FORM 5472

If your U.S. corporation is owned significantly by non-U.S. persons and also involves with foreign related parties, you would want to miss file Form 5472. Although not an actual tax return, Form 5472 is an informational form to be submitted to the Internal Revenue Service (“IRS”) annually for the U.S. companies with foregoing conditions. 

First, depending on certain circumstances, this form has to be filed either separately or as part of the actual tax return. For instance, if the company is a U.S. Disregarded Entity and owned by foreigners, the form must be filed separately.

The “significant” foreign ownership threshold in question for this form is at least twenty-five percent at any time during the tax year. This filing responsibility starts when a U.S. company is 25% foreign- or when a foreign corporation engaged in a trade or business within the United States. A corporation is 25% foreign-owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year. Generally, a foreign person is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either.

The most essential point is the penalties foreseen for the failure to file. It is essential to ensure to have adequate records and information to timely prepare Form 5472 and keep proof of the timely filing of the returns to avoid assessment of the penalty. Otherwise, the company would be at risk to face stiff penalties. The penalty for not filing or failure to file in a timely manner can be from $10,000 to $25,000.  This penalty is often automatically assessed by the Internal Revenue Service if a tax return containing Form 5472 is filed late.

However, it must be noted that it is the corporation, not the individual owner or shareholder that files the form. As a result, any penalties would be incurred to the corporation.

In short, if your US company has a foreign owner or foreign shareholders then the company probably has to file form 5472 with the IRS.

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