How To File Form 5472 for Foreign-Owned U.S. Single-Member LLC

In this article, we will discuss IRS form 5472: who needs to file it, when to file it and how to fill out this form. You will get form 5472 templates in the latter part of this article. All foreign-owned single-member LLCs registered in the United States must file form 5472 to the IRS every year. If you don’t file this form or you file it late, you might receive a $25,000 penalty from IRS.

Note: This article assumes you are a non-U.S. person that owns a company in the United States.

Who Needs to File Form 5472?

If there are reportable transactions occurring between the reporting corporation and related party, then it’s required to file form 5472. So there are 3 requirements.

• Reporting corporation: The company must be qualified as a reporting corporation.
• Related party: The person must be qualified as a related party.
• Reportable transaction: There are reportable transactions between the related party and the company.

If any of the above is not true, then you are not required to file form 5472. Now let’s break it down to learn more about the 3 requirements.

What is a Reporting Corporation?

A company becomes a reporting corporation for form 5472 if two elements are both true.

For domestic companies, the two elements are:

• The company is registered in the United States. It can be an LLC or a corporation.
• There’s at least one foreign owner with at least 25% ownership of the company, such as a foreign-owned single-member LLC.

The 25% ownership can be either by vote or by value and it can be direct ownership or indirect ownership (holding company structure).

The following two examples do not meet the 25% ownership rule, so they don’t need to file form 5472.

• 5 foreign owner each has 20% ownership of a company registered in the USA.
• A foreign owner has 20% ownership of a U.S company, and a U.S. person has 80% ownership.

The following examples satisfy the 25% ownership rule, so they are reporting corporations and might need to file form 5472.

• a foreign-owned single-member LLC doing business in U.S. real estate
• a foreign-owned single-member LLC doing business in other parts of the world, but not in the U.S.
• a foreign-owned single-member LLC that has no assets and no business activity at all.

For foreign corporations, the two elements are:

• It’s a company registered outside of the United States. Who owns the foreign corporation doesn’t matter. The foreign corporation can be foreign-owned or be owned by a U.S. person.
• Engaged in a trade or business in the United States.

What is Related Party?

There are 3 kinds of related parties:

• The 25% + foreign shareholder himself/herself
• related to 25% foreign shareholder
• related to the reporting corporation

For a foreign-owned single-member LLC, the foreign owner is the related party.

If there are multiple related parties for a reporting corporation, then each related party should file a form 5472.

If there are two owners of a U.S. registered corporation, one is a foreign person with 30% ownership and the other is a U.S. person with 70% ownership, then both are related parties. If there’s a reportable transaction between the reporting corporation and the U.S. person, then the U.S. person is required to file a separate form 5472. Note that the U.S. person should not complete Part IV of form 5472 to give the details of transaction. Leave it blank.

What is Reportable Transaction?

If there are no reportable transactions between the related party and the reporting corporation, then you don’t need to file form 5472. Virtually every LLC has reportable transactions every year. What are some examples of reportable transactions for form 5472?

• Payment to form your company
• payment to rent mail forwarding address for the company
• Fund the company from your personal bank account
• Withdraw money from your company (member distribution)
• Pay business expenses on the company’s behalf.
• Payment to close your company
• LLC annual report fees and registered agent fees (If you pay them from your personal bank account instead of your company bank account).
• Loans between you and the company
• If you sell something to your company, that’s also a reportable transaction.
• If your company owns a property and you are granted to use that property for personal use, then it’s also a reportable transaction.

If you open a single-memeber LLC in the United States, then you have a reportable transaction and should file form 5742.

If the LLC is registered in New Mexico and it doesn’t have any business activity in the next year, then there’s no reportable transaction, because New Mexico doesn’t have annual report filing requirement to keep the LLC open.

If your LLC has business activity, but the LLC pays all the fees every year from the business bank account and you don’t make capital contribution from the second year or make a member distribution, then there’s no reportable transaction and you don’t need to file form 5472.

Note: If you have a  C corporation instead of a single-member LLC, then the reportable transaction definition is a little bit different from the above description. Please check Internal Revenue Code 6038A.

Foreign-owned Single-Member LLC

It’s almost always that a foreign-owned single-member LLC is required to file form 5472 every year, because there are usually reportable transactions each year unless you deliberately avoid it.

A U.S. LLC formed with a single member is by default a disregarded entity, which means the LLC legally exists under state law, so you can open a business bank account for the LLC and the LLC can provide limited liability protection if you are sued, but for tax purpose, the LLC’s tax liability is passed onto the owner.

If a single member U.S. LLC files form 8832 to be classified as a corporation, then it’s no longer a disregarded entity. It’s now a regarded entity and subject to U.S. tax.

