How to Fill Out Form 5472. Step-by-Step Instructions for Disregarded LLC

Summary

This video tutorial provides a comprehensive guide on how to prepare and file Form 5472 for a foreign-owned disregarded LLC for the 2023 tax year. The presenter uses the example of 'Adam Non-Resident LLC', a single-member LLC engaged in a U.S. trade or business, to illustrate the process. The video covers the annual filing requirements for foreign-owned U.S. LLCs that are disregarded entities, explains who needs to submit Form 5472, and details what constitutes reportable transactions. The presenter also discusses the necessity of filing Form 5472 even if the entity isn't liable for U.S. taxes. The tutorial includes a step-by-step walkthrough of filling out Form 5472, including reporting capital contributions, distributions, and related party transactions. Additionally, the video explains the connection between Form 1040NR and Form 5472 filings, emphasizing the importance of reporting effectively connected income (ECI). The presenter provides a clear explanation of each section of the form, ensuring viewers understand how to disclose foreign ownership and related party transactions accurately.

Takeaways

• 📜 Adam Non-Resident LLC, a foreign-owned disregarded entity, must file Form 5472 annually alongside Form 1120 for the 2023 tax year.
• 🌐 The LLC is engaged in a U.S. trade or business, requiring the foreign owner to report income, expenses, and pay taxes on Form 1040NR with Schedule C.
• 🔍 Form 5472 is used to report transactions between the LLC and foreign persons, including capital contributions, distributions, and other payments.
• 🤝 Adam hires his brother Bob for bookkeeping services, creating a reportable transaction due to Bob being a foreign related party.
• 💼 Adam Non-Resident LLC has an EIN for filing purposes, while Adam himself uses an ITIN for his personal tax filings.
• 📊 Financial statements for the LLC include sales, cost of goods sold, various expenses, and a net loss for the year.
• 💵 Capital contributions of $8,174 and a distribution of $1,000 to Adam are reportable transactions on Form 5472.
• 📝 Part II of Form 5472 requires information on the foreign owner, which in this case is Adam, a Bermudian citizen and resident.
• 🏢 The LLC's principal business activity is operating vending machines within the U.S., which constitutes a U.S. trade or business.
• 🧾 Part IV of Form 5472 is left blank as there were no tax-deductible payments made to Adam, the owner.
• 🔗 A separate Form 5472 is filed for the transaction with Bob, detailing the $450 payment for bookkeeping services, which is tax-deductible for the LLC.

Q & A

What is the purpose of Form 5472?

Form 5472 is used to report certain transactions between a foreign-owned U.S. disregarded entity (such as an LLC) and its foreign owner or related parties. It is an annual filing requirement for foreign-owned U.S. LLCs that are disregarded entities.

What is a disregarded entity for U.S. tax purposes?

A disregarded entity for U.S. tax purposes is a single-member LLC that is not recognized as a separate entity from its owner for federal tax purposes. It is treated as a 'disregarded' entity unless it files an entity classification election (Form 8832) to be treated as a corporation.

Who needs to file Form 5472?

Foreign-owned U.S. LLCs that are disregarded entities need to file Form 5472 if there are any reportable transactions during the year. This includes capital contributions, distributions, and other payments.

What is a foreign person for U.S. tax purposes?

A foreign person for U.S. tax purposes is anyone who is a non-U.S. tax resident. This includes individuals who are not U.S. citizens, do not hold a U.S. green card, and do not meet the substantial presence test.

What are reportable transactions on Form 5472?

Reportable transactions on Form 5472 include capital contributions and distributions, other amounts paid in connection with forming or dissolving an LLC, and payments to foreign related parties. Almost every LLC will have reportable transactions.

Why is Form 1040NR also filed in this scenario?

Form 1040NR is filed because the foreign owner of the LLC is engaged in a U.S. trade or business and has effectively connected income (ECI). The foreign owner reports all the activity on a Schedule C of Form 1040NR.

What is the role of the ITIN in this context?

An Individual Taxpayer Identification Number (ITIN) is used by the foreign owner to file Form 1040NR and can also be used on the 5472 filings. The LLC needs its own Employer Identification Number (EIN) to file Form 5472.

Why are there two separate Form 5472s in this example?

