- 1 Form 5472 Trigger Events That Lead to Filing
- 2 Becoming a 25% Foreign-Owned US Corporation with a Reportable Transaction
- 3 Becoming a 25% Foreign-Owned US Disregarded Entity with a Reportable Transaction
- 4 Reportable Transactions
- 5 Late Filing & Penalties
- 6 Golding & Golding: About Our International Tax Law Firm
Form 5472 Trigger Events That Lead to Filing
Unlike most other IRS international information reporting forms such as the FBAR and FATCA, IRS Form 5472 is a bit different in that it primarily impacts foreigners who own US corporations or disregarded entities. It can be very unfair, especially because many foreigners (understandably) literally have no idea that there is any form they were supposed to file because they do not otherwise have to file an individual tax return and they only learn about the reporting requirements later down the line and then get hit with a $25,000 minimal assessed penalty, which was recently increased from $10,000. There are various triggering events that in turn require the foreigner to file Form 5472 in which they may not be required to file the form in other years in which there is no specific event. Let’s look through some of the common form 5472 triggers in accordance with Internal Revenue Code section 6038A and 6038C.
Becoming a 25% Foreign-Owned US Corporation with a Reportable Transaction
When a US corporation becomes owned by at least 25% by foreign persons, it may become subject to filing a Form 5472 if there are any reportable transactions. This is important because oftentimes the form 5472 can be avoided if the US corporation is simply owned less than 25% by foreign persons. Also important to note is that attribution and indirect ownership rules may apply so if a person is ultimately seeking to avoid having to file a Form 5472 — then one of the first ways around avoiding a triggering event is by not triggering the 25% ownership.
Becoming a 25% Foreign-Owned US Disregarded Entity with a Reportable Transaction
It is important to note, that simply because the US corporation is disregarded does not remove the Form 5472 reporting requirement. Often times Taxpayers will reach out to us under the mistaken belief that Form 5472 cannot be required because they are operating by way of a disregarded entity — in which the money flows directly to the foreign persons. Unfortunately, disregarded entities are also included in Form 5472 Filings.
It is not just because a US corporation or disregarded entity is owned by foreign shareholders that requires the filing of Form 5472. Rather, the purpose of the form is to require these types of disclosures when there are reportable transactions. Form 5472 sets out a detailed list of reportable transactions that may subject a foreign-owned US corporation (or disregarded entity) to having to file Form 5472. Thus, if feasible, one of the easiest ways to avoid form 5472 reporting is to avoid these reportable transactions with a 25% owned-company. Some of the more common Reportable Transactions include:
Sale of Stock
Purchase of Tangible Property
Intangible Property Rights
Exceptions to Filing
Late Filing & Penalties
In recent years, Internal Revenue Service has significantly increased enforcement of noncompliance with the international information reporting regime. If a foreigner fails to report for 5472, it may lead to significant fines and penalties, with the baseline penalty being increased from $10,000 all the way up to $25,000. Before making any proactive representation to the IRS, Taxpayers should speak with one more Board-Certified Tax Law Specialists who specialize exclusively in international tax to help get a general understanding of the options available.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax and specifically IRS offshore disclosure.
Contact our firm today for assistance.