Form 5472 Part V: Essential Guide for Foreign-Owned U.S. Disregarded Entities

If you're a foreign owner of a U.S. LLC or disregarded entity, Form 5472 Part V reporting is critical—and often confusing. With IRS penalties starting at $25,000 for incomplete filings, understanding Part V requirements can save you thousands. This guide clarifies what belongs in Part V and how to file correctly.

What Is a Foreign-Owned U.S. Disregarded Entity?

A foreign-owned U.S. disregarded entity (DE) is typically a single-member LLC wholly owned by a foreign person, including:

• Nonresident aliens owning U.S. LLCs
• Foreign corporations owning U.S. LLCs
• Foreign individuals operating U.S. branches

Despite being "disregarded" for income tax purposes, these entities must file Form 5472 annually when they have reportable transactions with related parties.

Understanding Form 5472 Structure

Form 5472 contains nine parts, but only certain sections apply to foreign-owned U.S. DEs:

• Part I-III: Identifying information (all filers)
• Part IV: Operating transactions with foreign related parties
• Part V: Capital transactions (foreign-owned U.S. DEs only)
• Part VI: Nonmonetary transactions
• Part VII: Additional information (all filers)
• Part VIII-IX: Special situations (if applicable)

What Is Form 5472 Part V?

Part V is exclusively for foreign-owned U.S. disregarded entities and captures specific capital structure transactions not reported in Part IV.

Transactions That Belong in Part V

Part V captures transactions related to the entity's capital structure:

1. Capital contributions from the foreign owner
2. Distributions to the foreign owner (profits or return of capital)
3. Formation transactions (Example-WY or DE LLC formation fees)
4. Dissolution transactions
5. Acquisition or disposition of the entity

These are NOT routine operating expenses—they're movements of capital between the entity and its owner. Even if you paid out of your own personal checking account for the fees, you are required to report them (Example-Formation fees paid by an owner $999).

Part V vs. Part IV: Critical Difference

Report in Part IV (Operating Transactions):

• Sales and purchases of inventory or property
• Service fees and management charges
• Rent and royalty payments
• Loans and interest
• Operating expenses

Report in Part V (Capital Transactions):

• Cash or property contributions from the owner
• Profit distributions to the owner
• Return of capital to the owner
• Entity formation or dissolution transactions

Example

Scenario: Your foreign parent company contributes $150,000 to your U.S. LLC in January, then you pay them $5,000/month for management services throughout the year.

• ✅ Part V: $150,000 capital contribution
• ✅ Part IV: $60,000 in management fees ($5,000 × 12 months)

How to Complete Part V

Part V requires just two steps:

1. Check the box if applicable transactions occurred
2. Attach a detailed statement describing each transaction

Required Information in Part V Statement

Your attached statement must include:

• Transaction type and description
• Amount in U.S. dollars
• Nature of consideration (cash or property)
• Fair market value (for property)

Top 5 Part V Mistakes to Avoid

1. Reporting Capital Contributions in Part IV

Capital contributions are NOT operating income. They belong in Part V with an attached statement, not on Part IV line items.

2. Checking the Box Without Attaching a Statement

Simply checking Part V without providing detailed descriptions makes your Form 5472 "substantially incomplete"—triggering the $25,000 penalty.

3. Insufficient Detail

Vague statements like "capital transactions occurred" don't satisfy IRS requirements. Include specific amounts and descriptions.

4. Forgetting Part V Entirely

Many filers complete Part IV for operating transactions but overlook Part V for capital movements—a costly mistake.

5. Missing Distributions

Report ALL capital contributions AND distributions. Many filers remember initial funding but forget year-end profit distributions. The money you moved from an LLC checking account to a personal checking account is considered a cash distribution(s).

