What is Form 5472, and why does the IRS want it?
Form 5472 is the Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business. It exists under Section 6038A, which Congress enacted because foreign-controlled U.S. companies were shifting profits offshore through related-party dealings the IRS couldn't see.
So the form is a transparency device, not a tax computation. It tells the government who owns you and what you transacted with your related parties. Section 6038A also imposes a separate obligation to maintain records substantiating those transactions, a requirement distinct from filing, and one that carries its own penalty.
What triggers a filing?
You file if you are a reporting corporation that had a reportable transaction with a related party. Both halves are required, and each term is broader than it sounds:
-
Reporting corporation
means a U.S. corporation with a 25% foreign shareholder, or a foreign corporation engaged in a U.S. trade or business.
-
25% foreign shareholder
means any single foreign person owning 25% or more by vote
or
value, at any time during the year. Ownership is tested directly and indirectly, with attribution rules that pull in family members and related entities.
-
Related party
includes the 25% shareholder and anyone related to it — not just foreign parties. Transactions with domestic related parties can be reportable too.
-
Reportable transaction
covers sales, rents, royalties, interest, loans, commissions, and amounts paid or received for services.
-
Disregarded entities count.
Since 2017, a domestic single-member LLC wholly owned by a foreign person is treated as a corporation for Section 6038A purposes. And for these entities the reportable-transaction definition is wider still: contributing capital, taking a distribution, even forming or dissolving the LLC will trip it.
That last bullet is where most failures happen. A foreign-owned LLC with no revenue, no employees, and no U.S. activity still has a filing obligation the moment its owner wires money into its bank account.
Example: Mateo, a non-resident of Spain, forms a Delaware single-member LLC to hold a future software venture. He funds it with $40,000 and spends nothing. The LLC earns no income and owes no U.S. tax. Mateo files nothing, reasoning there's nothing to report. Wrong on both counts: the capital contribution is a reportable transaction, and the LLC must file a pro forma Form 1120 with a Form 5472 attached. Three years in, the exposure is $75,000 on an entity that never generated revenue.
The form, and how it's filed
Form 5472 is attached to the corporation's income tax return and is due when that return is due, including extensions. A separate form is required for each related party with reportable transactions and three related parties means three forms, and three potential penalties.
Foreign-owned disregarded entities are the exception to the normal mechanics. They have no income tax return of their own, so they file a pro forma Form 1120 with name, address, EIN, and little else. This is purely as a carrier for the 5472. These generally cannot be e-filed and must be mailed or faxed to a dedicated address.
One trap worth naming: a Form 5472 that is substantially incomplete is treated as never filed. Getting it in on time with missing related-party detail buys you nothing.
The penalties
-
$25,000 per form, per year -
This was $10,000 until the 2017 Act raised it. It is assessed systemically, not after an exam.
-
Continuation penalties of $25,000 per 30-day period -
beginning 90 days after the IRS gives notice, with no statutory maximum.
-
No tax required -
A company with zero income and zero tax liability can carry a six-figure penalty.
And then the consequence nobody budgets for. Under Section 6501(c)(8), failing to furnish Section 6038A information suspends the statute of limitations, and since the 2010 amendments, the suspension applies to the entire return, not just the items the 5472 would have shown. The assessment clock doesn't start until the information is furnished, then runs three years from that date. Every item on the return stays open in the meantime.
There is a narrowing rule: if the failure was due to reasonable cause and not willful neglect, the suspension is limited to items related to the failure. Which means the taxpayer who files late with a credible explanation is in a categorically different position from the one who decided not to bother.
Can the penalty be abated?
Reasonable cause under Section 6038A(d)(3) is the path. The usual administrative shortcuts are not First-Time Abate never applied to international information returns, and the Automatic Exemption from Penalty that began replacing FTA in July 2026 likewise does not cover them.
There is, however, a favorable rule for smaller filers. Treas. Reg. §1.6038A-4(b)(2)(ii) directs the IRS to apply reasonable cause "liberally" to a qualifying small corporation, and Chief Counsel Advice 202617012, released April 24, 2026, sets out the four conditions that must all be met:
- Gross receipts of $20 million or less, measured worldwide rather than U.S. only
- Limited U.S. presence and contact
- Genuine lack of knowledge of the Section 6038A requirement
- Full and prompt cooperation with IRS requests, with no prior Form 5472 filed by the company or by an entity its owners controlled
Liberal is not automatic. The CCA is explicit that conclusory assertions won't carry it, the taxpayer needs a factual, documented explanation, submitted under penalties of perjury. It is also Chief Counsel Advice, which means it shows how the IRS reads the regulation but cannot be cited as precedent.
Bottom line
If a foreign person owns a quarter or more of your U.S. entity, the question isn't whether you made money. It's whether anything moved between you and a related party and for a foreign-owned LLC, funding the bank account is enough. The form is short, the cost of filing it is nominal, and the cost of skipping it compounds in two directions at once.
This post is general information, not tax advice for your specific situation.