If you’re a business owner, you likely feel nervous when tax season approaches. There are a lot of forms to deal with on an annual basis, and some of them are quite complex.
In this guide, we’ll go over the basics of Form 5472 to help make the upcoming tax season a bit less stressful.
Form 5472 is the standard form for companies located in the US but wholly or partially owned by either a foreign entity or person (more on that below).
This form is used to report various transactions that occurred within the fiscal year. These include share sales, stock purchases, assets sales, leases, and more.
In general, you need to file Form 5472 if you completed applicable transactions and your company falls into any of the following categories:
Most foreign-owned companies file Form 5472, but there are three common exceptions:
You file this form with your annual tax return as an attachment, regardless of whether you file your taxes online or via mail.
If you are operating a foreign-owned disregarded entity and have no annual tax return, you will need to file a pro forma Form 1120 with Form 5472.
Regardless of how you choose to file your return, here are some crucial pieces of information to begin the process.
To begin, you’ll need some basic information about your company. This includes principal business type, address, date of incorporation, the countries where these transactions took place, and your total assets for the year.
This form is quite complex, so we’ll break down each part to make it easier to follow along.
In addition to the basic information noted above, you’ll also need to report the total value of the transactions you are reporting (in US dollars). This includes the Fair Market Value (FMV) of any non-monetary transactions reported in Part VI.
If your company completed multiple transactions with different people (foreign or domestic) you will need to fill a form for each person you completed a transaction with.
As this can be quite confusing. Here are some examples where more than one form is needed:
Part II is only required if your company is a foreign-owned US corporation or disregarded entity. You will need to show the foreign shareholder’s stake in the company. This can be done either by value or by votes or directly/indirectly. You’ll also need their social security number (SSN) and/or Entity Identification Number (EIN).
All parties must complete this section, even if they have previously filled out Part II as a foreign entity. Part III tells the IRS about the other company you did business with. To do this accurately, you will need their SSN, Reference ID, EIN, or other identifying numbers.
Before filling out this section, note that you are not required to report any transactions with a domestic (US) related party. Part IV only applies to transactions that involve foreign entities or people.
You will need to fill in any amounts paid and received from any applicable transaction. These values must be reported in US dollars — attach a schedule to the form to show the exchange rates used.
If the exact amount is unknown or indeterminate, you can write in reasonable estimates. Note that these estimates need to be within 75% to 125% of the actual value of the transaction.
Finally, you will need to report any amounts borrowed or lent as well as any interest paid.
If your company is a foreign-owned disregarded entity, and has completed transactions not yet reported in Part IV, you will need to fill those out here.
As with Part IV, you are only required to fill out this section if the transaction(s) occurred with a non-domestic party. This section is intended for situations where the compensation was non-monetary or less than was agreed upon. For example, if you sold a piece of land in exchange for shares in a company, you would need to report this transaction in Part VI.
Additionally, if the transaction was completed with a foreign person and not an entity, a schedule will need to be attached. This schedule will need to contain:
This section pertains to all corporations and involves reporting any additional information, such as deductions, interest payments, and royalties gained.
If you have a cost sharing arrangement (CSA) with any of the related parties listed, you will need to list details of that arrangement such as the industry you work in, the intangibles involved, and other details.
In part IX, you will need to report on any tax benefits claimed related to the transaction(s) reported on previously. This section is quite complex and will require time or a professional to complete. To calculate these derivative payments, combine all income, gains, losses, or deductions.
This form is due at the same time as your company’s annual tax return. Typically, this due date will fall on the 15th of the fourth month after the business’ fiscal year-end. Note that you are able to request an extension by filing Form 7004.
If you’ve made it this far, you should have a solid understanding of Form 5472. Although it may take quite a bit of time and some extra professional help to complete all the parts, you should be able to fill out most of it on your own. As always, if you ever feel out of your depth, don’t hesitate to consult a tax professional.