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For tax years beginning after January 1, 2018, a form 5472 penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due, and in the manner prescribed by the Regulations. The form 5472 penalty also applies for failure to maintain records as required by the Regulations.
Following the December 22nd 2017 enactment of the Tax Cuts and Jobs Act, the United States Federal Income Tax Law underwent a number of significant changes including:
- Increased 5472 Form Penalty
- Who Must File Form 5472
Prior to December 22nd 2017, the form 5472 penalty was $10,000 USD. The penalty has since increased to $25,000 USD - IRS Form 5472 – “Information Return of a 25% Foreign-Owned US Corporation or a Foreign Corporation Engaged in a US Trade or Business.” The IRS automatically imposes the penalty when a form 5472 is filed late.
Who Must File Form 5472
Form 5472 must be filed by a reporting corporation if the following criteria are met:
- It had a “reportable transaction” either with a foreign party or a related domestic party
- The reporting corporation includes:
- a 25% foreign-owned US corporation
- a foreign corporation engaged in a US trade or business with gross income from sources within the United States or income effectively connected, or treated as effectively connected, with the conduct of a trade or business in the United States”
What Is A “Reportable Transaction”
This could be any general monetary transaction or certain non-monetary transactions including purchases, sales, loans, interests, and rents. The reported transaction may be between the reporting corporation and the foreign owner, or any US or foreign related party. As an example, if a United States corporation is wholly owned by a Canadian company and the US corporation has to pay interest to its parent Canadian company, form 5472 must be filed by the United States corporation in order to report the loan and the interest paid.
Extension of Time to File Form 5472
To avoid a 5472 penalty, a reporting corporation can request an extension of time to file by filing Form 7004. The extension form must be filed by the regular due date of the return to request a six-month extension of time to file.
No Penalty Increase for Failure to Timely File Form 5471
Interestingly, a similar change was not made to the penalty for failure to file Form 5471 – “Information Return of US Persons with Respect to Certain Foreign Corporations,” and it remains at $10,000 USD.
If you have questions about form 5472 penalty assessments, please contact a member of the Manning Elliott Tax Team.
This content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent change. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.