FORM 5472: EVERYTHING YOU NEED TO KNOW

Form 5472: Disclosing international transactions

More and more businesses are operating on a global level, even small businesses and startups. In recognition of that fact, the IRS requires US businesses that have foreign ownership, or foreign businesses that do a significant amount of business in the US to file Form 5472. The form discloses information about reportable transactions, and is submitted along with IRS Form 1120, your annual tax return. Form 5472 differs from Form 5471, which is used for US citizens that have ownership in foreign corporations.

Form 5472 Introduction Video

IRS Form 5472 is a tax form that is required to be filed by foreign individuals or corporations that own more than 25% of a startup. It is necessary to file the Form 5472 along with the annual tax return for corporations, Form 1120. Failure to file this form can result in fines that can be in the tens of thousands of dollars, per form! So don’t forget to file. And, thankfully, there is a process for abating this fine with the IRS, if it is the first year and the proper steps are taken - a good CPA like Kruze should be able to help you.

In addition to the general information, Form 5472 will also include vital statistics of the firm and the foreign person, as well as transactions between the two, such as payroll, loans, sales, etc. The form is due on April 15th, but can be filed with an extension until October 15th.

If you own more than 25% of a corporation or have a strategic investor who owns more than 25%, it is crucial to inform your tax preparer or CPA about the requirement to file Form 5472. At Kruze Consulting, we specialize in serving venture-backed startups and are well-versed in the requirements for foreign shareholders and foreign subsidiaries, including IRS Form 5472.

Who needs to file?

If 25 percent or more of your US-based corporation is owned by a foreign individual (which can include both businesses and individuals), you will need to file Form 5472. In addition, any company that’s foreign and is engaged in a US trade or business must file. Finally, some US LLCs that are owned by foreign entities may need to file. If your company has multiple foreign shareholders, a separate Form 5472 must be filed for each.

What do I need to provide to my startup CPA?

To complete Form 5472, your CPA will need the following information about any foreign shareholders:

Name
Address
Percentage of shares owned
US tax identification number, if available

What information is disclosed?

The IRS wants you to include all “reportable transactions” on Form 5472, and defines that term very broadly as basically any activity carried out between a US corporation and a foreign owner. Some examples include any money or property exchanged, loans or interest payments, and any use of US property by foreign owners.

What if you don’t file?

If you’re required to file Form 5472 and don’t do so in a timely manner, you can be penalized with a $25,000 fine, plus an additional $25,000 for each month you fail to file, starting 90 days after you’re notified by the IRS of the failure to file Form 5472. There’s no maximum limit to this penalty, so the fine can grow quickly to a very significant amount. While it’s possible to appeal the penalty, that process can be very difficult.

Written by Kruze founder and CPA

Vanessa Kruze, a highly-experienced CPA, brings valuable tax expertise to startups, drawing from her rich background at Deloitte Tax and as a financial controller for a $20 million startup. As the leader of Kruze Consulting, recognized multiple times in the Inc 5000 list, she specializes in navigating the complex tax landscape for startups. Her firm is known for delivering precise and strategic tax solutions, delivering tax credits utilizing advanced tools to ensure compliance and optimize tax benefits for startups throughout the United States.

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Consult a tax professional

IRS Form 5472 is very complex, and your startup should rely on an experienced tax professional to evaluate your need to file, and to help you properly complete all the forms and provide necessary information. If you’ve got questions about Form 5472 or any other tax forms, contact us at Kruze Consulting.

How to get the Form 5472

You can find the official Form 5472 on the IRS’ website. Always go directly to the IRS’ site to get the form, as they tend to have minor changes from year to year. You can get the IRS Form 5472 by clicking here to visit the Internal Revenue Service’s page about Form 5472.

Form 5472

(Rev. December 2022)

Department of the Treasury Internal Revenue Service

Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business

(Under Sections 6038A and 6038C of the Internal Revenue Code)

▶ Go to www.irs.gov/Form5472 for instructions and the latest information

For tax year of the reporting corporation beginning _ _ _ _ _ _ _ _ and ending _ _ _ _ _ _ _ _ , 20_ _

Note: Enter all information in English and money items in U.S. dollars.

OMB No. 1545-0123

Part I

Reporting Corporation (see instructions). All reporting corporations must complete Part I.

1a Name of reporting corporation

1b Employer identification number

Number, street, and room or suite no. (If a P.O. box, see instructions.)

City or town, state, and ZIP code (If a foreign address, see instructions.)

1c Total assets

1d Principal business activity ▶

1d Principal business activity code▶

1f Total value of gross payments made or received reported on this Form 5472. See instructions

1j Total number of Forms 5472 filed for the tax year

1g Total value of gross payments made or received reported on all Forms 5472. See instructions.