There are two separate Form 5472s because one is to disclose the foreign ownership of Adam and the other is to report the reportable transaction between the LLC and the foreign related party, which is Bob, Adam's brother.

What is the significance of the business activity code on Form 5472?

The business activity code on Form 5472 is used to identify the principal business activity of the reporting corporation (the LLC). It is looked up in the instructions and helps the IRS categorize the business for tax purposes.

What is the difference between monetary and non-monetary transactions in the context of Form 5472?

Monetary transactions on Form 5472 are those involving the exchange of money, such as capital contributions and distributions. Non-monetary transactions might include services or other forms of exchange that do not directly involve money.

How are related party transactions reported on Form 5472?

Related party transactions are reported in Part III of Form 5472. They must be disclosed if there is a transaction between the LLC and a foreign related party, such as a family member or an entity in which the foreign owner has an interest.

What is the purpose of including a federal supporting statement or attachment with Form 5472?

The federal supporting statement or attachment provides additional details about the reportable transactions and can help clarify the nature of the transactions between the foreign-owned LLC and its foreign owner or related parties.

Outlines

00:00

📝 Introduction to Form 5472 for Foreign-Owned LLC

The video introduces Form 5472 for a foreign-owned disregarded LLC for the 2023 tax year, discussing the necessity of filing this form alongside Form 1120 as a cover page. The LLC in question, Adam Nonresident LLC, is engaged in a U.S. Trader business, necessitating the reporting of income, expenses, and taxes. The video follows up on a previous tutorial about preparing Form 1040NR and focuses on Form 5472, including financial statements and background information on the form and the fact pattern of the LLC's operations.

05:03

💼 LLC Setup and Transactions

Adam Nonresident, a Bermudian citizen, establishes a Florida LLC without electing to be a C-Corp. He opens a bank account, transfers funds, and purchases a vending machine and inventory. The LLC also hires Bob, Adam's brother, for bookkeeping services, which is a reportable transaction due to Bob being a foreign related party. Adam is advised that the vending machines' physical presence in Florida constitutes a U.S. Trader business, leading to effectively connected income (ECI) and the requirement to file Form 1040NR and Form 5472.

10:03

📋 Filing Requirements and Ownership Details

The video explains the annual filing requirement for Form 5472 for foreign-owned U.S. LLCs that are disregarded entities. It details who needs to submit the form, the definition of a foreign person for U.S. tax purposes, and the broad scope of reportable transactions. The LLC's financial statements are reviewed, showing sales, costs, and various expenses, all of which are reported on Schedule C of Form 1040NR. The capital contributions, distributions, and related party payment are highlighted as reportable transactions on the 5472.

15:06

🏢 Business Activities and Tax Reporting

The video outlines the process of reporting the LLC's business activities, including the engagement in a U.S. Trader business and the need to file Form 5472 even if no U.S. taxes are owed. It emphasizes the importance of reporting capital contributions, distributions, and other payments related to the formation or dissolution of the LLC. The video also discusses the use of an EIN for the LLC and the disclosure of the U.S. tax ID number for the foreign owner on Form 5472.

20:07

🔍 Detailed 5472 Filing and Related Party Transactions

The tutorial delves into the specifics of completing Form 5472, including reporting the foreign owner and related party transactions. It covers the LLC's principal business activity, the reportable transactions between the LLC and Adam, and the separate 5472 required for the related party transaction with Bob. The video explains how to report monetary transactions that were deducted or included as income, and the need for a federal supporting statement or attachment to elaborate on the reportable transactions.

Keywords

💡Form 5472

Form 5472 is an IRS form required to be filed annually by foreign-owned U.S. LLCs that are disregarded entities. It is used to report information about the LLC's transactions and ownership. In the video, the focus is on preparing and filing this form for a foreign-owned disregarded LLC engaged in a U.S. Trader business, with examples of capital contributions, distributions, and other reportable transactions being discussed.

💡Disregarded Entity

A disregarded entity is a legal entity that is treated as a part of its owner for tax purposes. In the context of the video, the LLC is a single-member entity that is disregarded for federal tax purposes, meaning its income and expenses are reported on the owner's personal tax return rather than on a separate corporate return. The video explains that the LLC can file an entity classification election form (Form 8832) to be treated as a corporation, which would change its tax status and reporting requirements.

