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Form 5472, “Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business,” is one of the most complicated forms of all U.S. filing requirements for foreign companies since its inception. Initially, the reporting obligations applied to corporations only; however, IRS announced changes in 2016 that extends the reach of Form 5472 requirements to non-U.S. individuals owning DREs active in the U.S.
IRC 6038 requires “reporting corporations” to disclose specified “reportable transactions” it has with any “related parties” on Form 5472. Defining these elements is highly sophisticated, and tax advisers must have a thorough grasp of what constitutes each aspect to ensure that the taxpayer has met the record maintenance requirements to support its tax position for these transactions.
In Dec. 2016, Treasury regulations expanded the scope of the filing requirements. In response to scenarios in which foreign individuals were conducting business in the U.S. using DREs to avoid information reporting, the Service now requires foreign-owned single member LLCs and other DREs to file Form 5472. Foreign persons solely owning a U.S. domestic DRE, either directly or indirectly through attribution rules, must obtain necessary taxpayer identification numbers and disclose reportable transactions. Penalties for failing to file Form 5472 may reach $10,000 per failure, with complicated rules for penalty mitigation.
Listen as our experienced panel provides a thorough and practical guide to completing Form 5472, including key definitions and a discussion of the expanded filing requirements.
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