Form 5472 in the United States: What Foreign Companies with U.S. Affiliates or Operations Need to Know

When a foreign company decides to operate in the United States, whether through a subsidiary, an LLC or any other structure with a presence in the country, One of the points that should be reviewed from the beginning is form 5472. 

Although it is not a tax, it is a mandatory information return to the IRS to report certain transactions between an obligated entity in the US and its related parties. Its foundation is found in sections 6038A and 6038C of the Internal Revenue Code, and its purpose is to reinforce transparency in international operations within business groups. 

Who is responsible for Form 5472?

This obligation affects, in general terms, US companies with at least 25% foreign ownership, to certain foreign-owned U.S. disregarded entities and certain foreign corporations engaged in a U.S. trade or business. In practice, this means that Form 5472 affects foreign SMEs with US subsidiaries, foreign partner LLCs, or simple corporate structures with related operations.

One of the most frequent errors is to think that this obligation only exists if there are benefits or taxes to pay. In reality, the determining factor is If during the year reportable operations have been carried out with related parties. 

These operations may include, among other relevant actions, provision of services, management fees, intragroup loans, interests, royalties, purchase and sale of goods, leases, reimbursements of expenses and other operations with economic impact. Furthermore, the regulations provide that, if there are no reportable transactions, In principle there will be no obligation to submit the form. 

How does it work with single-member LLCs?

A particularly relevant case is that of American single-member LLCs whose sole partner is a foreigner. Although in many cases these entities do not file a regular corporate return, the IRS often still requires a pro forma 1120 accompanied by form 5472. Furthermore, the obligation is not limited to current payments or collections: Certain movements related to the structure of the LLC itself may also be reportable., such as its constitution, contributions, distributions, acquisition or dissolution. In practice, this means that an LLC that is perceived as “dormant” by its owner may remain subject to formal obligations in the US.

What happens if this form is not completed?

From a management point of view, it is advisable to pay special attention to this matter because the sanctioning regime is severe. The IRS may impose a penalty of $25,000 for each breach when Form 5472 is not filed on time, is filed substantially incomplete, or required records are not maintained. If, in addition, noncompliance continues more than 90 days after IRS notification, additional penalties of $25,000 may be added for each additional 30-day period or fraction thereof, with no overall maximum limit for that continuation. 

Therefore, our recommendation is clear: Form 5472 should not be reviewed when a letter from the IRS has already arrived, but from the moment the operation in the United States is designed. 

Analyzing the corporate structure, intragroup operations and supporting documentation in advance allows you to reduce risks, avoid sanctions and provide security to the international expansion process. That is precisely where specialized planning makes the difference and at UR Global we offer you all the advice you need to manage your company in the United States.