Form 5472 - What Is It and Why Should I be Aware of It?
As certified public accountants and tax advisors working with cross-border companies, one of the most common forms that we are asked about is Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. What is Form 5472 and why do you need to be aware of this form? Read on to learn more.
Form 5472 is a disclosure form that reports related party transactions to the IRS as part of a Corporation’s annual income tax return. The form is required to be filed by foreign corporations doing business in the U.S. or a U.S. corporation that is 25% or more foreign-owned and has reportable transactions with a related party. Related parties include both foreign and domestic individuals and entities. Sales or purchases of inventory/tangible property, rents, loans, interest, dividends, royalties, commissions, and management fees are examples of reportable transactions that are required to be reported on Form 5472. The IRS uses the information reported on the form as a roadmap for reviewing a company’s transfer pricing.
The item that is most concerning to foreign business owners is the penalty that the IRS can assess for failing to file Form 5472 timely or accurately. Under the Tax Cuts and Jobs Act of 2018 (TCJA), the IRS increased the penalty for not filing to $25,000 per form with respect to each related party that your corporation had a reportable transaction with during the year.
To make sure you are in compliance with Form 5472 or for more information, contact Amanda Mooney, CPA.