💡U.S. Trader

A U.S. Trader is a term used to describe a business that engages in trade or business within the United States. In the video, the LLC is engaged in a U.S. Trader business, which means it has effectively connected income and must report this income on the owner's Form 1040NR. This creates a requirement for the foreign owner to file both Form 5472 and Form 1040NR to report the business activities and pay applicable taxes.

💡Foreign Owner

A foreign owner, as discussed in the video, refers to an individual who is not a U.S. tax resident. This includes non-U.S. citizens, green card holders, or individuals who do not meet the substantial presence test. The video uses the example of Adam, a Bermudian citizen and resident, who is considered a foreign owner and is required to report his ownership and transactions with the LLC on Form 5472.

💡Reportable Transactions

Reportable transactions are certain types of transactions that must be reported on Form 5472. These include capital contributions, distributions, and other payments made by or to the LLC. In the video, examples of reportable transactions include the $8,000 capital contribution made by Adam and the $1,000 distribution he took from the LLC during the year. Additionally, payments made to related parties, such as the $450 paid to Adam's brother for bookkeeping services, are also considered reportable transactions.

💡Form 1120

Form 1120 is a U.S. corporate income tax return form. In the video, it is mentioned that Form 1120 is filed alongside Form 5472 as a 'cover page' for the foreign-owned disregarded LLC. While the LLC is not a corporation and thus does not pay corporate income tax, the form is used to satisfy the reporting requirements for the foreign owner's U.S. tax obligations.

💡Form 1040NR

Form 1040NR is used by nonresident aliens and foreign entities to report their U.S. source income and pay any taxes owed. In the video, Adam, as the foreign owner of the LLC, must file Form 1040NR to report the effectively connected income from the U.S. Trader business. This form is filed in addition to Form 5472 to fulfill the tax and reporting obligations for the foreign owner's U.S. activities.

💡Initial Return

An initial return refers to the first tax return filed by a business or individual with the IRS. In the video, it is indicated that the LLC is filing its first Form 5472 as an initial return since the entity was established mid-year 2023. This is important as it affects how the tax year is reported and whether any applicable penalties or fees apply.

💡Foreign Related Party

A foreign related party refers to any person related to the foreign owner of the LLC, which could include family members or entities created in non-U.S. jurisdictions. In the video, Adam's brother Bob is a foreign related party due to their familial relationship. Transactions between the LLC and a foreign related party are considered reportable transactions and must be disclosed on Form 5472.

💡Effectively Connected Income (ECI)

Effectively Connected Income (ECI) refers to income that is connected with the conduct of a trade or business within the United States. In the video, the LLC's income from its vending machine business in Florida is considered ECI because the business activities and the physical presence of the vending machines are within the U.S. This income is taxable to the foreign owner and must be reported on Form 1040NR.

💡Schedule C

Schedule C is a form used to report profits or losses from a business operated or conducted by the taxpayer. In the video, Adam reports all the activity of the LLC on Schedule C of his Form 1040NR. This includes sales, cost of goods sold, and various business expenses related to the vending machine business.

Highlights

The video discusses Form 5472 for a foreign-owned disregarded LLC for the 2023 tax year.

The LLC in the example is 'Adam Non-Resident LLC', a single-member LLC filing as a disregarded entity.

The Form 1120 is used as a cover page, with Form 5472 filed alongside it.

Adam Non-Resident LLC is engaged in a U.S. trade or business, necessitating a Form 1040NR filing.

The video provides a detailed walkthrough of preparing and filing Form 5472, including financial statements.

Reportable transactions on Form 5472 include capital contributions, distributions, and other payments.

The LLC must file Form 5472 annually, regardless of whether it has U.S. Trader business or not.

Adam, the foreign owner, is a Bermudian citizen and tax resident, making him a foreign person for U.S. tax purposes.

The LLC opens a bank account, makes purchases, and incurs expenses, including a payment to Adam's brother for bookkeeping services.

The video explains the need to report the foreign ownership of Adam and the transaction with the foreign related party, Bob.

Adam's LLC has an ITIN for filing purposes, while the LLC itself requires an EIN.

The financial statements of the LLC are reviewed to understand the capital contributions, distributions, and related party payments.

