Does a dormant foreign-owned LLC still have to file Form 5472?

The instructions define a foreign-owned U.S. disregarded entity (DE) as a domestic DE wholly owned by a foreign person, and treat it as an entity separate from its owner, classified as a corporation, for the limited purposes of the section 6038A reporting rules.^[1] How a single-member LLC becomes a disregarded entity in the first place is explained in what a disregarded entity is.

The filing test is not profit. In the instructions' words, a reporting corporation generally must file Form 5472 “if it had a reportable transaction with a foreign or domestic related party.”^[1] A related party includes any direct or indirect 25% foreign shareholder,^[1] so the foreign owner of a single-member LLC is one. An LLC can earn nothing in a year and still have reportable transactions with its owner.

A foreign-owned DE has no income tax return of its own, so the instructions have it file a pro forma Form 1120 with Form 5472 attached, by the due date (including extensions) of that Form 1120.^[1] The full walk-through of the form is in our Form 5472 instructions guide.

The instructions define a reportable transaction as any of three things:^[1]

• any type of transaction listed in Part IV, for example sales or rents, where money (US or foreign currency) was the sole consideration paid or received during the tax year;
• any transaction listed in Part V;
• any transaction or group of transactions listed in Part VI, the nonmonetary and less-than-full-consideration transactions.

Part V is the one written for a foreign-owned DE. The instructions say it covers any other transaction, as defined by Regulations section 1.482-1(i)(7), not already entered in Part IV, and that “these transactions include amounts paid or received in connection with the formation, dissolution, acquisition, and disposition of the entity, including contributions to, and distributions from, the entity.”^[1]

Part IV also reaches money lent between the company and its owner: amounts borrowed and amounts loaned are reported, including borrowings and loans already in place at the beginning of the tax year.^[1]

Read against Part V, the everyday steps of setting up and keeping a company open are the kinds of amounts the instructions name. Common ones in a year with no sales:

1. 01

   The owner paid to form the company

   Amounts paid in connection with the formation of the entity are named in Part V.^[1]

2. 02

   The owner sent money to fund the bank account

   A transfer from the owner into the company is a contribution to the entity, which Part V names.^[1]

3. 03

   The owner paid a company bill personally

   A state fee or registered agent invoice the owner pays for the LLC is money the owner puts toward the company's costs; recording it in the books as an owner contribution keeps the Part V review complete.

4. 04

   The owner took money out

   A distribution from the entity is named in Part V.^[1]

5. 05

   A loan stayed open from an earlier year

   Part IV counts amounts borrowed and loaned, including balances in place at the start of the year.^[1]

The first year is the clearest case: an LLC formed with the owner's money has at least the formation amounts. Line 1j of the form has a box to check when it is the first year the company has filed a Form 5472.^[1]

The instructions list exceptions from filing. The first is that the reporting corporation “had no reportable transactions of the types listed in Parts IV and VI of the form and, in the case of a reporting corporation that is a foreign-owned U.S. DE, also had no reportable transactions of the type listed in Part V of the form.”^[1]

So for a foreign-owned LLC, all three parts have to be empty for the year. In practice that describes a year in which the owner put no money in, took no money out, paid nothing on the company's behalf, had no loan running with it and had no other dealings with it or with the owner's other related businesses. Whether a particular year meets that test is decided from the company's own records, which is why the records matter even in a quiet year.

The instructions' second exception, for a US person who files Form 5471, states that it does not apply to foreign-owned U.S. DEs.^[1]

The instructions set a $25,000 penalty on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed, and the same penalty applies for failing to keep the records required by Regulations section 1.6038A-3.^[1] Filing a substantially incomplete Form 5472 counts as a failure to file.^[1]

If the failure continues for more than 90 days after the IRS gives notice, an additional $25,000 applies for each related party, for each 30-day period, or part of one, that the failure continues after the 90 days end.^[1] The penalty attaches to the form itself, so a year with no income carries the same amount as a busy one.

The instructions require a reporting corporation to keep the permanent books of account or records required by section 6001, sufficient to establish the correctness of its federal income tax return, including records that might be relevant to the correct treatment of transactions with related parties.^[1] For a dormant LLC, that record is short but decisive: each amount the owner sent in, each bill the owner paid for the company, each amount taken out, any loan balance, and the exchange rate used, all in US dollars.

Form 5472 also names the owner: Part II lists each 25% foreign shareholder with a US identifying number where there is one, or a reference ID number where there is not.^[1] The company's details, owner details and the year's figures come from the same file each year.

A quiet company is quick to keep in order when its few movements are logged as they happen. Our US bookkeeping for foreign-owned LLCs reconciles the company's US account, closes each month and records every dollar the owner puts in, pays on the company's behalf or takes out, so the year-end answer to “was anything reportable?” is already on file. We also prepare the yearly Form 5472 with its pro-forma 1120 from those records, and send it after you approve it.