U.S. Tax Form 5472 Introduction
Form 5472, the full name is the Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade and Business, is an information return (as opposed to a tax return). This article will briefly describe the types of reporting corporations, what the purpose of filing Form 5472 is; what are the reportable transactions, who needs to file Form 5472 and four exceptions, and what information needs to be disclosed on Form 5472.
Form 5472 defines the following two types of reporting corporations:
- Foreign corporations that are engaged in trade or business within the United States.
- A 25% foreign-owned U.S. corporation, including a foreign-owned U.S. disregarded entity.
The IRS requires eligible reporting corporations to file Form 5472 with it. Filing Form 5472 serves the following two purposes:
- Under sections 6038A and 6038C, when a reporting corporation has reportable transactions with its U.S. or foreign related party during the tax year, the reporting corporation is required to use Form 5472 to report these reportable transactions.
- Based on the information provided on Form 5472, the IRS can keep track of all reportable transactions between the reporting corporation and its U.S. or foreign related party, which ensures that foreigners can comply with U.S. tax laws and to pay their tax obligations according to reporting requirements and tax filing status.
The IRS defines the following three types of reportable transactions:
- When a reporting corporation is a foreign-owned U.S. disregarded entity and has not entered any other transactions in Part IV of Form 5472 pursuant to Section 1.482-1 (i) (7), the reporting corporation must check the Part V option of Form 5472. These transactions include amounts paid or received in connection with the formation, dissolution, and acquisition of a reporting corporation.
- Any transaction listed in Part IV of Form 5472. These transactions refer to monetary transactions between the reporting corporation and its foreign related party, such as sales, rents, commissions, etc. These monetary considerations are the sole consideration received or paid by the reporting corporation during the tax year.
- Any transaction or group transactions listed in Part IV of Form 5472. These types of transactions or group transactions satisfy one of the two following conditions: less than full consideration was paid or received, and any consideration paid or received is not monetary consideration.
When a reporting corporation has a reportable transaction with a foreign or U.S. related party that owns 25% of its shares, the reporting corporation is required to file Form 5472. Form 5472 is not required to be filed when the reporting corporation meets one of the following four conditions:
- The reporting corporation is a foreign corporation, and its gross income is exempt from taxation under Section 883. In addition, reporting corporations can timely and fully comply with the reporting requirements of sections 883 and 887.
- Neither the reporting corporation nor its related party are U.S. persons under Section 7701 (a) (30) and the transaction will not occur during any tax year.
- The reporting corporation does not have the types of reportable transactions listed in Parts VI and IV of Form 5472. There are also no reportable transaction types listed in Part V of Form 5472 when the reporting corporation is a foreign-owned U.S. disregarded entity.
- The reporting corporation is a foreign corporation with no permanent establishment in the United States under an applicable income tax treaty, and the reporting corporation files Form 8833 in a timely manner.
Form 5472 mainly discloses the following five basic information:
- Basic information of the reporting corporation, including the company name, U.S. federal employer identification number, company address, company’s incorporation date, company business activities type, total company assets, etc.
- Basic information of foreign shareholders that hold 25% of the shares: including shareholder name, shareholder address, shareholder nationality, etc.
- Basic information of the related party: related party name, related party address, related party business activities type, main country in which the related party conducts business activities, etc.
- The type and amount of the reportable transaction, if applicable. Major reportable transactions include commissions received, rents received, interest received, royalties received, purchase of inventory, rents paid, interest paid, royalties paid, etc.
- Responses with additional information. All reporting corporations are asked to answer the questions contained in the additional information by checking "yes or no".
Reference:
https://www.irs.gov/pub/irs-pdf/f5472.pdf
https://www.irs.gov/pub/irs-pdf/i5472.pdf
https://howtostartanllc.com/form-an-llc/form-5472
https://wagnerduys.com/published-articles/why-irs-requires-25-foreign-owned-blocker-to-file-irs-form-5472/ |