The video outlines how to fill out the initial return on Form 1120 for the LLC.

Schedule K is completed for the LLC, even though it's optional for disregarded entities.

The Form 5472 requires detailed reporting of transactions between the LLC and its foreign owner, as well as related parties.

The video includes a sample tutorial on how to fill out Form 1040NR, which complements the Form 5472 filing process.

The presenter provides a step-by-step guide on completing the 5472 form, including parts one through eight.

The video concludes with a review of the tax return, ensuring all requirements for a foreign-owned disregarded LLC are met.

Transcripts

all right for this video I want to go

over a sample form 5472 for a foreign

owned disregarded LLC and this is going

to be for the

2023 tax year so our LLC here is Adam

nonresident LLC so it's filing the

5472 uh together with the proor 1120 so

the Form 1120 is filed as kind of a

cover page and the form 5472 is behind

it now in this example uh this is video

two following the first one which covers

how to prepare the 1040nr so in our fact

pattern here we have a disregarded LLC

but the entity is engaged in a US Trader

business so it has to report the income

expenses and pay taxes so the form

1040nr filing here is for the foreign

owner I'll put a link to this video in

the description below uh so Adam here

files the 1040nr he reports all the

activity on a schedule C but in addition

to doing this he has to also prepare and

file the form 5472 and so that's what

this video is going to focus on so I've

got the form 5472 here with the 1120

we've also got the financial statements

for the company here so we'll go through

these as well and then I've got two

slides just covering some background on

the 5472 and then the fact pattern

itself so if we start here generally

talking about what what is required when

you file the form 5472 and who needs to

submit it so this filing is done on an

annual basis and it is for foreign owned

us llc's that are disregarded entities

so an LLC that is form with one owner is

going to be by default a disregarded

entity the LLC has the option to file an

entity classification election so that's

the

8832 if it wants to be treated as a

corporation for federal tax purposes now

if it files that it is no longer a

disregarded entity it's a regarded

entity that's taxable as a C Corp and so

that's a different

filing uh different principles apply

because the entity is now uh directly a

US tax resident so when we talk about

who is a foreign person for us tax

purposes we're looking at anyone who is

a non us tax resident right so us tax

residents are US citizens us green card

holders or individuals that meet that

substantial presence test so in our case

Adam non-resident here he's going to be

a ber muta Citizen and tax resident so

he's going to be a foreign individual

you can also have llc's that are owned

by Foreign corporations or foreign

Partnerships and so those are entities

that are created in non us

jurisdictions and as far as reportable

transactions so the 5472 needs to be

filed if there are any reportable

transactions during the year

and reportable transactions uh is

incredibly broad right and so virtually

every LLC is going to need to file

because it's going to have reportable

transactions and so reportable

transactions are capital contributions

and distributions and other like

payments and so that's what we're going

to see uh with our fact pattern here now

this specific example again we're going

to address a scenario where the LLC is

engaged in US Trader business and has

ECI and so the non-resident here has to

file the 5472 with the proor 1120 and

then they've also got to separately file

the 1040nr and so I have a sample

tutorial again I'll put the link uh

Below in the description so you can head

over and watch that 1040nr uh tutorial

if you want to learn more about that uh

now if the business activities do not

give rise to us Trader business this

form 5472 filing is still required so

even if the entity or or the owner isn't

liable for any US taxes it is still a

reporting requirement all right and I

have other videos covering uh those

sample uh kind of scenarios as well

again those will be in the description

below so when we talk about reportable

transactions uh in these cases we're

looking at things like Capital

contributions and

distributions uh other amounts paid in

connection with forming an LLC or

dissolving an L LLC and what we'll also

see in this video uh because there is a

foreign related party uh we also have

reportable transactions that are

actually uh tax deductible by the

business when it filed its

1040nr so let's cover the details of the

fact pattern and then we'll start

looking at the return so in our fact

pattern here we have Adam non-resident

who's a citizen and resident in Bermuda

and he wants to start a vending machine

business in Florida so he decides that

he's going to open a Florida LLC is a

sole owner he personally pays the state

filing fee and the registered agent fee

and does not make this election to be a

c cor all right that's very very

important right so this entity remains a

single member LLC and a disregarded

entity for US federal tax purposes now

after the LLC is open he uh opens a bank

account transfers $8,000 into it and the

