Who Must File IRS Form 5472?
This Form must be filed by:
1. US company that is at least 25% owned by non-US shareholders. Recent changes in the law means this now includes single-member US LLCs with foreign owners.
2. Foreign companies that are engaged in a US trade or business.
Triggering Event
IRS Form 5472 must be filed when there has been at least one “reportable transaction”
with the direct or indirect foreign owner owning 25% or more or with a “related party” to the foreign owner.
Reportable Transaction
A “reportable transaction” includes payment for sales, rents, royalties, interest and loans. It also includes amounts paid and received relating to the formation, dissolution, acquisition, or disposition of the entity.
However, it does not include dividends.
Related Party
The definition of a “related party” includes most family members and entities in which the foreign owner owns a direct or indirect interest of 25% or more.
US tax law has many complex rules that attribute ownership of a company to people and other entities in a number of different ways.
These attribution rules can easily turn someone believing to be a 15% owner of a company into a 30% owner for US tax purposes.
Screwing up the attribution rules leads many people to fail to file or to report incorrect information.
A Warning For Married Couples
Things get even more complicated for married couples from countries with “community property” rules – legal systems that consider property to be jointly owned between married couples. This is especially true for couples involving one US citizen.
It’s possible for a “single-member” US LLC to legally have two owners for US tax purposes.
Why File IRS Form 5472?
This form assists the IRS with its auditing efforts.
Getting it wrong can be costly.
Penalties
Civil penalties can be assessed for each failure to file – $25,000 per instance. Moreover, this penalty can be applied to each “related party” that failed to file – married couples from community property jurisdictions really don’t want to screw this up!
In our experience, the IRS applies the penalty every time someone fails to the form.
Also, criminal penalties can be assessed for false or fraudulent information.
Want Help?
Our experienced tax consultants can help you with IRS Form 5472 and other US tax obligations.