What is IRS Form 5472?

Under the tax code, businesses with 25% or more foreign ownership and foreign corporations engaged in business in the U.S. must file Form 5472.

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Starting and running a business involves various responsibilities, including staying compliant with the tax code. If your company has 25% or more foreign ownership or you’re a foreign corporation engaged in business in the U.S., you must file Form 5472. In this guide, we’ll break down the essential details of Form 5472, explain who needs to file it, the transactions to report, and the penalties for non-compliance.

What is Form 5472?

IRS Form 5472 is an information return that businesses in the United States must file to disclose certain transactions between the business and its foreign or domestic related parties. This form helps the IRS monitor potential tax evasion and enforce compliance with international tax laws. Failing to submit Form 5472 can result in significant penalties, so it’s crucial to understand its purpose and requirements.

Who needs to file Form 5472?

Businesses that fall under any of the following conditions are required to file Form 5472:

  • A U.S. corporation that is at least 25% foreign owned that has a reportable transaction with a related party. 
  • A foreign corporation engaged in business in the United States that has a reportable transaction with a related party.

If your business meets any of these criteria, it is essential to ensure compliance by filing Form 5472 accurately and on time.

What transactions must be reported on Form 5472?

Form 5472 requires the reporting of various transactions between the business and its related parties. These transactions may include:

  • Sales or purchases of products, services, or intangible property
  • Loans or advances
  • Rents, royalties, or licenses
  • Compensation or reimbursement arrangements
  • Any other payments or distributions

The complete list of reportable transactions can be found in the Form 5472 instructions provided by the IRS. If you want further insight, consult that form, or talk with your accountant or a tax lawyer for customized assistance.

Who are related parties?

Related parties, as defined by the tax code, include:

  • A 25% or more direct or indirect owner of the business.
  • A person who has control over the business.
  • A brother, sister, ancestor, or lineal descendant of an individual who owns more than 50% of the business.
  • A corporation or partnership in which the business or any related party owns a 50% or more interest.

Identifying related parties accurately is crucial for determining the transactions that need to be reported on Form 5472.

Penalties for Not Submitting Form 5472

Failing to file or submitting an incomplete or incorrect Form 5472 can result in severe penalties. Also, failure to keep relevant records for the reportable transactions will incur the same penalty. The penalties include monetary fines that can accumulate over time. It’s crucial to meet the filing deadlines to avoid these penalties. The due date for filing Form 5472 is generally the same as the due date for the taxpayer’s income tax return.

How to Complete Form 5472

Completing Form 5472 requires accurate reporting of the relevant transactions and related party information. The form includes sections for providing detailed information about each transaction and the related parties involved. It’s important to ensure all information is correct and complete. The IRS provides instructions for completing Form 5472 on its website, which can be accessed for further guidance.
We also highly recommend consulting with your accountant or another tax professional to get personalized assistance. Small business taxes can be very complicated, so getting assistance is a huge help.

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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.

IRS Form 5472 FAQs

  • IRS Form 5472 is primarily used as an information return to report transactions between a business and its foreign or domestic related parties. The form provides the IRS with valuable information regarding the nature and extent of these transactions, helping them ensure compliance with international tax laws and identify potential tax evasion. By disclosing these transactions, the IRS can monitor the flow of funds and prevent abusive transfer pricing practices.

  • There are two types of businesses that need to file Form 5472. The first type is any U.S. corporation that is partially or fully owned by a foreign entity or individual and has transactions with a related party, whether they are from another country or from the U.S. The second type is any foreign corporation that is doing business in the U.S. and has transactions with a related party, whether they are foreign or from the U.S. These businesses are required to fill out Form 5472 to report those transactions.

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