LLC purchases the vending machine uh

purchases some inventory has other

expenses uh and so on so uh in addition

to these items Adam also decides to hire

his uh brother Bob he's going to pay his

brother Bob $450 for bookkeeping

services during the year now Bob is also

a Bermuda Citizen and Resident so he's

not in the US because Bob is a foreign

related party right he is related to

Adam the transaction between the LLC and

Bob should also be disclosed on the 5472

so in this situation we're actually

going to have two 5472 to disclose uh

the foreign ownership of Adam and then

the reportable transaction between the

LLC and the foreign related party which

is

Bob now Adam was advised that the

physical presence of the vending machine

in Florida is going to create this us

Trader business problem and so he's

engaged in a US Trader business he has

effectively connected income and so in

addition to this 5472 he's also filing

the

1040nr all right now Adam has an IT 10

which he used to file that 1040nr and he

can also use the same it 10 on his

5472 filings now the LLC of course needs

its own Ein in order to file the 5472

you can't use the it of adom for for

that that purposes uh but you'll see on

the 5472 there is a placeholder to

disclose us tax ID number for the

foreign owner if that person has

one okay so let's briefly go through the

financial statements just so we get a

sense of what happened here during the

year but we can see here that Adam had

uh some sales so sales activity through

the vending machine cost of good sold

the inventory that was sold as part of

those sales and then some various

expenses right all of these expenses

were reported on Schedule C of the form

1040nr when Adam reported all of this

activity now the business did have a net

loss for the year so the Adam didn't

actually pay any US taxes yet uh but

nevertheless it was still required to be

reported because he has a

us on the balance sheet side we see cash

accounts the fixed assets some accounts

payable and in the equity section here

we could see the capital contributions

made by Adam during the year so that

number is the

$88,000 that he transferred into the

bank account right that's a capital

contribution and the

$174 are the filing fees and registered

agent fees that he paid when he set up

the company right he personally paid

those amounts and so that also counts as

a reportable transaction right fees uh

that you personally paid as the owner

and the formation or the dissolution of

the entity counts towards that balance

now the Capital distributions he took a

$1,000 draw during the year so uh these

are reported as separate amounts we have

so we have the capital contributions of

8174 and a distribution to Adam of

$1,000 and then the related party

payment right so if we look at the

bookkeeping line item we could see this

was the payment to his brother Bob

$450 uh for bookkeeping services that

was a deduction for the company but it's

also a reportable transaction and so

what we're going to see on the

5472 are each of these amounts reported

but in in separate areas okay all right

so let's have a look at the tax return

here we'll go through the 54 72s both of

them and then that proor 1120 at the

beginning so let's start at the

beginning with the proor 1120 so when

you submit this you're submitting the

1120 the first six pages but you only

have to really complete the top section

here so the 1120 we have the name of the

LLC Adam non-resident LLC the Ein and

the date The Entity was created and then

the mailing address for the business and

then we have marked in box e initial

return because this is the initial

filing now for the time period The

Entity wasn't set up until June 9th and

so what we've done is we've inputed June

9th through the end of the year because

it's not a full calendar year

2023 and then the IRS requests that at

the top you write foreign owned usde to

indicate that it's a foreign owned us

disregarded entity and then this

document is mailed to the IRS or it can

be faxed to the IRS at the appropriate

fax

number now if we move on to this uh

second and third Pages here none of

these apply because this isn't a

corporate entity right so again for the

instructions they don't require that you

complete any of these other sections and

most of these sections uh certainly

don't apply schedule K argu arguably

does some have some relevant information

here so you can complete this but again

this is optional but we have gone ahead

and completed it anyway uh so question

four they're asking us did any

individual own more than uh 20% or more

or directly or indirectly 50% or more of

the stock in this case yes right so uh

we did attach a schedule G that reported

that Adam Own 100% of the company and

question seven it's asking us here did

any person for foreign person

specifically right us persons wouldn't

be reported here but any foreign person

own uh stock in the company and the

answer is yes so a 100% ownership in

Bermuda and then we do have uh normally

you would just have 15472 attached to

report the foreign owner uh but in this

case because we have that related party

transaction amount uh and we did take a

tax deduction for the payment right

because this is an entity

that's engaged in US Trader business and

