A US corporation owned from outside the US files Form 1120 whether or not it made money, and the schedule that trips people up is the one reporting transactions with the foreign parent.
That schedule is Form 5472, "Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business." It is not optional when the corporation has reportable transactions with a related party, foreign or domestic, and the penalty for failure to file as required is $25,000 on the reporting corporation. For many foreign-owned corporations, this single attachment is where more money is at risk than on the tax return itself.
Why a foreign-owned corporation files even with zero income
The IRS requires every domestic corporation to file Form 1120 each year, regardless of whether it earned income, incurred expenses, or conducted any business activity.
The filing deadline for calendar-year corporations is April 15 of the following year. A corporation that needs more time files Form 7004 for an automatic six-month extension, which pushes the deadline to October 15. The extension applies to the time to file, not the time to pay.
When a corporation owes no tax, the late-filing penalty under IRC §6651(a)(1) is zero. The penalty is calculated as 5 percent of the unpaid tax for each month the return is late, up to 25 percent. If the unpaid tax is nothing, 5 percent of nothing is still nothing. The minimum penalty for returns more than 60 days late — the lesser of the unpaid tax or $525 for returns filed in 2026 — is also zero when there is no tax due. A corporation with no income should still file on time to stay compliant, but the §6651 penalty itself does not apply where no tax is owed.
What Form 5472 actually requires
Form 5472 must be attached to Form 1120 when the corporation is 25 percent or more foreign-owned and had reportable transactions with a related party, foreign or domestic, during the tax year. A "reportable transaction" is broadly defined. It includes:
- Contributions to capital and distributions of capital
- Loans, advances, and interest payments between the corporation and its foreign owner or related parties
- Payments for services, rent, royalties, and license fees
- Sales, purchases, and transfers of tangible or intangible property
- Any other monetary or non-monetary transaction between the corporation and a foreign related party
If the corporation had no reportable transactions with a related party, foreign or domestic, during the tax year, Form 5472 is not required. The IRS instructions for Form 5472 list as the first exception a reporting corporation that "had no reportable transactions of the types listed in Parts IV and VI." A foreign-owned corporation that existed during the year but had zero dealings with its foreign parent or another related party — no capital contributions, no loans, no management fees, nothing — files Form 1120 without attaching Form 5472.
The form asks for the name, address, and country of the foreign related party, the nature of the relationship, and the type and amount of each transaction.
The $25,000 penalty and how it stacks
The penalty for failing to file Form 5472, or filing it incomplete or inaccurate, is $25,000 on the reporting corporation for failure to file as required. It applies regardless of whether the corporation had US tax liability.
If the IRS sends a notice about the missing form and the corporation still does not file, the penalty does not escalate immediately. The continuation penalty of $25,000 per 30-day period (or part of a 30-day period) only kicks in once the failure has continued for more than 90 days after the IRS notification. From day 91 onward, each additional 30-day period of continued failure adds another $25,000 per related party.
A foreign-owned US corporation that had reportable transactions with its foreign parent or another related party and did not file Form 5472 may face the $25,000 penalty regardless of whether any tax was due.
Payments to the overseas owner that must be reported
The most common mistake foreign-owned corporations make is failing to report payments between the corporation and the foreign parent. These include:
Capital contributions and distributions. When the foreign parent contributes capital to the US corporation — whether in cash, property, or services — that transaction is reportable. Distributions from the corporation back to the parent are also reportable.
Intercompany loans and interest. If the foreign parent lends money to the US corporation, or the corporation lends money to the parent, the loan itself and any interest payments are reportable transactions.
Management and service fees. Payments from the US corporation to the foreign parent for management services, administrative support, or technical assistance are reportable.
Royalties and license fees. If the US corporation pays the foreign parent for the use of trademarks, patents, technology, or other intellectual property, those payments are reportable.
What happens when years were never filed
A foreign-owned US corporation that has not filed Form 1120 or Form 5472 for one or more years has accumulated filing obligations and potential penalties.
For each year, the corporation files Form 1120 with Form 5472 attached — but only if reportable transactions with a related party, foreign or domestic, occurred in that year. A year in which the corporation had no dealings with its foreign parent or another related party does not require Form 5472, even if prior years did.
The Form 5472 filing requirement and the §6651 late-filing rule are separate. A corporation that owes no tax faces no §6651 late-filing penalty on the Form 1120. A reporting corporation that fails to file Form 5472 as required may face a $25,000 penalty regardless of whether tax was owed.
Common errors that create problems later
Filing Form 1120 without Form 5472 when transactions occurred. A corporation that files Form 1120 without the required Form 5472 when it had reportable transactions may face the $25,000 penalty.
Misclassifying transactions. Capital contributions, loans, management fees, and other reportable transactions must be reported as required.
Ignoring the record-keeping requirement. Form 5472 requires the corporation to maintain records that establish the accuracy of the reported transactions.
Assuming a dormant corporation has no filing obligation. A domestic corporation must file an income tax return whether or not it has taxable income. The §6651 late-filing penalty will not apply if no tax is owed.
Where to start if you are behind
Gather the corporation's formation documents, EIN assignment letter, and any prior tax filings. Determine which years have unfiled federal returns and which of those years had reportable transactions with the foreign parent or another related party. For each year, prepare Form 1120 and, if applicable, Form 5472.
Frequently asked questions
Does a company with no income still have to file?
Yes. A US corporation must file Form 1120 every year it has a filing obligation, regardless of whether it earned income, had expenses, or conducted any activity. If the corporation is 25 percent or more foreign-owned and had any reportable transactions with a related party, foreign or domestic — including capital contributions, loans, or management fees — it must also attach Form 5472 to that return, and the penalty for failure to file Form 5472 as required is $25,000 on the reporting corporation. If the corporation had no reportable transactions at all with any related party, Form 5472 is not required for that year. The §6651 late-filing penalty is calculated from unpaid tax, so a corporation with no tax due does not face that particular penalty for filing late, but it should still file to stay compliant.
What has to be reported about payments to the overseas owner?
Reportable transactions between the US corporation and its foreign parent or other related parties must be reported on Form 5472. These can include capital contributions, distributions, loans and interest, management and service fees, royalties, license fees, and sales or transfers of property. The form requires the name, address, and country of the foreign party, the nature of the relationship, and the type and amount of each transaction.
What happens if a year was never filed?
For each unfiled year, prepare Form 1120, with Form 5472 attached if the corporation had reportable transactions with a related party, foreign or domestic. A reporting corporation that fails to file Form 5472 as required may face a $25,000 penalty regardless of whether it owed tax.
This article is for general information only and does not constitute tax or legal advice. IRS forms, deadlines, penalties and procedures may change. Consult a qualified tax professional for guidance specific to your situation.
Since 2018, Kjetax has helped over 10,000 businesses with cross-border tax and corporate matters. Our team of 150+ professionals, with partners who have more than 20 years of experience in international taxation, serves clients across mainland China, Hong Kong and the United States.
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