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.