has ECI we're going to have a separate

5472 and then the remaining questions

schedule K can be answered you know yes

or no as appropriate uh if we scroll

down to the balance sheet again don't

have to report balance sheet uh for

purposes of this filing right you don't

have to do this if this is a forn usde

just filing the

5472 so we have uh schedule G included

there so we've reported Adam's

information again not necessary but

we've done it nevertheless just for

completeness and so now the real meat of

the filing is in this

5472 so the 5472 here the reporting

Corporation is the LLC so we have Adam

non-resident LLC the E and then the

mailing address in the US this can be us

or

foreign right we have the US address the

mail foring address listed here

principal business activity of the

reporting Corporation is the vending

machines and we've looked up the

appropriate business activity code in

the

instructions now lines 1 F through 1H

right the gross payments made or

received that are being reported so

these are the reportable

transactions so you can see we have two

different amounts here we have a

different we have an amount in 1 F and

amount in 1 H 1H is the total of all

reportable transaction payments made or

received across all the the

5472 and then 1f is the reportable

amount that applies to this specific

5472 so if we look back at our financial

statements remember the amounts that

Adam has as reportable transactions are

the capital contributions and

distributions so the 8174 and 1,000 is

the

9174 and then that related party payment

to his brother

is450 so the 9 , 174 are the reportable

transactions between the company and

Adam as the owner and then the other

$450 is going to be for Bob and we'll

look at that 5472 next so you have to

remember if you've got multiple 5472 a

total across all and then each one

individually should report the amount

that is attributed to just that specific

5472 1j here it is an initial year so

we've check the box there country of

incorporation for the llc's in the US uh

and then where business activities are

cond deducted or conducted rather can is

in the US you could also list other

countries as well so um Adam could list

Bermuda here as well if makes the

argument that well business is conducted

there also that's fine uh then the date

of

incorporation The Entity was set up June

9th 2023 and then Lin two and three here

right U at least 50% of the stock was

owned by Foreign persons so we've

checked that and then in box three we

are also checking that this is a

reporting Corp which is a foreign owned

domestic disregarded entity okay treated

as a COR for purposes of the section

6038 cap a reporting

obligations all right so now into part

two information on the shareholder so

this is where you would report the 100%

owner so we've got Adam non-resident his

address in Bermuda and he does have a US

tax ID number right which is what he

also used to file the 1040nr so we've

got that listed there principal

countries where he conducts his business

is in Bermuda he is a citizen of Bermuda

and he's a resident of Bermuda right so

we've indicated Bermuda across 4 C

through e reference ID number should be

populated if you don't have a us ID but

you can also enter it uh even if you do

so we've just entered his name again

Adam nonresident and then the rest of

these are blank because he is the 100%

owner so we should we wouldn't

necessarily have any other entries for

other uh direct 25% owners because in

this case he owns 100% moving on to part

three this is where we would report Adam

as that related party right and this is

because of the reportable trans trans

actions happening between the LLC and

Adam as a related party to the business

so we've got Adam's name and information

listed again here so Adam non-resident

his us ID vending machine business

business activity code and then in line

8 e where we indicate the relationship

we've marked the 25% shareholder box

right so in this case Adam is uh the

relationship between Adam and this LLC

is that he is the shareholder right so

we've indicated there that he is the

shareholder now part four creates a lot

of confusion so part four is blank here

uh because part four is where we report

income or expenses that were actually

deducted in arriving at taxable income

for the business in this case there were

no payments made to Adam that were tax

deductible right because he's the owner

he's a so proprietor everything that

happened just kind of flows through to

him the only transactions really that

happen between the LLC and Adam are

those Capital contributions and

distributions which are reported in part

five but in this case you only report

those M monetary transactions between

the reporting Corp and the foreign party

if they were taken as deductions so uh

if we look or or included as income so

if Adam put money into the company and

it was treated as income

it could be reported up here if the

company made payments to Adam that were

tax deductible on schedule seia that

1040 and R it would be reported here but

we don't have any entries right because

that doesn't apply uh between the LLC

and Adam what we do have is part five

reportable

transactions of a reporting corporation

that is a foreign own usde this is where

most foreign owned usds report that

