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rakhi.v
rakhi.v, Tax Attorney
Category: Tax
Satisfied Customers: 4480
Experience:  Have graduated in Law with specialization & emphasis in Financial Laws and has working experience of over a decade.
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I just found out that a corporation is 100% foreign owned.

Customer Question

I just found out that a corporation is 100% foreign owned. The officers are foreign and file 1040NRs. The three officers own 90% of the company. Questions: 1) two officers loaned the company money. that's reportable on the 5472 form? 2) Are wages considered reportable transactions on the 5472 form? 3) We didn't realize that there might be a requirement to file form 5472 for 2015. Can we amend the return to include the Form 5472 without getting the $10K penalties? This is a new C Corporation with no income at this point.
JA: The Accountant will know how to help. Is there anything else the Accountant should be aware of?
Customer: We are amending for this. At the time of filing, there is no requirement to report the balance sheet. With the situation where foreign owners are involved, should I report the Balance Sheet?
Submitted: 19 days ago.
Category: Tax
Expert:  rakhi.v replied 19 days ago.

Dear Friend,

Hello and welcome. Thank you for providing an opportunity to assist you.

1. YES -- When a shareholder / officers loaned the company money, a separate 5472 filing is required. Reportable transactions can easily be overlooked – frequently overlooked are loans by the corporation to foreign shareholders, or loans from foreign shareholders to the corporation. Such loans can have very significant tax consequences.

A separate Form 5472 must be filed for each foreign shareholder who is a 25%-or-greater owner of the US corporation. The form is not required when various foreign persons own, in the aggregate, 25% or more of the corporation. It is required only when a single non-US entity or individual owns 25% or more of the corporation.Thus, if two or more foreign shareholders each own 25% or more of a US corporation, then multiple Forms 5472 will have to be filed.

2. Wages -- NO they are not reported on Form 5472. To know and understand in great detail what Reportable Transactions are as defined in the law, please refer the following link which is quite informative and is a great resource.

https://www.law.cornell.edu/cfr/text/26/1.6038A-2

3. YES -- There are ways to escape penalties. As of July 1, 2014, taxpayers that have failed to file a Form 5471, 5472, or 8865 may file it under the IRS's Delinquent International Information Return Submission Procedures. The procedures allow taxpayers to avoid penalties under Secs. 6038 and 6038A if the taxpayer timely filed its original income tax return but omitted the required international information forms.

The procedures are available for taxpayers that (1) have not filed one or more required international information returns, (2) have reasonable cause for not timely filing the information returns, (3) are not under a civil examination or a criminal investigation by the IRS, and (4) have not already been contacted by the IRS about the delinquent information returns.

You may get in touch with your nearest IRS office for further guidance or can work this out with your accountant.

I am sure this would help.

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Warm Regards,