1i Check here if this is a consolidated filing of Form 5472 . . ▶ ▢

1j j Check here if this is the initial year for which the U.S. reporting corporation is filing a Form 5472 . . . . ▶ ▢

1k Total number of Parts VIII attached to Form 5472

1l Country of incorporation

1m Date of incorporation

1n Country(ies) under whose laws the reporting corporation files an income tax return as a resident

1o Principal country(ies) where business is conducted

2 Check here if, at any time during the tax year, any foreign person owned, directly or indirectly, at least 50% of (a) the total voting power of all classes of the stock of the reporting corporation entitled to vote, or (b) the total value of all classes of stock of the reporting corporation ▶ ▢

3 Check here if the reporting corporation is a foreign-owned domestic disregarded entity (foreign-owned U.S. DE) treated as a corporation for purposes of section 6038A. See instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . ▶ ▢

Part II

25% Foreign Shareholder (see instructions) Check here if any direct (or ultimate indirect) 25% foreign shareholder listed in Part II is a surrogate foreign corporation under section 7874(a)(2)(B). ▶ ▢

4a 4a Name and address of direct 25% foreign shareholder

4b(1) U.S. identifying number, if any 4

4b(2) Reference ID number (see instructions) 4

4b(3) Foreign taxpayer identification number (FTIN), if any (see instructions)

4c Principal country(ies) where business is conducted

4d Country of citizenship, organization, or incorporation

4e Country(ies) under whose laws the direct 25% foreign shareholder files an income tax return as a resident

5a Name and address of direct 25% foreign shareholder

5b(1) U.S. identifying number, if any

5b(2) Reference ID number (see instructions)

5b(3) FTIN, if any (see instructions)

5c Principal country(ies) where business is conducted

5d Country of citizenship, organization, or incorporation

5e Country(ies) under whose laws the direct 25% foreign shareholder files an income tax return as a resident

6a Name and address of ultimate indirect 25% foreign shareholder

6b(1) U.S. identifying number, if any

6b(2) Reference ID number (see instructions)

6b(3) FTIN, if any (see instructions)

6c Principal country(ies) where business is conducted

6d Country of citizenship, organization, or incorporation

6e Country(ies) under whose laws the direct 25% foreign shareholder files an income tax return as a resident

7a Name and address of ultimate indirect 25% foreign shareholder

7b(1) U.S. identifying number, if any

7b(2) Reference ID number (see instructions)

7b(3) FTIN, if any (see instructions)

7c Principal country(ies) where business is conducted

7d Country of citizenship, organization, or incorporation

7e Country(ies) under whose laws the direct 25% foreign shareholder files an income tax return as a resident

For Paperwork Reduction Act Notice, see instructions.

Cat. No. 49987Y

Form 5472 (Rev. 12-2022)

Warning: This information is for informational purposes only and should not be used for official tax matters. Use the official Form 5472 and instructions, generally found at: https://www.irs.gov/forms-instructions. Rely on this information at your own risk. Visit https://www.irs.gov/forms-instructions for official IRS information. Consult with a tax professional.

Form 5472 (Rev. 12-2022)

Page 2

Part III

Related Party (see instructions). All reporting corporations must complete this question and the rest of Part III. Check applicable box: Is the related party a ▢ foreign person or ▢ U.S. person?

8a Name and address of related party

8b(1) U.S. identifying number, if any

8b(2) Reference ID number (see instructions)

8b(3) FTIN, if any (see instructions)

8c Principal business activity ▶

8d Principal business activity code ▶

8c Relationship—Check boxes that apply: ▢ Related to reporting corporation ▢ Related to 25% foreign shareholder ▢ 25% foreign shareholder

8f Principal country(ies) where business is conducted

8g Country(ies) under whose laws the related party files an income tax return as a resident

Part IV

Monetary Transactions Between Reporting Corporations and Foreign Related Party (see instructions) Caution: Part IV must be completed if the “foreign person” box is checked in the heading for Part III. If estimates are used, check here. ▶ ▢

Sales of stock in trade (inventory)

Sales of tangible property other than stock in trade

Platform contribution transaction payments received

Cost sharing transaction payments received

13a

Rents received (for other than intangible property rights)

13a

Royalties received (for other than intangible property rights)

13b

Sales, leases, licenses, etc., of intangible property rights (for example, patents, trademarks, secret formulas)

Consideration received for technical, managerial, engineering, construction, scientific, or like services

Commissions received

Amounts borrowed (see instructions) a Beginning balance b Ending balance or monthly average ▶

17b

Interest received

Premiums received for insurance or reinsurance

Loan guarantee fees received

Other amounts received (see instructions)

Total. Combine amounts on lines 9 through 21

Purchases of stock in trade (inventory)

Purchases of tangible property other than stock in trade

Platform contribution transaction payments paid

Cost sharing transaction payments paid

27a

Rents paid (for other than intangible property rights)

27a

Royalties paid (for other than intangible property rights)

27b

Purchases, leases, licenses, etc., of intangible property rights (for example, patents, trademarks, secret formulas)

Consideration paid for technical, managerial, engineering, construction, scientific, or like services

