG-114942-14). At issue was a provision (Treas. Reg. Section 1.6038A-2(e)), allowing for timely filing of Form 5472 separately from an income tax return that is untimely filed.

Because of the significant penalties involved for failing to file a timely and accurate Form 5472 (as noted in the proposed regulation and subject to reasonable cause exception, “an initial penalty of $10,000 (with possible additional penalties for continued failure) shall be assessed for each taxable year and for each related party with respect to which the failure occurs”), this process could be utilized by filers in such circumstances.

However, the IRS stated in the proposed regulation that, “with the benefit of experience”, it determined that the untimely-filed return provision was not conducive to efficient tax administration and that filing Form 5472 should not differ significantly from the methods and penalties applicable to similar information returns, such as Form 5471, (“Information Return of U.S. Persons With Respect to Certain Foreign Corporations”) and Form 8865 (“Return of U.S. Persons With Respect to Certain Foreign Partnerships”). As noted in the proposed regulation, “those forms must be filed with the filer’s income tax return for the taxable year by the due date (including extensions) of the return, and there is no provision equivalent to the untimely filed return provision under § 1.6038A-2T(e) of the 2011 temporary regulations that would require or permit separate filing of those forms. See §§ 1.6038-2(i) and 1.6038-3(i)(1). Accordingly, it is proposed that the untimely-filed return provision contained in § 1.6038A-2(e) be removed.”

Contact Sherayzen Law Office for Help With Form 5472 Compliance

If you have any questions regarding the filing of your Form 5472 or you just need complex tax planning for cross-border business entities, please contact our experienced international tax team at Sherayzen Law Office, Ltd.