What does foreign-owned mean? It can mean:

• A foreign individual. If you are not a U.S. citizen, not a U.S green card holder, and rarely live in the United States, then you are a foreign individual.
• A foreign corporation. A corporate entity created in a non-U.S. jurisdiction.
• Foreign partnership. Partnership created in a non-U.S. jurisdiction.

Warning

I can’t stress this enough. If you are a foreigner and own a U.S. disregarded LLC, but you owe tax in the U.S, then filing form 5472 alone isn’t sufficient.

• If you don’t need to pay tax in the U.S, then you only need to file form 5472 with pro forma form 1120 every year. There’s no other form to file. There’s no tax to pay. It’s just information for the IRS.
• If you owe tax in the U.S, your filing scenario is significantly complicated. You need to file an income tax return and also file form 5472 every year to report the transactions between the LLC and the business owner. Many folks might think they filed income tax return so they don’t need to file form 5472. That’s wrong and will get a hefty $25,000 penalty.

Recommended Reading:

• How to Set Up a Tax-Free LLC in USA for Foreigners in 2022

Examples of when you should pay tax in the U.S.

• Foreign-owned LLC doing business in real estate in the United States.
• The foreign-owned LLC has physical office in the United States.
• The foreign-owned LLC hires U.S. person.

Examples when you don’t need to pay U.S. tax.

• Amazon FBA with no office or employee in the United States
• Shopify Dropshipping with no office or employee in the United States
• Affiliate marketing company with no office or employee in the United States.

When do you owe tax in the U.S?

• Your LLC is engaged in U.S trade or business (USTOB) and has U.S. source effectively connected income (ECI)
• or your LLC receives U.S. source FDAP income (Dividends, Interests, Rents, Royalties, etc).

If you are a foreign individual and owe U.S. tax, then you need to apply for an ITIN, file Form 1040-NR with Schedule C to pay the tax. If you fail to file tax returns and the IRS catches you, they can remove your ability to apply tax deductions, so you will need to pay tax on your gross income.

You need to be very careful. Consult with a tax advisor before you start filing. If you get this wrong, you are going to be in big trouble.

When to File Form 5472?

The due date is April 15th. The calendar year in the USA is January 1st ~ December 31st, so you need to file the form before April 15th the next year. If you open an LLC in 2021, then you need to file it before April 15, 2022. The 2022 tax season starts on January 24, 2022 for the 2021 tax year.

You can request an extension of 6 months, to Oct 15th by filing form 7004. But you should always file the form as soon as possible to avoid problems. Filing this form doesn’t mean you have tax to pay. As we said before, if your business doesn’t have effectively connected income in the US, you don’t need to pay tax.

In reality, you need to file another Pro-forma form (Form 1120) along with Form 5472 to the IRS at one time via fax or mail. There’s no other way to send it. It’s recommended that you use fax, as it’s much faster. It takes just several minutes for IRS to receive your form via fax. You need to include form 1120 before form 5472.

If you don’t file form 5472, file it late, or file it wrong, then IRS can charge you a hefty $25,000 penalty.

How to Fill Out Form 5472?

• Download form 5472 from IRS website and open it in Sejda PDF editor.
• Download our template of form 5472 so you can easily fill out this form (Subscribe to our newsletter in order to download the template).

On the top of the first page, enter the tax year starting date and ending date. Normally it’s the entire year like 01-01, 2021 to 21-31, 2021. If you are filing this form for the first year, then use the start date of your company like 11-04, 2021 to 12-31, 2021.

Part I

This part is about the information on the reporting corporation.

• 1a: Enter the name and mailing address of your company as it appears on the Article of Organization.
• 1b: Employer Identification Number:  Enter your EIN  (Don’t have EIN? See how to obtain your EIN.)
• 1d and 1e: Principle business activity and principal business activity code.  You can find the code on the instructions for form 1120. For example, the e-commerce activity code is 454110.
• 1f: Total value of reportable transactions for this related party:
• 1g: Total number of form 5472 files for the tax year:  If there’s only one related party, then enter 1 here.
• 1h: total value of reportable transactions for all related parties.
• 1j: Check the box if this is the first year the U.S. reporting corporation has filed a Form 5472.
• 1k: Enter 1 here.
• 1l: Country of Incorporation: UNITED STATES
• 1m: Date of Incorporation: Enter the date your LLC is filed to the state of secretary.
• 1n: Enter your home country here.
• 1o: Enter your home country here.  Do Not enter United States here, or you will pay tax because your business is conducted in U.S.
• Line 2: Check this box if your company is a foreign-owned single-memeber LLC.
• Line 3: Check this box if your company is a foreign-owned single-member LLC.

Part II

This part is about information about the foreign shareholder. section 4 and 5 are for direct foreign shareholders. section 6 and 7 are for ultimate indirect foreign shareholders. If you have a holding company structure, then you need to enter the ultimate indirect foreign shareholder in sections 6 and 7.

