The actual name of the form, in IRS terminology, is Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in US Trade or Business.
Form 5472, per the IRS, is used “to provide information required under sections 6038A and 6038C when reportable transactions occur during the tax year of a reporting corporation with a foreign or domestic related party.”
This is a convoluted and tax practitioner way of stating the form’s two specific objectives:
1. Any domestic (US-formed) corporation that is at least 25% foreign-owned (including a foreign-owned US disregarded entity) or any foreign corporation that is engaged in a trade or business within the United States at any time during a taxable year must provide certain information to the IRS involving their transactions and,
2. The transactions to be reported are specifically those that deal with related parties, whether they be foreign or domestic.
What are ‘related parties’ for Form 5472 reporting purposes?
The IRS definition for related parties is not something as simple as your close family. In fact, the definitions provided by the IRS are extremely complex. Below, we’ll detail each category of related party with examples, to ease the understanding of what a related party really is when reporting.
Per the instructions on Form 5472:
A related party is:
1. Any direct or indirect 25% foreign shareholder of the reporting corporation,
2. Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to the reporting corporation,
3. Any person who is related (within the meaning of section 267(b) or 707(b)(1)) to a 25% foreign shareholder of the reporting corporation, or
4. Any other person who is related to the reporting corporation within the meaning of section 482 and the related regulations. “Related party” does not include any corporation filing a consolidated federal income tax return with the reporting corporation.