NOTE: Form 5472 now also applies to foreign-owned single-member LLC and not just foreign-owned US corporations! links: Full article on IRSMedic.com: https://www.irsmedic.com/blog/2019/01/irs-form-5472.html IRS.gov Form 5472 filing information: https://www.irs.gov/forms-pubs/about-form-5472 What is IRS Form 5472? 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. π 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. π So what is really the 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? π 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. π 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. π 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. π 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 IRS code 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) π 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 for not filing won’t be assessed to the non-US person, but rather the US corporation. Parent & Parent LLP 144 South Main Street Wallingford, CT 06492 (203) 269=6699 info@irsmedic.com