General Instructions

Purpose of Form

Use Form 5472 to provide information required under sections 6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.

Definitions

Reporting corporation.   A reporting corporation is either:
  • A 25% foreign-owned U.S. corporation, or

  • A foreign corporation engaged in a trade or business within the United States.

25% foreign owned.   A corporation is 25% foreign owned if it has at least one direct or indirect 25% foreign shareholder at any time during the tax year.

25% foreign shareholder.   Generally, a foreign person (defined later) is a 25% foreign shareholder if the person owns, directly or indirectly, at least 25% of either:
  • The total voting power of all classes of stock entitled to vote, or

  • The total value of all classes of stock of the corporation.

  The constructive ownership rules of section 318 apply with the following modifications to determine if a corporation is 25% foreign owned. Substitute “10%” for “50%” in section 318(a)(2)(C). Do not apply sections 318(a)(3)(A), (B), and (C) so as to consider a U.S. person as owning stock that is owned by a foreign person.

Related party.   A related party is:
  • Any direct or indirect 25% foreign shareholder of the reporting corporation,

  • Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,

  • Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or

  • Any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations.

   “Related party” does not include any corporation filing a consolidated Federal income tax return with the reporting corporation.

  The rules in section 318 apply to the definition of related party with the modifications listed under the definition of 25% foreign shareholder, above.

Reportable transaction.   A reportable transaction is:
  • Any type of transaction listed in Part IV (e.g., sales, rents, etc.) for which monetary consideration (including U.S. and foreign currency) was the sole consideration paid or received during the reporting corporation’s tax year, or

  • Any transaction or group of transactions listed in Part IV, if:

  1. Any part of the consideration paid or received was not monetary consideration, or

  2. Less than full consideration was paid or received.

  Transactions with a U.S. related party, however, are not required to be specifically identified in Parts IV and V.

Direct 25% foreign shareholder.   A foreign person is a direct 25% foreign shareholder if it owns directly at least 25% of the stock of the reporting corporation by vote or value.

Ultimate indirect 25% foreign shareholder.   An ultimate indirect 25% foreign shareholder is a 25% foreign shareholder whose ownership of stock of the reporting corporation is not attributed (under the principles of section 958(a)(1) and (2)) to any other 25% foreign shareholder. See Rev. Proc. 91-55, 1991-2 C.B. 784.

Foreign person.   A foreign person is:
  • An individual who is not a citizen or resident of the United States,

  • An individual who is a citizen or resident of a U.S. possession who is not otherwise a citizen or resident of the United States,

  • Any partnership, association, company, or corporation that is not created or organized in the United States,

  • Any foreign estate or foreign trust described in section 7701(a)(31), or

  • Any foreign government (or agency or instrumentality thereof) to the extent that the foreign government is engaged in the conduct of a commercial activity as defined in section 892.

  However, the term “foreign person” does not include any foreign person who consents to the filing of a joint income tax return.

Who Must File

Generally, a reporting corporation must file Form 5472 if it had a reportable transaction with a foreign or domestic related party.

Exceptions from filing.    A reporting corporation is not required to file Form 5472 if any of the following apply:
  1. It had no reportable transactions of the types listed in Parts IV and V of the form.

  2. A U.S. person that controls the foreign related corporation files Form 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations, for the tax year to report information under section 6038. To qualify for this exception, the U.S. person must complete Schedule M (Form 5471) showing all reportable transactions between the reporting corporation and the related party for the tax year.

  3. The related corporation qualifies as a foreign sales corporation for the tax year and files Form 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation.

  4. It is a foreign corporation that does not have a permanent establishment in the United States under an applicable income tax treaty and timely files Form 8833, Treaty-Based Return Position Disclosure Under Section 6114 or 7701(b).

  5. It is a foreign corporation all of whose gross income is exempt from taxation under section 883 and it timely and fully complies with the reporting requirements of sections 883 and 887.

  6. Both the reporting corporation and the related party are not U.S. persons as defined in section 7701(a)(30) and the transactions will not generate in any tax year:

  • Gross income from sources within the United States or income effectively connected, or treated as effectively connected, with the conduct of a trade or business within the United States, or

  • Any expense, loss, or other deduction that is allocable or apportionable to such income.

Consolidated returns.    If a reporting corporation is a member of an affiliated group filing a consolidated income tax return, Regulations section 1.6038A-2 may be satisfied by filing a U.S. consolidated Form 5472. The common parent must attach to Form 5472 a schedule stating which members of the U.S. affiliated group are reporting corporations under section 6038A, and which of those members are joining in the consolidated filing of Form 5472. The schedule must show the name, address, and employer identification number of each member who is including transactions on the consolidated Form 5472.

Note.

A member is not required to join in filing a consolidated Form 5472 just because the other members of the group choose to file one or more Forms 5472 on a consolidated basis.

When and Where To File

Attach Form 5472 to the reporting corporation's income tax return. If the reporting corporation’s income tax return is not filed when due, file a timely Form 5472 separately with the service center where the reporting corporation's income tax return is due. When the reporting corporation's tax return is filed, attach a copy of the previously filed Form 5472.

Note.

A separate Form 5472 must be filed for each foreign or domestic related party with which the reporting corporation had a reportable transaction during the tax year.

Electronic Filingof Form 5472

If you file your income tax return electronically, see the instructions for your income tax return for general information about electronic filing.

Accrued Paymentsand Receipts

A reporting corporation that uses an accrual method of accounting must use accrued payments and accrued receipts for purposes of computing the total amount to enter on each line of the Form 5472. See Regulations section 1.6038A-2(b)(8).

Penalties

Penalties for failure to file Form 5472.   A penalty of $10,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed. The penalty also applies for failure to maintain records as required by Regulations section 1.6038A-3.

Note.

Filing a substantially incomplete Form 5472 constitutes a failure to file Form 5472.

  Each member of a group of corporations filing a consolidated information return is a separate reporting corporation subject to a separate $10,000 penalty and each member is jointly and severally liable.

   If the failure continues for more than 90 days after notification by the IRS, an additional penalty of $10,000 will apply. This penalty applies with respect to each related party for which a failure occurs for each 30-day period (or part of a 30-day period) during which the failure continues after the 90-day period ends.

  Criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.

Record Maintenance Requirements

A reporting corporation must keep the permanent books of account or records as required by section 6001. These books must be sufficient to establish the correctness of the reporting corporation’s Federal income tax return, including information or records that might be relevant to determine the correct treatment of transactions with related parties. See Regulations section 1.6038A-3 for more detailed information. Also, see Regulations sections 1.6038A-1(h) and 1.6038A-1(i) for special rules that apply to small corporations and reporting corporations with related party transactions of de minimis value.


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