Form 5472, and why a dormant LLC still has to file it

What the form is for

Form 5472 is an information return. It reports transactions between a U.S. entity and its foreign related parties, so the IRS can see money moving across the border inside a single ownership group. It carries no tax of its own. It is disclosure, and nothing else.

It has applied to 25% foreign-owned U.S. corporations for decades. The part that catches founders out is a change that took effect for tax years beginning on or after 1 January 2017: a foreign-owned single-member LLC, otherwise disregarded for U.S. tax purposes, is treated as a corporation for this reporting purpose alone.

So an LLC with one non-U.S. owner, no employees, no office, no revenue and no U.S. tax liability can still owe a filing. Being disregarded for tax does not make you invisible for reporting. That sentence is the whole guide, and it is the single most expensive misunderstanding we see in a first year.

The IRS calls the entity that files a reporting corporation, and it calls you, the owner, a foreign related party. Both terms sound like they belong to somebody much larger. They do not.

Who has to file

You are in scope if one of these describes your entity and there was at least one reportable transaction during the year.

• A U.S. corporation at least 25% owned, directly or indirectly, by one foreign person or entity.
• A U.S. limited liability company wholly owned by a single foreign person, treated as disregarded for tax.
• A foreign corporation engaged in a trade or business within the United States.

The ownership test looks through structures

Indirect ownership counts. If a foreign parent holds the U.S. entity through a second company, or through a chain of them, the 25% test follows the chain rather than stopping at the first shareholder on the register.

Ownership held by people and entities related to you can also be attributed to you, which is how a company that looks like four unrelated minority holders can still have a 25% foreign owner for this purpose.

Multi-member LLCs are the common exception. An LLC with two or more members is a partnership by default, files Form 1065, and reports its foreign partners through that return instead. It is the single-member case that surprises people, because nothing about it feels like a corporation.

What counts as a reportable transaction

This is the part that turns a quiet year into a filing obligation, because the definition for a disregarded entity is deliberately wider than the ordinary one.

For most filers a reportable transaction is a sale, a purchase, rent, interest, a royalty, a commission or a service fee. For a foreign-owned disregarded entity the instructions add any other transaction as defined in the transfer pricing regulations, and then say in terms that this includes amounts paid or received in connection with the formation, dissolution, acquisition and disposition of the entity, including contributions to and distributions from it.

Read that last clause again, because it is the one that does the damage. Forming the company and funding it are themselves reportable transactions.

• Money you put in, including the first capital contribution that opened the bank account.
• Money you take out, including distributions and repayments of what you put in.
• Loans in either direction, and any interest on them.
• Sales, purchases, rents, royalties, commissions and service fees between you and the entity.
• Amounts paid on the entity's behalf out of your own pocket, such as the formation fee or a registered agent renewal on your personal card.

The year in which nothing happened

Founders tell us the company was dormant, and they mean it honestly. No customers, no invoices, no revenue. Then we ask how the bank account was funded and who paid the registered agent.

There is no small-company exemption

No de minimis rule applies, and there is no relief for a low balance or a short first year. A company with $2,000 in the bank is in exactly the same position as a group moving millions, because the form reports transactions rather than profit.

This is also why the answer to the question we get most often, whether a company that made no money still has to file, is almost always yes. The only genuinely clean case is an entity that was formed, funded by nobody, paid for by nobody, and left entirely alone, which is rare enough that we have seen it perhaps twice.

How it is actually filed

A disregarded entity does not file a normal corporate return. The Form 5472 is attached to a pro forma Form 1120 that carries only the identifying information at the top rather than a full set of financials, and the pair is filed together.

It cannot be filed electronically. The IRS requires a foreign-owned disregarded entity to fax or mail the package to a dedicated address in Ogden, Utah, and specifically not to the ordinary Form 1120 addresses. If someone tells you they e-filed the 5472 for your disregarded LLC, something in that sentence is wrong.

The entity needs an EIN before any of this can happen, and for a foreign responsible party an EIN is a matter of weeks rather than minutes. That, rather than tidiness, is why the EIN application should not wait for filing season.

The deadline, and the extension that costs nothing

The pro forma 1120 and its 5472 follow the corporate deadline: the 15th day of the fourth month after the end of the entity's tax year. For a calendar-year entity that is 15 April.

Form 7004 buys an automatic six-month extension, to 15 October for a calendar-year filer, and it has to reach the IRS by the original due date. For a disregarded entity the 7004 also goes on paper, to the same fax number or address as the return, with the Form 1120 code entered in Part I. An extension filed on time costs nothing. A return filed late starts at $25,000.

Check the date against your entity's own tax year rather than assuming the calendar-year answer, particularly for a company formed part-way through a year or one that has changed its year end.

The penalty, and how it compounds

Failing to file, or filing something the IRS treats as substantially incomplete, carries a penalty of $25,000 per form per year. If the failure continues more than 90 days after the IRS notifies you, a further $25,000 applies for each 30-day period, or part of one, that it continues, and it applies with respect to each related party.

The clock that never starts

There is a second consequence that gets less attention and matters more the longer it runs. Where information required under section 6038A has not been furnished, the assessment period for the related return does not close after the usual three years. It stays open until three years after the information is finally filed.

An unfiled 5472 therefore does not become safe by ageing. It holds the year open, which is the exact opposite of what most people assume is happening while they wait to see whether anyone notices.

If you are already late

File. Late is a materially better position than unfiled, and coming forward is a materially better position than answering a notice.

Relief for reasonable cause exists and is decided on the facts: what you knew, what you were told and by whom, what you did once you found out, and how quickly you did it. A short statement attached to a late filing that sets the history out plainly does more work than an argument constructed after an assessment has landed.

What does not help is filing the current year cleanly and leaving the earlier ones alone. The gap is visible on the account, and it is the first thing anyone looking at the file will ask about.

What actually goes wrong

Five failures account for almost every 5472 problem that reaches us. None of them are exotic.

• Treating a dormant year as a year with nothing to report, when formation and funding are themselves reportable.
• Leaving the EIN application until the deadline is close, then discovering it takes weeks for a foreign responsible party.
• Filing the 5472 without the pro forma 1120, or sending the pair to the ordinary Form 1120 address instead of the one for disregarded entities.
• Reporting only what moved through the company's bank account, and missing costs paid personally on the entity's behalf.
• Missing the extension because Form 7004 was filed electronically when this entity had to file it on paper.

Before you act on this

This is general information, not advice for your particular situation. Thresholds, forms and deadlines change, several of the rules described here differ by state and by the year in question, and the figures above were checked on the date at the top of this page rather than today. Confirm the current position before you rely on any of it.

If you want the version that applies to your entity specifically, send us the details and we will tell you what you actually owe and when.