New Form 5472 Reporting Requirements

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 often an overlooked form.  In general, this form has been required if the reporting corporation had a reportable transaction with a foreign or domestic related party during it’s tax year.

Until now, a reporting corporation was defined as either a 25% foreign-owned U.S. corporation, or a foreign corporation engaged in a trade or business within the United States.  The Department of the Treasury has issued final regulations expanding the definition to include domestic disregarded entities (e.g. U.S. Limited Liability Companies) wholly owned by a foreign person as a reporting corporation.

In addition foreign owned single member llc’s will be required to file Forms 5472 annually whether or not they have reportable transactions with related parties or have any U.S. assets or income.  This represents a significant expansion of the use of the form.

The current list of reportable transactions subject to Form 5472 reporting are as follows:

  • Purchases/Sales of stock in trade (inventory)
  • Purchases/Sales of tangible property other than stock in trade
  • Platform contribution transaction payments paid/received
  • Cost sharing transaction payments paid/received
  • Rents paid/received (for other than intangible property rights)
  • Royalties paid/received (for other than intangible property rights)
  • Purchases/Sales, leases, licenses, etc. of intangible property rights (e.g. patents trademarks, secret formulas)
  • Consideration paid/received for technical, managerial, engineering, construction, scientific, or like services
  • Commissions paid/received
  • Amounts loaned/borrowed
  • Premiums paid/received for insurance or reinsurance
  • Other amounts paid/received

A related party generally is any of the following:

  • Any direct or indirect 25% foreign shareholder of the reporting corporation,
  • Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,
  • Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or
  • Any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.

Failure to file and filling a substantially incomplete Form 5472 leads to a steep penalty of $10,000 per occurrence.  Additionally, if the failure continues more than 90 days after notification by the IRS, an additional penalty of $10,000 will apply per occurrence.  This penalty applies to each related party for which a failure occurs for each 30-day period after the initial 90-day period ends.  Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.

The expanded reporting requirements apply to foreign owned single member llc’s for years beginning after December 31, 2016 and ending on or after December 13, 2017.