• 4a: Enter the name and address of the foreign shareholder.
• 4b(1) U.S identifying number: Enter foreign here. If you have an ITIN, you can enter your ITIN here.
• 4b(2) Reference ID number: If you don’t have a U.S. identifying number, then you should enter a reference ID number here. You can make up a random ID number like ABCLLC1104. You should use the same reference ID number for form 5472 every year. If you have multiple single-member LLCs, then use the same reference ID number on each form 5472.
• 4b(3): A foreign-owned U.S. DE must enter a foreign taxpayer identification number (FTIN), if any, for each direct and ultimate foreign owner.
• 4c:  Enter your home country.
• 4d:  Enter your home country.
• 4e:  Enter your home country.

Part III

This part is about information about a related party.

• Check the box foreign person is the related party is a foreign person.
• 8a: Enter the name and address of the related party
• 8b(1) U.S identifying number: Enter foreign here. If you have a ITIN, you can enter your ITIN here.
• 8b(2) Reference ID number: If you don’t have an U.S. identifying number, then you should enter a reference ID number here. You can make up a random ID number like ABCLLC1104. You should use the same reference ID number for form 5472 every year.
• 8b(3): A foreign-owned U.S. DE must enter a foreign taxpayer identification number (FTIN), if any, for each direct and ultimate foreign owner.
• 8c: Enter principal business activity.
• 8d: Enter principal business activity code.
• 8e: check the box 25% foreign shareholder.
• 8f: Enter your home country here.
• 8g: Enter your home country here.

Part IV

This part is about the information on reportable transactions. There are two sections in Part IV:

• Money coming into the company (1 – 13)
• Money going out from the company (14 – 26)

Although the form says that Part IV must be completed if the “foreign person” box is checked in the heading for Part III, but if your LLC is a foreign-owned single-member LLC and doesn’t engage in a trade or business in the United States, then you don’t need to enter anything in part IV.

Part V

This part is only for foreign-owned U.S. disregarded entities. If there’s a transaction related to the formation, dissolution, acquisition, and disposition of a foreign-owned U.S. disregarded entity, then you need to check the box and describe these transactions on an attached separate sheet. This includes:

• capital contribution
• member distribution
• Payment to form your company
• Payment to close your company
• LLC annual report fees

Part VI

This part is about non-monetary and less-than-full consideration transactions (Barter, free service, cryptocurrency payments, discounts, freebies, etc).

If the related party is the member manager who runs the business, then it’s also considered a non-monetary transaction, and you should disclose this to IRS, so check the box in part VI.

Part VII

This part includes standard questions all reporting corporations must answer.  Here is how to answer them.

• 37: No
• 39: No
• 40a: No
• 41a: No
• 42: No
• 43a: No

Leave others blank.

Part VIII

This is about cost-sharing arrangement (CSA).  Here is how to answer them.

• 45: No
• 46: No
• 48c: No

Leave others blank.

Part IX is base erosion tax questions. If your company’s gross revenue is below $500 million, then you can safely ignore this part.

Federal Supporting Statements

You need to insert a new page in Sejda PDF editor to add federal supporting statements to describe the reportable transactions (see the template form 5472).

How to Fill out Form 1120 for Foreign-Owned U.S. DE

• Download form 1120 and open this file in Sejda PDF editor.
• Download our template for form 1120 so you can easily fill out this form. (Subscribe to our newsletter in order to download the template).

Form 1120 has several pages, but you only need to enter information on the first page and it’s very simple to do.

1. “Foreign-owned U.S. DE” should be written across the top of form 1120.
2. On the top of the first page, enter the tax year starting date and ending date. Normally it’s the entire year like 01-01, 2021 to 21-31, 2021. If you are filing this form for the first year, then use the start date of your company like 11-04, 2021 to 12-31, 2021.
3. Enter your company name, mailing address (such as Anytime Mailbox forwarding address), EIN number, and date incorporated.
4. If you are filing this form for the first year of your LLC, then check Initial return in item E.
5. You can optionally enter information in Schedule K: What business activity your LLC is doing, what product or service it’s selling. However, you can leave Schedule K blank. You are not required to enter this information. If you complete Schedule K, then you might also need to attach a Schedule G to form 1120, so it’s best to leave Schedule K blank.
6. Leave other pages blank.
7. Save this form. Then print it on paper. Sign and date the first page of Form 1120 on the officer signature line. The title for a single-member LLC is “Managing Member”.

Note:

• The LLC owner must print, sign, and date form 1120, then fax form 1120 and 5472 to the IRS. (There’s no signature field on form 5472, you need to sign form 1120. )
• Form 1120 should be the cover sheet (include form 1120 before form 5472), so form 5472 is an attachment to form 1120. (If you use fax.plus to send fax, then click the “add files” button in your fax.plus account dashboard, and make sure form 1120 is displayed on the top of the list.)
• You should fax forms 1120 and 5472 to 855-887-7737.
• The IRS doesn’t provide a confirmation receipt when you fax it, so make sure you fax to the correct number.
• The IRS fax number can change without providing notice. See instructions on form 5472 to get the latest fax number. 855-887-7737

Congrats! You are done.