Commissions paid

Amounts loaned (see instructions) a Beginning balance b Ending balance or monthly average ▶

31b

Interest paid

Premiums paid for insurance or reinsurance

Loan guarantee fees paid

Other amounts paid (see instructions)

Total. Combine amounts on lines 23 through 35

Part V

Reportable Transactions of a Reporting Corporation That Is a Foreign-Owned U.S. DE (see instructions) Describe on an attached separate sheet any other transaction as defined by Regulations section 1.482-1(i)(7), such as amounts paid or received in connection with the formation, dissolution, acquisition, and disposition of the entity, including contributions to and distributions from the entity, and check here. ▶ ▢

Part VI

Nonmonetary and Less-Than-Full Consideration Transactions Between the Reporting Corporation and the Foreign Related Party (see instructions) Describe these transactions on an attached separate sheet and check here. ▶ ▢

Form 5472 (2022)

Form 5472 (Rev. 12-2022)

Page 3

Part VII

Additional Information All reporting corporations must complete Part VII.

Does the reporting corporation import goods from a foreign related party?

Yes ▢ No ▢

38a

If “Yes,” is the basis or inventory cost of the goods valued at greater than the customs value of the imported goods?

Yes ▢ No ▢

If “Yes,” attach a statement explaining the reason or reasons for such difference.

If the answers to questions 37 and 38a are “Yes,” were the documents used to support this treatment of the imported goods in existence and available in the United States at the time of filing Form 5472?

Yes ▢ No ▢

During the tax year, was the foreign parent corporation a participant in any cost sharing arrangement (CSA)?

Yes ▢ No ▢

40a

During the tax year, did the reporting corporation pay or accrue any interest or royalty for which the deduction is not allowed under section 267A? See instructions .

Yes ▢ No ▢

If “Yes,” enter the total amount of the disallowed deductions $

41a

Does the reporting corporation claim a foreign-derived intangible income (FDII) deduction (under section 250) with respect to amounts listed in Part IV?

Yes ▢ No ▢

If “Yes,” enter the amount of gross income derived from sales, leases, exchanges, or other dispositions (but not licenses) of property to the foreign related party that the reporting corporation included in its computation of foreign-derived deduction eligible income (FDDEI). See instructions $

If “Yes,” enter the amount of gross income derived from a license of property to the foreign related party that the reporting corporation included in its computation of FDDEI. See instructions . $

If “Yes,” enter the amount of gross income derived from services provided to the foreign related party that the reporting corporation included in its computation of FDDEI. See instructions $

Did the reporting corporation have any loan to or from the related party, to which the safe-haven rate rules of Regulations section 1.482-2(a)(2)(iii)(B) are applicable, and for which the reporting corporation used a rate of interest within the safehaven range of Regulations section 1.482-2(a)(2)(iii)(B)(1) (100% to 130% of the AFR for the relevant term)?

Yes ▢ No ▢

43a

Did the reporting corporation make at least one distribution or acquisition (as defined by Regulations section 1.385-3) during the tax year or, during the period beginning 36 months before the date of the respective acquisition or distribution and ending 36 months afterward, did the reporting corporation issue or refinance indebtedness owed to a related party?

Yes ▢ No ▢

If the answer to question 43a is “Yes,” provide the following.

(1) The amount of such distribution(s) and acquisition(s) $

(2) The amount of such related party indebtedness $

Part VIII

Cost Sharing Arrangement (CSA)

Note: Complete a separate Part VIII for each CSA in which the reporting corporation was a participant during the tax year. Report all amounts in U.S. dollars. (See instructions.)

Provide a brief description of the CSA with respect to which this Part VIII is being completed

During the course of the tax year, did the reporting corporation become a participant in the CSA?

Yes ▢ No ▢

Was the CSA in effect before January 5, 2009?

Yes ▢ No ▢

What was the reporting corporation’s share of reasonably anticipated benefits for the CSA?

48a

Enter the total amount of stock-based compensation deductions claimed by the reporting corporation $

Enter the total amount of deductions for the tax year for stock-based compensation that was granted during the term of the CSA and, at date of grant, is directly identified with, or reasonably allocable to, the intangible development activity under the CSA $

Was there any stock-based compensation granted during the term of the CSA to individuals who performed functions in business activities that generate cost shared intangibles that was not treated as directly identified with, or reasonably allocable to, the intangible development activity? $

Yes ▢ No ▢

49a

Enter the total amount of intangible development costs for the CSA $

49a

Enter the amount of intangible development costs allocable to the reporting corporation based on the reporting corporation’s reasonably anticipated benefits share $

Part IX

Base Erosion Payments and Base Erosion Tax Benefits Under Section 59A A (see instructions)

Amounts defined as base erosion payments under section 59A(d) . $

Amount of base erosion tax benefits under section 59A(c)(2) $

Amount of total qualified derivative payments as described in section 59A(h) made by the reporting corporation $

Reserved for future use ▢

Form 5472 (2022)