Do I need to file Form 5472?

The two filing categories, in full

Form 5472 is titled Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. The title is unhelpful for the largest group of people who have to file it, because it does not mention LLCs at all. Here are the categories as they actually apply.

Category one — a US corporation with a 25% foreign shareholder

A US corporation is a reporting corporation if, at any point during the tax year, a foreign person owned 25% or more of the total voting power of all classes of voting stock, or 25% or more of the total value of all classes of stock. Either test is enough.

Being a reporting corporation does not by itself require a form. The corporation files Form 5472 only if it had a reportable transaction with a foreign related party during the year. Where there were several foreign related parties, there is a separate Form 5472 for each.

Category two — a foreign-owned US disregarded entity

This is the category that catches most non-US founders, and it exists because of a regulatory change effective for tax years beginning on or after 1 January 2017. A domestic disregarded entity that is wholly owned, directly or indirectly, by one foreign person is treated as a domestic corporation separate from its owner for the purposes of the section 6038A reporting rules.

In practical terms: your single-member LLC is invisible for income tax — its income flows to you — but for this reporting rule it is treated as a corporation, and so it must file Form 5472. Because a disregarded entity has no income tax return of its own to attach the form to, it files a pro forma Form 1120 as a cover page, with only the identifying information completed and the words FOREIGN-OWNED U.S. DE written across the top.

What "foreign person" actually means

A foreign person, for these purposes, includes:

• An individual who is not a US citizen and not a US resident for tax purposes
• An entity — corporation, partnership or similar — organised outside the United States
• A foreign estate or foreign trust
• A foreign government, or an agency or instrumentality of one

Two clarifications that matter more than they look:

• A US citizen is never a foreign person, regardless of where they live. A US citizen who has lived in Berlin for twenty years is still a US person.
• Residency is a tax test, not an immigration test. Someone holding a green card, or meeting the substantial presence test through days spent in the United States, is generally a US resident for tax purposes and therefore not a foreign person — even without citizenship.

Ownership attribution — why "less than 25% each" can still add up

The 25% test is not applied naively to each name on the share register. Attribution rules can treat one person as owning stock that is legally held by someone else, and the combined figure is what the test measures. Broadly, ownership can be attributed:

• Between family members — a spouse, children, grandchildren and parents can be treated as one holding for the test
• Through entities — stock held by a corporation, partnership, trust or estate can be attributed to its owners or beneficiaries
• Through chains — attribution can pass through several layers of intermediate ownership

The practical consequence: four foreign siblings each holding 10% of a US corporation may collectively cross the 25% line under attribution even though nobody individually reaches it. If your ownership involves relatives or intermediate entities, the arithmetic is worth having checked properly by a professional rather than assumed.

Indirect ownership matters for the disregarded entity category too. An LLC owned by a foreign holding company, which is itself owned by one foreign individual, is still wholly owned indirectly by one foreign person.

Who is a "related party"?

A reportable transaction has to be with a related party. For a foreign-owned single-member LLC, the obvious related party is the owner. But the definition is wider, and reaches:

• The 25% foreign shareholder, or the sole foreign owner of the disregarded entity
• Any person related to the reporting corporation or to that shareholder under sections 267(b), 707(b)(1) or 482 of the Internal Revenue Code
• Other entities under common control — a second company you own is related to the first
• Close family members of the owner, in many circumstances

Note what is not included: unrelated customers, unrelated suppliers, your accountant, your bank. Selling software to a thousand unrelated customers creates no reportable transaction at all. Paying yourself $200 does.

The full list of reportable transaction types →

Who genuinely does not need to file

Being honest about this matters more than it might seem, because a check that says "yes" to everyone is worth nothing. You do not file Form 5472 if:

• You have no US entity. A company registered only outside the United States is not a US reporting corporation. (A foreign corporation actually engaged in a US trade or business is a separate case with its own rules.)
• All owners are US persons. No foreign person in the chain, no Form 5472.
• The foreign stake is genuinely below 25% in a corporation — subject to the attribution rules above.
• Your LLC is a multi-member LLC taxed as a partnership. It is not disregarded, so category two does not reach it. You have Form 1065 obligations instead, and with foreign partners those can be heavier than a 5472.
• There were genuinely no reportable transactions at all in the tax year — no contributions, no distributions, no loans, no owner-paid expenses. This is real, but rarer than people hope.

Questions people ask before running the check

Read next

ConsequencesThe $25,000 penaltyPer form, per year, and what happens when it stacks. Most-askedMy LLC had no activityWhy dormant almost never means nil. Line by lineHow to fill out Form 5472Every part, in order, in plain English. DatesWhen it is dueDue dates, extensions and missed years.