Example Wrong Filing

Wrong filing is subject to IRS penalties of $25,000. Examples of wrong filing:

• Filing a substantially incomplete Form 5472.
• Only form 5472 is included in the filing. (You also need to file pro forma form 1120).
• Enter false information in the form.
• File only one form 5472 when there are multiple related parties. Each related party should file a separate Form 5472, or you will receive a $25,000 penalty.

If you didn’t file form 5472 by April 15 and didn’t file form 7004 for extension, should you file form 5472 after April 15? My recommendation is NO. If you file it late, you are guaranteed to receive a $25,000 penalty letter from the IRS, so in this case, just don’t file it. You don’t need to file form 5472 if there’s no reportable transaction between you and the company. Theoretically, it’s impossible for a foreign-owned single-member LLC to not have reportable transactions, but the IRS has no way of knowing if there’s a reportable transaction between you and the company. If you don’t file it, then you probably won’t receive the IRS penalty letter. You can still file it for the next year. For this year, because you are late, just don’t file it.

If you do receive IRS $25,000 penalty letter, you have 4 options:

• Pay the penalty, which might not be viable for small businesses, especially when they are just getting started.
• Close the company and open a new company. Because it’s a civil penalty, the penalty is on the company, not on you personally.
• Apply for penalty abatement (reduce the amount you have to pay).

Note: You can also receive a $25,000 penalty if you don’t maintain records related to reportable transactions (per IRC regulation section 1.6038A-3).

How to File Form 5472 Extension

If you can’t file form 5472 by April 15, then you can request an extension of time by filing form 7004 before April 15, so you will be allowed to file form 5472 by October 15. Once you file form 7004, the extension is automatic. You don’t need approval from IRS for the extension. The IRS will only notify you if they deny your request for an extension.

It’s a one-page form and very simple to fill out. Here’s how:

1. Download form 7004.
2. “Foreign-owned U.S. DE” should be written across the top of form 7004.
3. Name: Enter the name of your LLC as it appears on the articles of organization.
4. identifying number: Enter your employer identification number (EIN)
5. Address: Enter your registered agent address or your LLC mailing address.
6. Part 1 line 1: enter the form code 12 for form 1120.
7. Part 2 5a: The application is for the calendar year 2021, or tax year beginning January 1st, 2021, and ending December 31st, 2021
8. 5b: If this is the first time you file form 5472, then tick on Initial Return. If you close your company and file form 5472, then tick on Final return.
9. Leave other fields blank.
10. You don’t need to add your signature on this form.
11. Once you fill out form 7004, fax it to the IRS fax number, which can be found on form 5472. The IRS fax number for 2022 is 855-887-7737.

Below is an example form 7004. Download it and check it out. I entered the text in red just to show you how to fill it out. Use black text when doing the real work.

• Download the form 7004 template

If you don’t have a fax machine, you can use a cheap online fax service to send and receive fax. On fax.plus website, choose a fax number located in Wyoming and fax to the (855) 887-7737 IRS number.

fax.plus offers a free plan, but you will need a dedicated fax number to receive EIN from IRS, so you should at least upgrade to the Basic plan ($4.99/month) to obtain a dedicated fax number.  Using an online fax service is essential to your business. You will need to use it in other situations as well.

That’s it. You are done.

Tip: Do not use the fillable form in a PDF reader to fill out this form, because the fillable form doesn’t always work. Use the free Sejda PDF editor to enter texts in this form.

Form 7004 doesn’t extend the time to pay tax. If your LLC needs to pay tax to IRS, then you must remit the amount of tax owed to the IRS before the due date. As we said earlier, If you are a foreign owner of a U.S. registered LLC doing business in amazon FBA, Shopify Dropshipping, or affiliate marketing, then you don’t need to pay tax to IRS.

Questions

1. If I have a multi-member LLC with two foreign owners, is it required to file form 5472?

• Only single-member LLCs needs to file this form. A foreign-owned multi-member LLC (partnership) does not need to complete Form 5472.

2. I have a single-member LLC, which is a holding company. It owns another single-member LLC, how do I file form 5472?

• You need to file form 5472 for each LLC.

3  Annual report fees and registered agent fees are always reportable transactions? No matter if the fees are paid by the company bank account or personal bank account?

• If you pay the fee from the company bank account, then they are not reportable transactions.

Final Thoughts

Just because you file form 5472, doesn’t mean you need to pay tax to IRS. However, you are still required to keep books and records for your company.