Filing Requirements for Foreign-Owned U.S. DEs

Foreign-owned U.S. DEs have special filing procedures:

Attach to Pro Forma Form 1120:

• Complete only name, address, and Items B and E
• Write "Foreign-owned U.S. DE" across the top

Use Dedicated Address:

• Fax: 855-887-7737
• Mail: Internal Revenue Service, 1973 Rulon White Blvd, M/S 6112 Attn: PIN Unit, Ogden, UT 84201

Cannot File Electronically: Must fax or mail

Due Date: 15th day of 4th month after tax year end (April 15 for calendar year filers)

Form 5472 Penalties

$25,000 penalty per form for:

• Failure to file on time
• Substantially incomplete filing (including missing Part V statements)
• Inadequate record-keeping

Additional penalties: $25,000 for each 30-day period after 90 days of IRS notification

Criminal penalties may apply for willful violations

When Part V Doesn't Apply

You can skip Part V if:

• No capital contributions occurred
• No distributions were made
• No formation/dissolution/acquisition/disposition occurred
• Only operating transactions took place (reported in Part IV)

Simply leave Part V blank—don't check the box.

Part V Compliance Checklist

✅ Part V box checked (if applicable)
✅ Detailed statement attached
✅ All contributions listed with amounts
✅ All distributions listed with amounts
✅ Fair market values provided for the property
✅ Supporting documents retained (wire transfers, bank statements)
✅ Pro forma Form 1120 prepared correctly
✅ "Foreign-owned U.S. DE" written on Form 1120
✅ Filed to correct the dedicated address

How MyFreeTaxAmerica.com Can Help

Navigating Form 5472 Part V requirements can be overwhelming, especially when a single mistake costs $25,000. MyFreeTaxAmerica.com offers specialized tax software designed specifically for foreign owners of U.S. businesses.

File Form 5472 with Confidence

Our platform helps you:

• Correctly categorize transactions between Parts IV and V
• Generate compliant Part V statements with proper detail
• Prepare your pro forma Form 1120 automatically
• Avoid the $25,000 penalty with built-in compliance checks

Why Choose MyFreeTaxAmerica.com?

Unlike generic tax software, MyFreeTaxAmerica.com specializes in international tax compliance for foreign-owned U.S. entities. Our software:

✅ Guides you through Part V requirements step-by-step
✅ Generates properly formatted Part V statements
✅ Ensures all required information is included
✅ Helps you maintain compliant records

Built by CPAs for foreign business owners, our platform makes Form 5472 compliance straightforward and stress-free.

Quick Reference: Part V vs. Part IV

Key Takeaways

Part V is only for foreign-owned U.S. disregarded entities and captures capital structure transactions—not operating expenses.

Checking the box isn't enough. You must attach a detailed statement describing each capital transaction with amounts and the details.

Every capital movement counts. Initial contributions, additional contributions, and all distributions must be reported in Part V.

The $25,000 penalty is automatic for incomplete Part V reporting, regardless of whether you owe any taxes.

Professional software helps. Using specialized platforms like MyFreeTaxAmerica.com ensures proper Part V compliance and penalty avoidance.

Conclusion

Form 5472 Part V is a critical but often misunderstood requirement for foreign-owned U.S. disregarded entities. Understanding that Part V captures capital contributions and distributions—not operating transactions—is essential for compliance.

With penalties of $25,000 for incomplete filing, proper Part V reporting is non-negotiable. The good news? You don't have to navigate this alone. MyFreeTaxAmerica.com provides specialized tax software that guides you through every Part V requirement, ensuring your Form 5472 is complete, accurate, and penalty-free.

Don't risk a $25,000 penalty. Whether you're filing Form 5472 for the first time or need to ensure your current approach is correct, MyFreeTaxAmerica.com gives you the tools and CPA-backed expertise to file with confidence.

Visit MyFreeTaxAmerica.com today and file your Form 5472 Part V correctly—the first time.

This article is for informational purposes only and does not constitute tax advice. Consult with a qualified tax professional regarding your specific situation.