Forms 5472 and 1120 for a US Subsidiary of a Foreign Parent

If a company in Bengaluru, Mumbai or Toronto owns a US subsidiary, the subsidiary has an IRS reporting duty that has nothing to do with whether it earned a profit. This guide to Forms 5472 and 1120 for a US subsidiary explains who is a reporting corporation, what counts as a related-party transaction, how a foreign-owned LLC files even though it has no income tax return, and what happens if the form is late. It follows the Form 5472 instructions revised December 2024 and the current Form 1120 instructions.

Who must file Form 5472

A "reporting corporation" is either a 25% foreign-owned US corporation (including a foreign-owned US disregarded entity) or a foreign corporation engaged in a US trade or business. A corporation is 25% foreign owned when at least one foreign person owns, directly or indirectly, at least 25% of the total voting power or of the total value of its stock at any time in the tax year. Special attribution rules apply, so a parent's parent can count.

Foreign persons include individuals who are neither US citizens nor residents, and companies not created or organized in the United States. A "related party" includes any 25% foreign shareholder, people related to the corporation or to that shareholder, and others related under the transfer pricing rules.

Exceptions exist: for example, a reporting corporation need not file if it had no reportable transactions of the kinds listed in Parts IV and VI (and, for a foreign-owned disregarded entity, Part V).

What is a reportable transaction?

Reportable transactions with a foreign or domestic related party include:

• Sales, purchases, rents, royalties, commissions and similar items paid or received in money (Part IV).
• Amounts borrowed or loaned and interest paid or received (Part IV).
• Non-money transfers and transactions at less than full consideration (Part VI).
• For a foreign-owned US disregarded entity, amounts connected with formation, dissolution, acquisition and disposition, including contributions to and distributions from the entity (Part V).

If the actual amount in a series of transactions with a foreign related party is $50,000 or less, the form allows you to report "$50,000 or less." A separate Form 5472 is filed for each related party that had a reportable transaction.

How to file, step by step

1. List your related parties. Include the foreign parent, sister companies, owners, and any US affiliates that transacted with you.
2. Pull the year's transactions. Use ledger detail for cash, loans, expense reimbursements, shared services and asset transfers; accrual-basis entities use accrued amounts.
3. Complete a Form 5472 for each related party. Part I covers your entity, Part II the 25% foreign shareholder, Part III the related party, and Parts IV to VI the transactions.
4. Attach to the return. A corporation attaches Form 5472 to its Form 1120 and files both by the due date, including extensions.
5. For a foreign-owned disregarded LLC, file a pro forma Form 1120. Complete only the name, address and the relevant items, write "Foreign-owned U.S. DE" at the top, and use the dedicated IRS Ogden mailing address or fax number in the instructions. A disregarded entity cannot e-file Form 5472.
6. Keep the records. The reporting corporation must keep books sufficient to support its return and related-party dealings.

Documents and information you need

• Ownership chart showing every owner up to the ultimate parent, with percentages and country
• Parent's name, address, country and tax identification number (if any)
• Ledger of transactions with each related party, plus loan agreements and service agreements
• Prior-year Form 1120 and Form 5472, if any
• Bank statements for capital contributions and wires

Deadlines and penalties

Criminal penalties can apply for false or fraudulent information. Each member of a consolidated group is separately subject to the penalty. Our guide to foreign reporting penalties explains what to do if you receive a notice.

Forms 5472 and 1120 for a US subsidiary: what else changes?

The subsidiary files Form 1120 like any other C corporation, taxed at a flat 21% on taxable income. Beyond that, foreign ownership brings:

• Withholding on payments to the parent. Dividends, interest and royalties to a foreign parent can be subject to 30% withholding unless a treaty reduces it, reported on Forms 1042 and 1042-S. See withholding on payments to foreign persons.
• Treaty rates. The IRS treaty table (revised May 2023) shows dividends to a Canadian parent at 5% when the parent owns at least 10% of the voting stock and 15% otherwise, and to an Indian parent at 15% on the same ownership test and 25% otherwise.
• Arm's-length pricing. Charges between the subsidiary and its parent should reflect what unrelated parties would charge; the Indian side is covered in India transfer pricing basics.
• Home-country reporting. An Indian parent reports its overseas investment through its authorised dealer bank under the RBI's overseas investment rules, and a Canadian parent files foreign affiliate returns; each foreign advisor confirms.

Where a US person owns a foreign company, the roles reverse and Form 5471 and related forms apply instead; see foreign business reporting.

A worked example

Tarang Software Pvt Ltd in Bengaluru owns 100% of Tarang Inc., a Delaware C corporation operating in Naperville. For 2025, all figures hypothetical:

• Tarang Inc. received a US$500,000 equity investment from the parent.
• It paid the parent US$240,000 for development services.
• It borrowed US$100,000 from the parent and paid US$6,000 of interest.

Tarang Inc. files Form 1120 for 2025 by April 15, 2026, or by October 15 with Form 7004, and attaches one Form 5472 for the parent covering the equity infusion, the service fees, the loan and the interest. If it misses the form, the exposure is US$25,000 even if the company shows a loss. If the same business ran as a disregarded Illinois LLC instead, the LLC would file a pro forma Form 1120 with Form 5472 and no other income tax return.

Mistakes to avoid

• Assuming a loss year or a dormant company means no filing; funding a new entity usually creates a reportable transaction, and the instructions name contributions to a foreign-owned LLC.
• Forgetting that one Form 5472 is needed per related party.
• Sending a disregarded entity's form to the regular corporate address or trying to e-file it.
• Leaving out reimbursements and shared costs paid through the parent's bank account.
• Missing treaty paperwork on dividends and interest, which raises the withholding to 30%.

How we can help

We prepare Forms 1120, 5472 and the related withholding returns for US subsidiaries and foreign-owned LLCs, and we reconcile the numbers with what your parent books in India or Canada. We work with your Chartered Accountant or Canadian CPA for the home-country filings. Our firm is based in the Aurora, Illinois area. See business tax returns and planning, cross-border tax and IRS and state representation.

Frequently asked questions

General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.