Form 5472 Records for a Foreign-Owned Single-Member LLC

What records must a foreign-owned single-member LLC keep for Form 5472?

Permanent, accurate books that show every dealing between the LLC and its related parties, with the documents behind each entry. A US LLC wholly owned by one foreign person is a disregarded entity (ignored for income tax), but a regulation treats it as a corporation for Form 5472 and its record rules (26 CFR 301.7701-2(c)(2)(vi)). Its books must be enough to show the correct US tax treatment of its transactions with related parties (26 CFR 1.6038A-3(a); Form 5472 instructions). The LLC files Form 5472 attached to a pro forma Form 1120 (same instructions). What it files, and when, is in what a foreign-owned single-member LLC files.

Form 5472 asks for dollar totals by type of transaction, so build the log from statements and documents, not from memory. The regulation lists kinds of records that can matter. It is a menu, not a checklist: keep what relates to your dealings (26 CFR 1.6038A-3(a) and (c)).

A case is not simple when your preparer wants Form 5472 totals and you have only bank statements, the LLC's money and yours are mixed in one account, customers or platforms pay into your personal account instead of the LLC's, you pay LLC bills from a personal or foreign card, the LLC deals with your other companies or family, a loan runs across years, or earlier years were never logged. Failing to keep the required records carries the same $25,000 penalty as failing to file, assessed on the LLC (Form 5472 instructions).

Gather first:

• Bank statements for the LLC's account since it opened, and for every personal or foreign account that paid LLC costs or received LLC money
• Wire confirmations, with the amount sent and the amount received
• Formation papers, the operating agreement and the LLC's EIN letter
• Invoices for formation, the registered agent and any filing fees
• Loan notes and any agreement with a related company
• Tax ID numbers, US and foreign, for you and each related party
• The exchange rates you used and where each came from

The small-company relief from these record rules and the agent rule below, for low US gross receipts or low total payments to and from foreign related parties, does not cover an LLC treated as a corporation this way (26 CFR 1.6038A-1(h) and (i)). Two kinds of records must be created and kept if they do not already exist: basic accounting records of related-party dealings and, where relevant, records sufficient to produce material profit and loss statements (26 CFR 1.6038A-3(c)(1), (c)(2)(ii) and (c)(4)).

Who counts as a related party for Form 5472?

You, plus anyone related to you or the LLC under the tax code's family, ownership and control tests. The instructions define a related party as a direct or indirect 25% foreign shareholder (the owner of a single-member LLC is one), anyone related to the LLC or to that shareholder under section 267(b) or 707(b)(1), and anyone else related to the LLC under section 482 (Form 5472 instructions; 26 CFR 1.6038A-1(d)).

Ownership also counts through other companies: once you own 10% or more of a corporation, what it owns is treated as yours in proportion to your stake (26 CFR 1.6038A-1(e)(1)).

The table assumes the LLC's owner is an individual. If the owner is a company, who is related to it follows other tests, for example its own owners and companies in the same controlled group under section 267(b)(2) and (3). Map the structure with your preparer.

Sales to unrelated clients and purchases from unrelated vendors stay in the ordinary books. They are not on Form 5472.

Each related party with a reportable transaction gets its own Form 5472 (26 CFR 1.6038A-2(a)(1)). Keep a list of related parties with each one's name, address, US tax ID if any, foreign tax ID if any, the nature of its business, the country where it files income tax as a resident, and how it is related to the LLC (26 CFR 1.6038A-2(b)(2)). A foreign related party with no US tax ID gets a reference ID the LLC assigns itself: letters and numbers only, no spaces, up to 50 characters, used the same way every year. It does not replace a foreign tax ID: the form asks for it separately, with "None" or "N/A" entered for a foreign owner who has none (Form 5472 instructions).

Dealings with a related party who is a US person are not itemized in Parts IV to VI of the form (Form 5472 instructions). They still belong in the books.

What counts as a reportable transaction on Form 5472?

Any transfer of money or property, loan, advance, contribution or service between the LLC and a related party, however it is made and whether or not it is written down (26 CFR 1.482-1(i)(7)). The form sorts them by type (Form 5472; instructions).

A loan stays in the log every year it is outstanding, because the form counts borrowings already in place at the start of the year (Form 5472 instructions). What you call a payment does not change its type: a draw, a top-up or a reimbursement is still money moving between you and the LLC.

Whether money you send is a contribution or a loan depends on the facts and your paperwork, and it decides which part of the form it lands on. See owner contribution or loan to your LLC for how to decide.

What about expenses I pay for the LLC, or the LLC pays for me?

A bill you pay for the LLC is generally treated as money sent to the LLC on its behalf, and a bill the LLC pays for you as money sent to you. The definition of a transaction covers any transfer of money however it is made, so both are logged (26 CFR 1.482-1(i)(7)). Whether it is a contribution or a loan depends on the facts.

The IRS advises a new business to open a business account and keep it separate from a personal account (Publication 583). When business and personal money share an account, statements alone cannot show which lines belong to the LLC. To prove a payment without a canceled check, the statement should show the amount, the payee's name and the date: the date posted for a transfer, the transaction date for a card (same source). How to sort and book mixed months line by line is in untangling mixed funds.

