Foreign Corporations: That Have A Stake In US Corporations, Do Business In The US

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There were proposed and final regulations issued for Form 5472 on June 6th, 2014. The long arm of the United States Government is not only reaching out to U.S. corporations doing business in other countries, it is also expecting compliance by foreign corporations that do business in the U.S or have a stake in US Corporations.

Form 5472 is an information return used by a 25% foreign-owned U.S. corporation or a foreign corporation engaged in a U.S. trade or business to provide information when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party under sections 6038A and 6038C.

What Is a Reporting Corporation? A reporting corporation is either:

• a 25% foreign-owned U.S. corporation OR
• a foreign corporation engaged in trade or business within the U.S.

A corporation is 25% foreign-owned if it has at least one direct or indirect 25% foreign shareholder at any time during the year. Section 318 of the Internal Revenue Code dictates the rules for 25% foreign shareholder, constructive ownership and related party.

What is a Reportable Transaction? A reportable transaction is:

• any type of transaction listed in Part IV of the Form 5472, for which money was the only consideration paid or received during the reporting corporation’s tax year (the money could be U.S. or foreign currency) OR
• any transaction or group of transactions listed in Part IV, if:

A. Any part of the consideration paid or received was not money, OR
B. Less than full consideration was paid or received.

Transactions with a U.S. related party is not required to be specifically identified in Parts IV and V.

When and Where To File? Earlier Form 5472 could be filed with the corporation’s income tax return and if filed when not due, it could be filed separately with the service center where the corporation’s income tax return is to be filed if not filed when due.

Final regulations issued by the IRS on June 6th, 2014 removed the provision allowing Form 5472 to be timely filed separately from the taxpayer’s income tax return if that return is filed late. After the rules are adopted, Form 5472 would be required to be filed in all cases only with the filer’s income tax return by the due date (including extensions) of that return.

Penalties For Non-Filing: A corporation that fails to file Form 5472 by the due date may be assessed a penalty of $10,000 for each tax year for which a failure occurs. If the failure to file the form continues for more than 90 days after the IRS mails the corporation a notice of its failure to file, the IRS can impose an additional $10,000 penalty for each 30-day period (or part of a 30-day period) in which the company fails to provide the information (Sec. 6038A(d)).

The penalties are also part of the new final regulations issued June 6th, 2014.

Exceptions To Filing: Some reporting corporations are not required to file Form 5472 if certain conditions apply.

Please contact an Enrolled Agent or other qualified tax professionals to determine your unique situation and find out if you need to file Form 5472. And if you do, what the record maintenance requirements that is required under Section 6001 should be.

Bibliography: Form 5472 Instructions; Proposed Regulation REG-114942-14; Final Regulations TD 9667; U.S. IRC Section 318;

In accordance with Circular 230 Disclosure

Original Post By: Manasa Nadig


I am Manasa Nadig, enrolled to practice and represent taxpayers with the Internal Revenue Service. I have been in the business of Tax Preparation & Tax Planning since 1999. My firm, MN Tax Solutions, LLC is based in Michigan, USA. Please connect with me on TaxConnections for more information about myself & the services provided by my firm.

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