Understanding IRS Form 5472 and 1120: A Guide for Foreign-Owned U.S. Businesses

For many international investors, the United States offers an attractive environment for launching and expanding businesses. But owning a U.S. entity as a foreign person comes with complex reporting obligations—especially when it comes to IRS Form 5472 and Form 1120.
At Luna CPA, LLC, our team in Laredo, Texas regularly helps foreign-owned corporations and LLCs meet these specialized tax filing requirements while remaining fully compliant with U.S. tax law.

What Is IRS Form 5472?
Form 5472 is an information return required by the Internal Revenue Service for certain U.S. corporations that are at least 25 percent foreign-owned or that have reportable transactions with a foreign-related party.
Its purpose is to ensure transparency in cross-border transactions and to prevent tax evasion through transfer-pricing manipulation or unreported capital movement.

Failure to file or filing an incomplete Form 5472 can result in steep penalties—currently $25,000 per year per entity, and additional penalties for continued non-compliance.

Who Must File
You must file Form 5472 if your company meets either of these conditions:

1. It is a U.S. corporation with 25% or more foreign ownership (directly or indirectly), or
2. It is a foreign-owned U.S. disregarded entity (DE), such as a single-member LLC owned by a non-U.S. individual or company.
   
   Many foreign investors establish LLCs in Texas for operational convenience, but they often overlook that these entities are required to file both Form 5472 and a pro-forma Form 1120 each year—even if no income was earned.
   
   The Role of Form 1120
   Form 1120 is the U.S. corporate income-tax return. For foreign-owned disregarded entities, it serves primarily as a cover sheet for submitting Form 5472.
   Even if your business had no sales, no revenue, and no U.S.-source income, the IRS still expects the Form 1120/5472 package to maintain compliance.
   
   Typical information included:

• Company name, EIN, and foreign owner details
• Nature and amount of transactions between the U.S. entity and foreign owner (loans, payments, management fees, etc.)
• Balance-sheet data to verify activity
  
  Common Reporting Mistakes
  Many foreign owners and even new accountants misunderstand these filings. Common errors include:
• Failing to obtain a valid EIN for the U.S. entity
• Not realizing that an inactive LLC still must file Form 5472
• Using the wrong tax year or mismatched ownership percentages
• Forgetting to include supporting documentation for related-party transactions
  
  These mistakes can trigger penalties or jeopardize the entity's good standing with the IRS.
  
  Texas Considerations for Foreign-Owned Entities
  In addition to federal filings, Texas requires every active business—domestic or foreign—to comply with the Texas Franchise Tax and annual report requirements through the Texas Comptroller of Public Accounts.
  Even if your entity has zero income, a No Tax Due report may still be mandatory to maintain good standing with the Texas Secretary of State.
  
  Because Laredo serves as a major cross-border trade hub, many businesses here have international ownership. Working with a local CPA who understands both U.S. and international tax reporting ensures compliance on both sides of the border.
  
  How Luna CPA Can Help
  At Luna CPA, LLC, we specialize in assisting foreign investors and businesses with:
• Filing Forms 1120 and 5472 accurately and on time
• Setting up U.S. entities properly with IRS and state registration
• Managing cross-border transactions and transfer-pricing documentation
• Avoiding penalties through proactive compliance reviews
  
  Our CPA team ensures that every submission meets current IRS and Texas standards—saving you time, money, and stress.
  
  Final Thoughts
  Navigating IRS reporting rules for foreign-owned businesses is complex, but compliance doesn't have to be overwhelming. With expert CPA guidance, you can confidently operate in the U.S. while avoiding costly penalties.
  
  If you own or manage a Texas-based company with foreign ownership, let Luna CPA, LLC in Laredo, TX help you stay fully compliant and strategically positioned for growth.
  
  Luna CPA, LLC
  Certified Public Accountants in Laredo, Texas — helping foreign investors build strong, compliant U.S. businesses.