Introduction
In this article we will see how we file Form 5472 along with the cover letter Form 1120, why we file it and when we file it. First of all, what is 5472. This is basically an informational report. You can say it has nothing to do with tax. It is only a reporting where we tell the IRS that this money came into our account, this we have held and this we have withdrawn. It does not matter whether it is U.S. source income or foreign source income, generally it is treated as foreign source and this is just a reporting of reportable transactions which we tell the IRS. There is no tax involved in this, it is only an information that goes to the IRS.
Main Discussion
What is Form 5472 and who can file
5472 is basically an informational report. Any foreign owner who owns 25% or more of the company can file this. If you are a single member LLC owner, then you are 100% owner and you have to file this form. If this is not filed, then there can be a penalty up to 25,000 USD, so it becomes important to file it. It does not matter what your scenario is, you just have to report your scenario.
Disregarded Entity and Reportable Transactions
One more point mentioned is disregarded entity. What we are telling the IRS is that the company is not separate from us. If we say it is a disregarded entity, it means your expenses and company expenses are treated as one. So whatever you deposit in the company and whatever you withdraw, it is your own money. The IRS does not see that you are receiving money from a client, it generally sees it as foreign income. Reportable transactions means what amount you deposited, what you held and what you withdrew. You just have to report this to the IRS by filling this form.
How to fill Form 5472
First comes the tax year. In the U.S. tax year is calendar year, which means January 1 to December 31. You have to write the date in this format from January 1 to December 31 of that year. Then comes reporting corporation section where you fill your LLC name, your LLC address and your EIN number. After that you mention total assets, which is basically what you deposited, what you withdrew and what is the balance. Then you have to mention your principal business activity like e-commerce, service based or web hosting services and also enter the NAICS activity code. Then you mention total gross payment which includes all expenses like company registration cost and other expenses. If you are single owner, then you check that it is a disregarded entity.
Foreign Shareholder Details
Here you fill your own details like your name, your home address and your country. If you do not have ITIN or SSN, you can leave it blank or write not available. For national identification you can use your PAN number if you are from India.
Reporting Transactions
If your case is simple, like you did some work and received money in your bank account, then you directly report what you deposited, what you withdrew and what balance is left. You have to mention what you put in, what you took out and what is remaining.
Form 1120 as Cover Letter
This is a separate form but it is used as a cover letter. Here you fill company name, company address, EIN and incorporation date. At the top you need to write “Foreign owned U.S. disregarded entity”. Other than this, you can leave most of the form blank and just sign it. This is used as a cover letter along with Form 5472.
Expert View
This is only a reporting requirement but it is important because if you do not file it, there can be a penalty. You are just reporting your transactions to the IRS, so you should file it correctly. If your scenario is different, you can fill it based on your situation or take help from a professional.
Conclusion
- Form 5472 is an informational report and has nothing to do with tax
- It is filed by foreign owners who own 25% or more
- It reports what you deposited, held and withdrew
- Disregarded entity means company and owner are treated as one
- Form 1120 is attached as a cover letter
- Not filing can lead to penalty up to 25,000 USD
- You are just reporting transactions to the IRS
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