A Foreign-Owned U.S. Corporation Had No Revenue. Did It Still Need to File a Tax Return?

Because every U.S. corporation files a return every year — and this one also had a Form 5472 problem.

The client's situation

The client is a founder based in Europe. On the advice of prospective investors, he formed a Delaware C corporation and owns all of its shares. For two years, the corporation paid for software development, with most of the money coming from loans the founder made to the company. A development firm the founder also owns abroad did part of the work and invoiced the corporation.

What went wrong

No federal returns had been filed. The founder believed a corporation without revenue had nothing to report, and the Delaware annual filings were handled separately by the registered agent.

The tax or reporting requirement

Unlike a single-member LLC, a C corporation is a separate taxpayer. Every domestic corporation must file Form 1120 each year, whether or not it has income. When a corporation is at least 25% foreign-owned, it must also attach Form 5472 for each foreign related party with which it had reportable transactions — here, the founder's loans and the payments to his foreign development firm.

The potential IRS exposure

Because no tax was due, the late-filing penalty on Form 1120 itself was likely to be small or zero. The real exposure was Form 5472: two related parties over two years meant up to four forms, each with a potential $25,000 penalty. Not filing also meant the corporation's startup losses had not been documented on any return.

How Chirino USA analyzed the situation

We confirmed the corporation had not elected S status (which a foreign shareholder cannot hold), reconstructed both years of expenses, and separated the founder's loans from any equity contributions. We identified the foreign development firm as a related party because of the founder's common ownership. We also reviewed whether the development payments raised any withholding questions, based on where the work was performed.

How we addressed the issue

We prepared Forms 1120 for both years, reporting the expenses and resulting losses, with Forms 5472 for the founder and for the related development firm in each year, and reasonable cause statements for the late filings. We also recommended written loan agreements and a simple intercompany services agreement so that future filings would be supported by documents investors would expect to see.

The result

The corporation is current, its startup losses are now on record for future years, and its related-party reporting is in order — which also helps when investors conduct due diligence. The founder now has a calendar covering the federal return and the Delaware annual requirements.

What other taxpayers in similar situations should know

• A U.S. corporation files Form 1120 every year, even with no revenue.
• A corporation that is 25% or more foreign-owned may also need Form 5472.
• Companies you own abroad can be related parties of your U.S. corporation.
• Filing preserves a record of startup losses, which can matter later.

How Chirino USA can help

Chirino USA Accountants & Advisors specializes in U.S. international tax matters for foreign individuals, foreign-owned U.S. businesses, and Americans in the U.S. and abroad. If your situation sounds similar, we can review what was filed, identify any exposure, and help you decide on the appropriate next step. You can email us or message us on WhatsApp, in English or Spanish.

Sources and official references

• IRS — About Form 1120
• IRS — About Form 5472
• IRS — Instructions for Form 5472