Do formation and closing costs count?

Often. Formation and closing amounts are reportable when they pass between the LLC and a related party: Part V covers any other transaction, including amounts paid or received in connection with forming, dissolving, acquiring or disposing of the entity, along with contributions and distributions (Form 5472 instructions; 26 CFR 1.6038A-2(b)(3)(xi)).

In practice, log the state filing fee or registered agent fee when you pay it personally, the money you put in to open the account, and at closing the final distribution of what is left and any closing fee you pay for the LLC. Money the LLC pays an unrelated agent from its own account is an ordinary expense, not a related-party entry.

The regulation's own example treats a formation, a later contribution, a payment to the owner and a liquidating distribution, in four successive years, as reportable, with reporting and record duties in each (26 CFR 1.6038A-2(b)(11), Example 1).

What should each log entry show?

The facts someone needs to rebuild the Form 5472 figure and check it against a document, without asking you.

An LLC that uses an accrual method reports amounts when earned or owed, including amounts unpaid at year end (26 CFR 1.6038A-2(b)(10)). The instructions say that for Parts IV and VI "paid" and "received" include accrued amounts, without that limit (Form 5472 instructions), so on cash books ask the preparer which applies. Log both the invoice date and the payment date, so an invoice from a related company that is unpaid at year end lands in the right year.

Which currency and exchange rate do I use?

US dollars, with the original currency kept on each entry. Form 5472 amounts must be in US dollars with a statement of the exchange rates used (26 CFR 1.6038A-2(c); Form 5472 instructions).

For income tax returns, the IRS has each item converted into dollars at the rate prevailing when it is received, paid or accrued, using the rate that most properly reflects the income where more than one exists (IRS: foreign currency). It has no official exchange rate and generally accepts any posted rate used consistently (IRS: exchange rates). Form 5472 itself asks only for US dollars and a statement of the rates used, so pick one posted source, apply it the same way every year to each entry's date, and write its name and date on each line.

A wire sent in one currency and received in another can differ by bank fees and the bank's own rate. The statements show both figures. The sources do not say which one Form 5472 should use, so keep both on the entry and ask the preparer. For exchange gains and losses inside the LLC's own books, see foreign currency accounts in US books.

When can I estimate amounts or use the small-amount shortcut?

Both apply only to amounts reported on the form, never to the log, which still holds every entry. The small-amount rule is a reporting convenience for any amount at or under the ceiling.

• Estimate. Where actual amounts are not determinable, the instructions allow a reasonable estimate: at least 75% and not more than 125% of the actual amount. An estimate outside that range can still be accepted if you show the relevant facts in a written statement made under penalties of perjury, and the IRS decides (Form 5472 instructions; 26 CFR 1.6038A-2(b)(8)). The form has a box to check when estimates are used.
• Small amounts. If an actual amount in a transaction or series of transactions with a foreign related party does not exceed $50,000, it may be reported as "$50,000 or less" (Form 5472 instructions; 26 CFR 1.6038A-2(b)(9)).

Three limits on estimates and the small-amount rule. An estimate does not replace the records. The instructions do not say how to group transactions for the small-amount test, for example whether advances, repayments and interest on one loan count together. And the Part V instructions mention neither shortcut, although the regulation words both for any amount it requires (26 CFR 1.6038A-2(b)(8) and (9)). Listing the actual amount of each item on that statement does not depend on how those questions are resolved, though the instructions do not call it a safe harbor. Confirm the approach with your preparer.

Where must the records be kept, and in what language?

In the United States, unless the LLC meets the conditions for keeping them abroad. Records that must be kept in the US but are not ordinarily kept there may stay outside it if the LLC does one of two things. It delivers the requested originals or copies to the IRS within 60 days of the request. Or it moves them to the US within that time, gives the IRS an index and the name and address of a US custodian, and keeps them there afterwards (26 CFR 1.6038A-3(f)). A foreign related party such as the owner, or a third party, may hold them for the LLC if the same conditions are met (26 CFR 1.6038A-3(b)(2)). For material profit and loss statements the LLC had to create, the period is 120 days instead of the delivery period above, unless otherwise specified, and their labels and text must be in English (26 CFR 1.6038A-3(f)(2)).

If the IRS asks, the owner, as a foreign related party, must also sign an authorization naming the LLC as its limited agent for IRS records requests and summonses, and the LLC signs its acceptance. Both go to the IRS within 30 days of the request (26 CFR 1.6038A-5(b)(1); 26 USC 6038A(e)). Without it the IRS can set the LLC's deductions and property costs for those dealings itself (26 CFR 1.6038A-7).

Records can stay in their original language. The LLC must translate requested documents into English within 30 days of a request for translation (26 CFR 1.6038A-3(b)(3)). Every statement attached to Form 5472 must be in English (26 CFR 1.6038A-2(c)).

