25% Foreign Shareholder

A 25% foreign shareholder is any foreign person, company, trust, or estate that owns at least 25% of a US corporation's stock, measured either by voting power or by total value. This threshold is what turns an ordinary US corporation into a reporting corporation under the Form 5472 rules. If your corporation has even one 25% foreign shareholder and had reportable transactions with a related party, it must file the form.

Ownership is not only counted by looking at whose name is on the shares. The IRS also applies constructive ownership rules, which attribute shares held by family members and related companies to you. So a founder in India who holds 15% directly while her husband holds another 15% is treated as a 25% foreign shareholder, because the family's shares are combined.

For a foreign-owned single-member LLC, this idea is simpler but stricter. The IRS treats the disregarded LLC as if it were a corporation for Form 5472 purposes, and the single foreign owner automatically counts as a 100% foreign shareholder. That is why every foreign-owned single-member LLC with reportable transactions files Form 5472 with a pro forma Form 1120 by April 15.

The details of each 25% foreign shareholder go in Part II of Form 5472: name, address, country of citizenship or organization, and tax identification numbers. Getting this part wrong or leaving it blank can make the filing substantially incomplete, which the IRS can penalize the same as not filing at all, at $25,000 per form. Multi-member LLCs taxed as partnerships file Form 1065 instead, but if they own a US corporation, that corporation can still have its own Form 5472 duty.