information and then part six uh any

kind of non-monetary relationships so

we've checked these boxes and we're

going to include a statement behind the

5472 but before we get to that uh we'll

look at Parts seven and eight here so

additional information answer questions

yes or no is appropriate in most cases

these are all just going to be no right

so none of these apply in these

circumstances where you would have some

yes answers perhaps uh is if this wasn't

a foreign owned us disregarded any if

this was a US corporation uh that had

foreign ownership and some related party

transactions you would often see some

yes answers in part seven cost sharing

Arrangements none apply uh so we've

indicated no and then stamped not

applicable in line

44 now the federal supporting statement

or the attachment this is what we have

up here statements five and six so in

statements five and six we've elaborated

on those Capital contributions addition

distribution so uh we've got just a

little narrative here explaining why

we're filing it so we have Adam

non-resident LLC is a foreign owned

single member LLC that is a disregarded

entity the company is engaged in the

business of operating vending machines

that are physically located within the

US the company is filing this form to

disclose the capital

contributions and distributions between

the LLC and the Soul form member uh the

foreign member has also filed the form

1040nr with a Schedule C to report the

US effectively connected income now the

capital contributions and distributions

between the company and the sole foreign

member are as follows and so we've

listed out on a gross basis the capital

contributions and distributions and then

the second part in part six the

non-monetary we just want to disclose

that uh the foreign member here is

actively involved in the business so

they serve as the managing member and he

materially participates in the

operations however he is a citizen and

resident of Bermuda and does all of this

while physically present in Bermuda so

he's not physically coming to the US to

do any of this work all right so that's

the first 5472 and in most cases uh most

foreign know us diores kind of stopped

there but in this case we've got a

little bit of a Twist where uh Adam does

hire his brother to do some work for him

and because the brother is a related

party for purposes of these rules a

foreign related party uh that

relationship should also be disclosed so

on the second

5472 we report basically all the same

information that we had on the first

page or the first one uh the difference

here is in line 1f right so remember

Line 1 H is the total across all two but

in line 1 F we have the four

$450 uh payment that's going to be

reported here to the related party so

that's the reportable transaction on

this

5472 so again Adam listed as the foreign

shareholder remember Bob is not a

foreign shareholder but he is a related

party so in part three we've got the

name and address of that related party

we've got Bob non-resident we have his

address Somerset Village in Bermuda the

US ID number so Bob does not have an IT

10 so you can use foreign us as a

placeholder we've got a reference ID for

Bob the business

activity with uh which Bob is engaged in

is accounting the principal business

activity code for accounting uh

businesses conducted here 8f and 8G in

Bermuda and then on line 8e the

relationship notice now we've checked

related to the 25% shareholder so Bob is

related to Adam who is the 25%

shareholder so we've indicated this

check mark here now part four where we

actually see some data so remember this

is filed separately from the 1040 andr

filing so this is Adams 1040 andr and on

Schedule C we can see that he reported

all of the income and expenses and we

did take a tax deduction for a $450

payment

for Professional Services that was the

bookkeeping fee so because the reporting

Corp took that deduction we want to

report that payment made between the

reporting Corporation and the foreign

related party so on line 29 we've listed

the $450 as consideration paid uh to the

the related party Bob

non-resident uh and enter the total down

there on the bottom it's a line 36 so

now uh We've we've appropriately

reported everything that would be

required uh under these circumstances

now uh again it is a foreign own usde

but in this case the related party here

uh Bob is not the owner and he didn't

have any of these other transactions

right he didn't make any contributions

or receive any distributions uh because

he was Simply Hired to do the company's

books right and so that's been reported

there that's fine okay uh and then the

same thing for Bob's um Parts seven and

eight and nine you know answer answer as

as appropriate right depending on the

circumstances but again in this case

none of these elements apply uh to this

LLC or or to Bob or to Adam okay so we

just answer no and then not applicable

across the board okay so that covers it

for this tutorial I hope that was

helpful uh again go check out that

1040nr tutorial as well so you can see

kind of the whole picture uh but uh I

hope that was helpful and if you have

any questions obviously feel free to

leave a question or comment below and I

look forward to seeing you again on the

next video thank you