Keep the records as long as they may matter to a related-party dealing, and at least until the time to assess and collect tax for the year the dealing affects has run out (26 CFR 1.6038A-3(g)). If a year's Form 5472 was never filed, the time to assess any tax for the return, event or period the missing information relates to does not expire before 3 years after the IRS is furnished the information. If the failure was due to reasonable cause and not willful neglect, that applies only to the items related to the failure (26 USC 6501(c)(8)). Keep the affected records while that period is open. Records held in the US are the simplest way to meet the delivery deadlines, which are counted in days.

What if I did not log the first year or two?

Rebuild the log now from source documents, oldest year first. Nothing in the sources lets early years be skipped, and the regulation says basic accounting records must be created if they do not exist (26 CFR 1.6038A-3(c)(1)). The rule that treats a foreign-owned LLC as a corporation covers tax years beginning after December 31, 2016 and ending on or after December 13, 2017, so earlier years are not covered by it (26 CFR 301.7701-2(e)(9); Form 5472 instructions).

Start with statements for every account that moved money to or from the LLC or paid its bills. Mark each line that moved money between the LLC and a related person or company, add the formation costs you paid, and work out each loan's balance at the start and end of each year. Note any gap or estimate on the entry so nothing looks exact that is not. The full method, year by year, is in rebuilding books for missed foreign-owner filings.

A year in which money went into the LLC or formation costs were paid can contain a reportable transaction. Whether a particular year needed a filing depends on the facts. If those years' Form 5472 filings were never made, the log is only half the job: see missed Form 5472 and penalties.

Example

These examples are illustrative. Amounts are in US dollars, and each LLC uses the calendar year.

Money in, money out, and a bill on a personal card

An owner in Dubai starts an LLC and logs three items.

The hosting bill is also a normal expense in the LLC's books. The Part V statement lists the contribution of 20,000, the 1,200 as agreed, and the distribution of 6,000, each with its date and proof.

A loan across two years

The owner lends the LLC 40,000 on February 1 of year 1. On October 1 the LLC repays 10,000 plus 800 interest. Assume the LLC uses the accrual method and the 800 is all the interest that accrued in year 1.

• Log, year 1: an advance of 40,000 (balance 40,000), a repayment of 10,000 (balance 30,000) and interest of 800, each with the wire proof.
• Form, year 1: amounts borrowed with a beginning balance of 0 and an ending balance of 30,000, or a monthly average, and interest paid of 800.
• Year 2: no money moves, but the 30,000 balance is still outstanding, so the log carries it, and the form shows the balance as the beginning and ending balance. Under the accrual assumption, interest that accrues in year 2 goes in the log and on the interest line even if unpaid.

The owner's other company bills the LLC

The owner wholly owns a design company in Vietnam. It invoices the LLC 15,000 for design work, and the LLC pays in two wires. The design company is a related party, so it gets its own log entries and its own Form 5472, with a reference ID if it has no US tax ID. The payments go in Part IV, on the line for services or for other amounts paid, whichever fits the work. Keep the contract, invoice and wire confirmations. The contract and any quotes also show how the price was set, which is one of the record categories the regulation lists.

Different for you?

• Your preparer asked for Form 5472 numbers and you have only bank statements, or the LLC's account and your own money are mixed. The log has to be built from the statements, transfer by transfer, and each transfer classified. That is bookkeeping work: see bookkeeping help and untangling mixed funds.
• Earlier years have no log or no filing. Rebuild them oldest first, because each year's opening loan balance comes from the year before: see rebuilding books for missed foreign-owner filings, with bookkeeping help for the rebuild itself.
• The IRS asked for records or an authorization of agent, or sent a notice or a penalty. The deadlines run in days from the request: see missed Form 5472 and penalties and cross-border tax help.
• The LLC sells through a marketplace or app store. Platform payouts are not owner transfers by themselves: see marketplace payouts in a foreign-owned LLC.
• You need the whole set of books, or you take money out regularly. See bookkeeping for a foreign-owned US company and paying yourself as a foreign owner.
• You contribute property or services instead of money, or the LLC deals with companies abroad on non-cash terms. Non-cash and less-than-full-value dealings belong in Part VI with a description and a value estimate. A non-cash contribution from the owner also goes on the Part V statement, because it is not in Part IV (26 CFR 1.6038A-2(b)(3)(xi) and (b)(4); Form 5472 instructions). Have a preparer coordinate the two disclosures: see cross-border tax help.
• You pay interest, fees or royalties to a related company abroad. The log records the payment. Whether tax must be withheld is a separate question: see missed withholding on payments abroad.
• The LLC has a second owner, or elected to be taxed as a corporation. This page covers a single-member LLC. See a company with a foreign co-owner and foreign-owned C corporation filing. For funding a corporation or paying its bills personally, see putting money into your US corporation from abroad.
• You are a US citizen or resident, you moved to the US or will during the year, or you filed a joint-return election. Form 5472 applies when the owner is a foreign person. For an individual that generally means neither a US citizen nor a US resident, and an effective joint-return election under section 6013(g) or (h) takes the individual out of the definition (26 CFR 1.6038A-1(f)(1); instructions). The instructions do not spell out a change of status partway through, so which years count depends on your dates. Gather your residency dates and any election statement, and see what a foreign-owned single-member LLC files and cross-border tax help.