What do the Form 5472 instructions say for a foreign-owned US LLC?

Form 5472 is the information return a reporting corporation uses to report transactions with related parties under sections 6038A and 6038C of the tax code.^[1][2] The instructions define a reporting corporation as either a 25% foreign-owned US corporation, including a foreign-owned US disregarded entity, or a foreign corporation engaged in a trade or business in the United States.^[1]

• 25% foreign owned means at least one foreign person owns, directly or indirectly, at least 25% of the voting power or the value of the company's stock at any time in the tax year.^[1]
• Foreign person includes an individual who is neither a US citizen nor a US resident, and a company created or organized outside the United States.^[1]
• Foreign-owned US disregarded entity means a US entity, such as a single-member LLC, wholly owned by a foreign person. For tax years beginning on or after January 1, 2017, and ending on or after December 13, 2017, it is treated as a separate entity and classified as a corporation for these reporting rules only.^[1]

That last rule is why a single-member LLC owned from abroad, which has no US income tax return of its own, still files Form 5472. A company that had no reportable transactions in Parts IV and VI, and, for a foreign-owned disregarded entity, none in Part V either, files no Form 5472 for that year.^[1] How a single-member LLC is classified in the first place is explained in what a disregarded entity is.

A reportable transaction is any type of transaction listed in Part IV paid for solely in money, such as sales or rents, any transaction listed in Part V, or any transaction listed in Part VI.^[1] The company files a separate Form 5472 for each related party it had a reportable transaction with.^[1] A related party includes any direct or indirect 25% foreign shareholder, so the foreign owner of a single-member LLC is one.^[1]

Part V is written for the foreign-owned disregarded entity. It covers 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] For a founder abroad, that means the money you send in to open the bank account and pay the first bills, and the money you take out, both belong on the form.

Three rules apply to every amount:^[1]

• Amounts are stated in US dollars, with an attached schedule of the exchange rates used.
• A company on an accrual method of accounting uses accrued payments and accrued receipts.
• Where actual amounts cannot be determined, a reasonable estimate is allowed, meaning at least 75% and at most 125% of the actual amount, and a total of $50,000 or less may be reported as “$50,000 or less.”

A foreign-owned US disregarded entity has no income tax return filing requirement, so the instructions have it file a pro forma Form 1120, the US corporation return, with Form 5472 attached.^[1] The only information required on that Form 1120 is the entity's name and address and items B and E on the first page, and “Foreign-owned U.S. DE” is written across the top.^[1]

• Item B is the employer identification number (EIN). The Form 1120 instructions say a corporation that has no EIN must apply for one, online at IRS.gov/EIN or with Form SS-4.^[3]
• Item E holds the initial return, final return, name change and address change boxes; “Initial return” is checked on the first return.^[3]

The entity uses the same tax year its owner uses for US tax filing or, if the owner has none, the calendar year.^[1]

Form 5472 is due with the return it is attached to, by that return's due date including extensions.^[1] A corporation's Form 1120 is generally due by the 15th day of the 4th month after the end of its tax year,^[3] which for a calendar tax year is April 15.

A foreign-owned disregarded entity can ask for more time with Form 7004, filed by the regular due date of the return.^[1] Because its Form 5472 rides on a pro forma Form 1120, the code for Form 1120 goes on Form 7004, Part I, line 1, “Foreign-owned U.S. DE” is written across the top, and the Form 7004 goes to the same fax number or mailing address as the return, in place of the addresses in the Instructions for Form 7004.^[1] The automatic extension of time to file is generally 6 months.^[4][5]

A foreign-owned disregarded entity sends Form 5472, with its pro forma Form 1120, on paper: by fax or by mail, to a dedicated fax number and mailing address that the instructions print for these filers, in place of the addresses in the Instructions for Form 1120.^[1] Take the current number and address from the instructions themselves each year.

The IRS lists recent developments for the form on its About Form 5472 page, so it is worth checking there each filing season.^[2]

The specific instructions run part by part.^[1] For a single-member LLC owned from abroad, the parts read like this:

• Part I, the reporting corporation. The LLC's own details, total assets, its business activity and code, the total value of the year's foreign related-party transactions on this form (line 1f) and on all its Forms 5472 (line 1h), how many Forms 5472 it is filing (line 1g), a box for a first-year filer (line 1j), and the box for a foreign-owned US disregarded entity (line 3).^[1]
• Part II, the 25% foreign shareholder. For a disregarded entity, the foreign owner goes here.^[1] The owner's US identifying number, if any: an SSN or ITIN for an individual, an EIN for any other entity.^[1] Where there is none, the company enters a reference ID number it assigns itself: letters and digits only, up to 50 characters, no spaces or special characters, used for the same owner every year, with no application to the IRS needed.^[1] A disregarded entity also enters the foreign taxpayer identification number (FTIN) of each direct and ultimate foreign owner, the tax number from the owner's own country, or “None” or “N/A” where there is none.^[1]
• Part III, the related party. Completed by every filer, even when the related party is the owner already named in Part II.^[1]
• Part IV, monetary transactions with a foreign related party. Sales, rents, amounts borrowed and loaned, interest and other amounts received or paid.^[1]
• Part V, transactions of a foreign-owned US disregarded entity. A box to check, with formation, dissolution, contribution and distribution amounts described on an attached statement.^[1]

Part VI covers nonmonetary and less-than-full-consideration transactions on an attached schedule, Part VII is additional information every reporting corporation completes, Part VIII covers cost sharing arrangements, and Part IX covers base erosion payments under section 59A.^[1] A plain-language table of every part, for a foreign-owned LLC, is on our Form 5472 guide.

A reporting corporation must 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] The detailed rules are in Regulations section 1.6038A-3, and Regulations sections 1.6038A-1(h) and 1.6038A-1(i) set special rules for small corporations and for related-party transactions of de minimis value.^[1]

In practice, that means a monthly record of every dollar the owner puts in or takes out, every payment between the company and the owner's other businesses, and the exchange rate used for each, kept in US dollars. Those records are what the Part IV and Part V figures are built from.

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 the regulations require.^[1] 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] Criminal penalties under sections 7203, 7206 and 7207 may also apply for failing to submit information or for false or fraudulent information.^[1]

The hardest part of Form 5472 is usually the numbers: a year of owner contributions, distributions and related-party payments, in US dollars, with exchange rates. Our US bookkeeping for foreign-owned LLCs reconciles the company's US accounts, closes each month and logs every dollar you put in or take out, so the year-end figures are already kept. That makes the yearly report straightforward to prepare.