Form 5472 First Year: Short Year, Formation Fees and Deposits

Do you need to file Form 5472 if the LLC was formed in December?

Usually yes. The year a company is formed is a tax year of its own, however few weeks it lasts, and Form 5472 is due for any tax year in which the company had a reportable transaction with its owner or another related party (Form 5472 instructions). For an LLC, paying to form it and putting in the first money are both reportable, so a new LLC usually has something to report in year one. For a corporation, a loan from the owner is reportable but a cash purchase of new shares generally is not; the corporation files Form 1120 either way.

The rule reaches two kinds of US company:

• A single-member LLC wholly owned by one foreign person (an individual or a company abroad). It is ignored for income tax, but a regulation treats it as a corporation for Form 5472. The IRS calls it a foreign-owned U.S. DE (disregarded entity). Its tax year is its owner's US tax year if the owner must file a US return, and otherwise the calendar year (26 CFR 301.7701-2(c)(2)(vi)). An LLC that elected to be taxed as a corporation is not a DE and files as a corporation (Form 5472 instructions).
• A US corporation in which one foreign person owns, directly or indirectly, at least 25% of the vote or value at any time in the year (Form 5472 instructions). A corporation that exists for only part of a year files a return for that part (26 CFR 1.6012-2(a)).

A first year stops being simple when the deadline is close or already passed, the owner lives abroad with no US advisor, costs were paid from a foreign account in another currency, a formation service paid fees and billed the owner, the owner put in money as both shares and a loan, or the owner may be a US tax resident (a green card, enough days in the US, or an election to file a joint US return with a spouse) and so not a foreign person at all.

Gather before anyone prepares the filing:

• The formation invoice and receipt, showing who paid, from which account and on what date
• The state's filing confirmation with the formation date
• The EIN confirmation letter
• The first bank statement and the wire confirmation for the opening deposit
• The owner's full name, address, country of tax residence and foreign tax ID
• The exchange rate used for any payment made in another currency

Are LLC formation fees a reportable transaction for Form 5472?

Yes, when the owner paid them. Part V of Form 5472 covers any transaction between a foreign-owned LLC and its owner not already reported in Part IV (where a loan goes), including amounts paid or received in connection with the LLC's formation and contributions to it (Form 5472 instructions; 26 CFR 1.6038A-2(b)(3)(xi)). A transaction is any transfer of money or property, however it is made and whether or not it is written down (26 CFR 1.482-1(i)(7)).

Neither the instructions nor the regulation say which year a fee paid before the state formed the LLC belongs to. The regulation's own example reports forming an LLC and contributing assets to it in the LLC's first year (26 CFR 1.6038A-2(b)(11), Example 1), and listing such a fee on the first year's statement follows that example.

Part V applies only to a foreign-owned LLC. For a corporation, formation costs the owner pays are generally a loan if the corporation owes them back, reported in Part IV as an amount borrowed; documented as capital, they are generally not reported on the corporation's Form 5472. See putting money into your US corporation from abroad.

Do capital contributions, like the first deposit, go on Form 5472?

For an LLC, yes, however it is documented. Money the owner puts in, including the first deposit, goes on the Part V statement with its date and amount as a capital contribution or, if the LLC owes it back, in Part IV line 17 as an amount borrowed, by its balance at the start and end of the year (Form 5472 instructions). Which one it is turns on the paperwork; see transaction records for a foreign-owned LLC. Report every amount in US dollars and attach the exchange rates used (26 CFR 1.6038A-2(c)).

For a corporation, it depends on what the money bought. Cash paid for newly issued shares is generally not one of the transaction types the regulation lists for a regular corporation. Amounts loaned or borrowed, and interest on them, are listed (26 CFR 1.6038A-2(b)(3)). Which one it is turns on how the funding is documented; see putting money into your US corporation from abroad.

Form 5472 with no transactions: is a filing still due?

