If you’ve ever dealt with U.S. tax forms, you’re probably familiar with the well-known Form 5471. But have you heard of Form 5472? It’s another important information return that certain businesses and entities must file with the IRS. While it may not be as widely discussed, understanding when and why Form 5472 is required is crucial to staying compliant and avoiding hefty penalties.
Who Needs to File Form 5472?
Form 5472 is required in specific situations. Here’s who needs to file:
- A U.S. Corporation with Foreign Ownership
If a U.S. company has at least 25% foreign ownership (by voting stock), it must file Form 5472. This includes situations where a foreign person or entity has significant control over the company. - A Foreign Entity Doing Business in the U.S.
If a foreign company engages in trade or business within the U.S., it’s obligated to file Form 5472 to report any related transactions. - A U.S. LLC Owned by a Foreign Entity
U.S. Limited Liability Companies (LLCs) that are owned by foreign companies (and treated as disregarded entities for tax purposes) also need to file Form 5472.
In short, any reporting corporation in these categories must file Form 5472 if there have been reportable transactions during the tax year.
Can I Skip Filing Form 5472?
In some cases, you don’t need to file Form 5472. Here are a few scenarios where the filing obligation doesn’t apply:
- No Reportable Transactions: If your business didn’t have any reportable transactions with related parties during the year, you’re off the hook for filing Form 5472.
- Form 5471 Filing: If a U.S. person controls a foreign corporation and is filing Form 5471, they don’t need to file Form 5472. Instead, they must include Schedule M with their Form 5471. However, this exemption doesn’t apply to foreign-owned U.S. disregarded entities.
- Tax Treaty Exceptions: A foreign corporation that files Form 8833 (claiming a tax treaty benefit) and has no permanent establishment in the U.S. may also be exempt from filing Form 5472.
When is Form 5472 Due?
Form 5472 isn’t filed alone; it’s attached to the income tax return of the reporting corporation. For example, foreign-owned U.S. disregarded entities—entities that usually have no filing obligations—are now required to file a ‘pro forma’ Form 1120 along with Form 5472. The only information required on Form 1120 is basic details about the disregarded entity, such as its name and address.
Important: In this case, Form 1120 cannot be filed electronically and must be mailed to the IRS at a designated address.
What Happens if I Don’t File Form 5472?
Failing to file Form 5472 can lead to serious penalties. The IRS imposes a steep fine of $25,000 for each corporation that misses the filing deadline. And if you ignore the penalty for more than 90 days after being notified by the IRS, they can impose an additional $25,000 penalty.
That’s right—$25,000 for each failure to file, plus more if you don’t fix the issue quickly. If your company is part of a group of corporations filing a consolidated return, the penalty applies to each corporation in the group.
Wrapping It Up: Keep Your Business Compliant
Form 5472 might not be the most glamorous tax form, but it’s certainly one you don’t want to overlook. If you’re a U.S. business with foreign ownership or a foreign entity doing business in the U.S., it’s essential to understand when and how to file this form.
Remember, the penalties for non-compliance are hefty, so it’s worth getting it right. If you have any doubts about your filing requirements, it’s a good idea to consult with a tax professional who can guide you through the process.
