Related Party

A related party is anyone whose relationship with your US company is close enough that the IRS wants their dealings reported. For Form 5472 purposes, this includes any 25% foreign shareholder, any person related to the company or to that shareholder under the attribution rules, and any company in the same ownership group. In plain terms: the owner, the owner's family, and the owner's other companies.

This matters because Form 5472 is filed once per foreign related party that the US company transacted with during the year. Suppose Ahmed in Egypt owns a US LLC, and he also owns an Egyptian trading company. The LLC pays Ahmed $6,000 in distributions and pays his Egyptian company $20,000 for inventory. That is two related parties and two Forms 5472 attached to the same pro forma Form 1120, due April 15.

The relationship test uses constructive ownership, so it reaches further than many founders expect. Your brother's company, a trust set up for your children, or a partnership where you hold a controlling stake can all be related parties. Payments to a genuinely independent supplier or freelancer are not reportable; the rules target dealings where the same people stand on both sides of the transaction.

Each Form 5472 identifies the related party in Part IV style detail: name, address, country, and the dollar amounts by category, such as rent, royalties, loans, or sales. Leaving out a related party, or filing for one but not another, can make the whole package incomplete and expose the company to the $25,000 penalty per missing form. Multi-member LLCs report income to partners on Form 1065 and Schedule K-1, but corporations inside such structures still track related-party dealings for Form 5472.