For an LLC, no. A foreign-owned LLC with no reportable transaction in Parts IV, V or VI for the year does not file Form 5472 (Form 5472 instructions). The pro forma Form 1120 exists only to carry Form 5472, so nothing is filed for that year.

Few new LLCs have no reportable transaction in their first year. Someone pays to form the LLC, and the account is opened with the owner's money. Only when both happen after year-end, for example the owner pays the formation invoice and makes the first deposit in January, do the first transactions fall in the second year. Keep proof of those dates. If a formation service paid the state fee before year-end and the owner paid its bill after, the sources do not say which year that fee belongs to; filing for the formation year too leaves no year out. An LLC that keeps its books on the accrual method reports accrued amounts, so an amount owed to or by the owner at year-end can count before it is paid (Form 5472 instructions).

For a corporation, Form 1120 is still due. Every corporation in existence during any part of a year files a return for that part, whether or not it has income. One that received its charter but never completed its organization, did no business and had no income may be relieved of filing only after presenting those facts to the IRS (26 CFR 1.6012-2(a)). Form 5472 is attached only for a related party with a reportable transaction, but Schedule K question 7 still asks whether one foreign person owned, directly or indirectly, at least 25% (Form 1120 instructions).

What does a foreign-owned LLC file for its formation year?

A pro forma Form 1120 with Form 5472 attached. On Form 1120, fill in only the LLC's name and address, item B (EIN) and item E, and write "Foreign-owned U.S. DE" across the top (Form 5472 instructions). In item E, check "Initial return" (Form 1120 instructions). The LLC needs its own EIN for this filing: the Form SS-4 instructions name Form 5472 as a reason a foreign-owned LLC applies for one (Form SS-4 instructions). The Form 1120 instructions allow "Applied For" when an EIN has not arrived by the due date, but the Form 5472 instructions do not say this package can use it, so apply as soon as the state forms the LLC.

On Form 5472, the first-year entries are:

Send the package by fax (300 DPI or higher) to 855-887-7737, or by mail to Internal Revenue Service, 1973 Rulon White Blvd, M/S 6112, Attn: PIN Unit, Ogden, UT 84201. Do not use the Form 1120 addresses, and do not e-file: the instructions say a foreign-owned U.S. DE cannot file Form 5472 electronically (Form 5472 instructions). Later years follow what a foreign-owned single-member LLC files.

What does a foreign-owned corporation file for its first year?

A full Form 1120 for its first tax year, with Form 5472 attached for each related party it had a reportable transaction with (Form 5472 instructions). That year starts on the earliest date the corporation has shareholders, has assets or begins business, often the incorporation date (Form 1128 instructions). Enter the short year's dates in the tax year space at the top and check "Initial return" in item E (Form 1120 instructions).

The corporation files the way the Form 1120 instructions direct, not through the LLC fax unit. Schedule K question 7 on the foreign owner, and the rest of a first return with no sales, are in first corporate return with no revenue.

When is the first return due, and how do you extend it?

April 15 when the short first year ends December 31: the 15th day of the fourth month after year-end (Form 1120 instructions). Form 7004, filed by that date, extends the filing date by six months, to October 15 for a calendar year, but not the time to pay any tax (Form 7004 instructions). A due date on a Saturday, Sunday or legal holiday moves to the next business day.

For a first year shorter than 12 months, Form 7004 line 5b asks the reason; "Initial return" is one of the boxes (Form 7004). The LLC's Form 7004 rules come from the Form 5472 instructions.

What is the penalty for skipping the formation year?

$25,000, assessed on the company that had to file (for a foreign-owned LLC, the LLC itself), for each tax year in which a required Form 5472 is not filed on time and in the required way, or the required records are not kept. It is charged once per related party per year for those failures, and a substantially incomplete form counts as not filed (Form 5472 instructions; 26 USC 6038A(d); 26 CFR 1.6038A-4(a)). If the failure continues more than 90 days after the IRS mails a notice, another $25,000 applies for each related party, for each 30-day period or part of one. A short year or small amounts do not reduce it.

