Form 5472

Form 5472 (C Corporations): Decoded

Welcome to Dimov Tax’s guide to Form 5472. In this comprehensive overview, the purpose of the form, definitions, obligators, filing requirements, penalties and record maintenance requirements will be examined in detail.

Form 5472 provides crucial information mandated under sections 6038A and 6038C of the Internal Revenue Code. It is essential when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.

Understanding key terms is fundamental to correctly completing Form 5472:

• Reporting Corporation: The reporting corporation term represents both a 25% foreign owned U.S. corporation and a foreign corporation engaged in a trade or business within the United States.
• 25% Foreign Owned: There is a specific threshold. A corporation falls into this category if it possesses at least one direct or indirect 25% foreign shareholder at any point during the taxation period.
• 25% Foreign Shareholder: Typically, a foreign person qualifies as a 25% foreign shareholder if they directly or indirectly own at least:
  • 25% of the total voting power; or 
  • 25% total value of all classes of stock of the corporation.

Obligation

If a reporting corporation engaged in reportable transactions with a foreign or domestic related party, the filing obligation originates in Form 5472. However, there are exceptions to this requirement. For instance, when a reporting corporation has no reportable transactions or when specific conditions are met regarding U.S. persons or foreign corporations.

Process

Form 5472 should be filed as an attachment to the income tax return of the reporting corporation by the due date including extensions. Additionally, foreign owned U.S. disregarded entities are subject to specific filing requirements outlined in the instructions. You may visit our article prepared for disregarded entities on this page.

Accrued Payments and Receipts

Reporting corporations utilizing an accrual method of accounting must compute the total amount on each line of Form 5472 using accrued payments and accrued receipts.

Penalties

Failure to file Form 5472 or maintain required records might cause significant penalties. Mentioned penalties include fines and potential criminal charges. It would be imperative to fulfill all obligations to avoid these consequences.

Reporting corporations must maintain permanent books of account or records as required by section 6001, ensuring correctness in federal income tax returns and transparency in related party transactions.

Specific Instructions

Each section of the form deserves separate attention due to its complexity. These sections detail essential reporting requirements for the reporting corporation and the involvement of foreign shareholders. Understanding and accurately completing these sections is crucial for compliance with IRS regulations.

Part I—Reporting Corporation:

• The address of the reporting corporation should be included and it should be specified if it is a foreign address.
• Total assets must be reported based on the type of reporting corporation.
• A description of the principal business activity and the associated business activity code should be provided.
• The total value of foreign-related party transactions reported on the form must be included.
• The total number of Forms 5472 filed for the tax year and the total value of foreign related party transactions should be included.
• Information regarding cost-sharing arrangements must be completed if applicable.
• The principal country or countries where business is conducted should be specified.

Part II—25% Foreign Shareholder:

• Direct and ultimate indirect 25% foreign shareholders information must be completed.
• Details such as U.S. identifying numbers, reference ID numbers and foreign taxpayer identification numbers should be provided.
• Especially in cases of mergers or acquisitions, the reference ID numbers have to be correlated when necessary.

Part III—Related Party:

• Part III must be completed by all filers regardless of whether the related party has been identified in Part II.
• Information about related parties has to be reported with which reportable transactions occurred during the tax year.
• U.S. identifying numbers or reference ID numbers for related parties should be provided, as applicable.

Part IV—Monetary Transactions Between Reporting Corporations and Foreign Related Party:

• Monetary transactions between reporting corporations and foreign related parties should be reported in this section.
• Transactions such as platform contribution transactions and cost sharing transaction payments must be included.
• Reasonable estimates for amounts when actual amounts are not determinable should be provided.
• There is a threshold of “$50,000 or less”. Small amounts should be reported if they do not exceed this threshold.
• Amounts borrowed, other amounts received, amounts loaned, interest paid and other amounts paid must be specified.

Part V—Reportable Transactions of a Reporting Corporation That Is a Foreign-Owned U.S. DE:

• The box in Part V must be marked as checked if the reporting corporation is a foreign owned U.S. disregarded entity and had any other reportable transactions not already entered in Part IV.
• These transactions should be described with attention, including amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity.

Part VI—Nonmonetary and Less-Than-Full Consideration Transactions:

• This part applies to transactions between the reporting corporation and foreign related parties involving nonmonetary consideration or transactions with less than full consideration.
• If the related party is a foreign person, a schedule describing each reportable transaction or group of transactions must be attached.
• The schedule should include descriptions of property, rights or obligations transferred, services performed and a reasonable estimate of the fair market value of properties and services exchanged.

Part VII—Additional Information:

• All reporting corporations must complete Part VII.
• Lines 40a and 40b relate to the disallowance of deductions under section 267A for certain interest or royalty payments made according to hybrid arrangements.
• Lines 41a–41d concern deductions under section 250 for foreign-derived intangible income derived from transactions with foreign related parties.
• Lines 42a and 42b pertain to loans to or from related parties under the safe-haven rate rules.
• Lines 43a, 43b(1) and 43b(2) apply only to domestic corporations and involve reporting on debt instruments issued in transactions with related parties as per Regulations section 1.385-3.

Part VIII—Cost Sharing Arrangement (CSA):

• This part is for reporting on each Cost Sharing Arrangement in which the reporting corporation was a controlled participant during the tax year.
• Line 44 requires a brief description of the CSA, including the industry and intangibles involved.
• Line 47 is for reporting the reporting corporation’s share of reasonably anticipated benefits for the CSA.
• Lines 48b and 48c involve reporting on stock based compensation directly related to the intangible development activity under the CSA.
• Lines 49a and 49b require reporting on intangible development costs for the CSA, including the amount allocable to the reporting corporation.

Notices:

• The form includes information about the Paperwork Reduction Act, stating that the information is required to ensure compliance with tax laws.
• Taxpayers must provide the information requested on forms displaying a valid OMB control number.
• The estimated burden for completing and filing the form varies depending on individual circumstances and is approved under OMB control number 1545-0123.
• Taxpayers can provide comments on the accuracy of time estimates or suggest simplifications for the form.

The official deadline for the form is the company’s annual tax return. After the fiscal year ends, companies must declare their annual tax return in the following April. Extension of the due date is possible with Form 7004.

Conclusion

Form 5472 process can be complex. With a clear understanding of its purpose, definitions, filing requirements and penalties for non compliance, Dimov Tax is ready to assist you in meeting your obligations and ensuring compliance with IRS regulations. For further guidance or assistance, please do not hesitate to contact our experienced team.