The first year is easy to miss:

• The deadline comes fast. An LLC formed in late November has a return due in under five months.
• The company has no income, and that reads as nothing to file. Form 5472 turns on transactions, not income.
• A formation package may end with the state filing and the EIN. See taxes after an online formation service.
• An LLC has no income tax return of its own to prompt the filing.

The IRS can excuse the penalty if the company shows reasonable cause and good faith in a statement signed under penalties of perjury, and the IRS decides whether that showing is enough (26 CFR 1.6038A-4(b)). A missed first year is covered in missed foreign-owner filings and penalties.

What records should you keep from day one?

Permanent books that show the correct US tax treatment of every dealing with the owner and other related parties, with the documents behind each entry (26 CFR 1.6038A-3(a)). A foreign-owned LLC gets none of the small-company exceptions to these record rules. A corporation with under $10,000,000 of US gross receipts is spared them, but still keeps ordinary books under the general records rule (26 CFR 1.6038A-1(h) and (i)). Failing to keep required records draws the same $25,000 penalty as failing to file (Form 5472 instructions).

For the formation year, keep the documents in the gather list above, plus the share record or loan note for every amount a corporation's owner put in. What each log entry should hold, and which later transfers count, is in transaction records for a foreign-owned LLC.

Example

Illustrative only; amounts in US dollars. Each company uses the calendar year.

LLC formed November 20, owner in Brazil

A founder living in Brazil forms a Wyoming LLC on November 20. She pays $300 of formation costs from her own card that day, then deposits $1,000 into the LLC's account in December. She records both as contributions, not loans.

Its first tax year runs November 20 to December 31. It files a pro forma Form 1120 marked "Initial return" with Form 5472: lines 1j, 2 and 3 checked, a Part V statement listing the $300 and the $1,000, and $1,300 on line 1f. The package is due April 15, or October 15 if Form 7004 is faxed or mailed by April 15.

Corporation formed December 10, owner in India

A founder living in India incorporates a Delaware C corporation on December 10, and it issues her shares that day, so its first tax year runs December 10 to December 31. She paid the $500 incorporation cost from her own card; on December 15 the corporation agrees to repay her. On December 28 she wires the $5,000 she agreed to pay for the shares.

Had she not been owed the $500, the share purchase alone would generally leave nothing for Form 5472 that year, but Form 1120 would still be due April 15.

LLC formed December 30, nothing paid until January

A formation service files an LLC's papers on December 30 and invoices the owner, who lives in Germany. He pays the $400 invoice and deposits $2,000 on January 12. The LLC keeps cash-basis books.

Because the service paid the state fee in December, the sources do not settle whether the formation year is truly empty. He keeps the invoice, his payment receipt and the bank statement that show the dates.

Different for you?

• You formed late in the year, the first deadline is close or passed, and you live abroad with no US advisor. The return or Form 7004 is due by the regular due date; get corporate tax help with the gather list above.
• You already missed the first year or received a penalty notice. See missed foreign-owner filings and penalties and get corporate tax help.
• Your LLC is past its first year. See what a foreign-owned single-member LLC files.
• You are not sure which transfers count, or how to log them. See transaction records for a foreign-owned LLC.
• Your corporation's first Form 1120 shows no revenue. See first corporate return with no revenue.
• You are funding your corporation and must choose shares or a loan. See putting money into your US corporation from abroad.
• A formation service set up the company and you are unsure what is left to you. See taxes after an online formation service.
• The owners are US citizens or US tax residents. Form 5472 may not apply; see the first tax year of a new company.
• A company abroad, not a person, owns it. See a US subsidiary of a foreign company.
• The LLC has a second owner. It is generally a partnership with different filings; see a company with a foreign co-owner.
• You were asked about a beneficial ownership report. See who still files a BOI report.