Form 5472 is, at its core, a disclosure of transactions between the reporting LLC and its related parties. If you take only one idea away from this guide, take this: the IRS does not care very much about the dollar totals. The IRS cares that every related-party flow has been identified and categorised accurately. A $100 category miss can trigger a review; a $10,000 line reported in the right category and tied to the right counterparty almost never does.
This guide walks through what counts as a related-party transaction, how we tag each category, the signals we look for during review, and the specific errors our reviewer catches most often.
Who is a “related party”
The 5472 instructions use the Internal Revenue Code’s related-party definitions, which are deliberately broad. For the common case — a non-US founder with a US single-member LLC — the related parties you care about are:
- The owner (the 25%+ foreign shareholder). This is the most common counterparty.
- The owner’s family: spouse, siblings, ancestors, descendants. Transfers from the LLC to a founder’s spouse are related-party transactions.
- Other entities the owner controls, directly or by attribution. If the founder owns another LLC in Dubai and the US LLC transfers money there, the Dubai entity is a related party for 5472 purposes.
- Trusts and estates where the owner is a beneficiary, grantor, or fiduciary.
The attribution rules under 26 CFR §1.6038A-1(e) go further still. For normal operating LLCs, the practical rule is: if a transaction counterparty is anyone but a genuinely unrelated third party, flag it to your preparer.
The eight categories
BorderFile tags every related-party line as one of eight categories. These correspond to the way the 5472 instructions want the totals reported.
1. Contribution
The owner (or a related party) puts money, property, or a receivable into the LLC. Three common examples:
- An initial capital contribution at formation.
- A later equity-style injection to extend runway.
- An owner transferring a laptop or domain name to the LLC for business use (property contribution).
Property contributions are commonly missed because they do not appear on a bank statement. Review the LLC’s fixed-asset register at year end — anything you brought in from your personal use is a contribution.
2. Distribution
Money or property flows from the LLC back to the owner. In disregarded-entity accounting there is technically no “distribution” (the entity is disregarded), but for 5472 reporting the IRS wants to see the economic flow categorised consistently. Examples:
- An owner draws money out of the Mercury account to a personal account.
- The LLC transfers software credits or inventory to the owner for personal use.
3. Loan from owner
The owner lends money to the LLC with a documented expectation of repayment. Loans require a bona fide debt relationship — ideally documented in a short promissory note — otherwise the IRS can recharacterise the “loan” as a contribution. For 5472 we tag the inflow as a loan only if there is a documented repayment expectation.
4. Loan to owner
The LLC lends money to the owner with a documented expectation of repayment. Same documentation standard as the inverse. These are rarer than owner-to-LLC loans but they do occur.
5. Loan repayment
Payments against an existing bona fide loan. Repayments are a separate category from the original loan — do not net them in your records. If the owner lent $20,000 and the LLC repaid $5,000 later in the year, the 5472 shows $20,000 under category 3 and $5,000 under category 5. Netting hides information the IRS specifically wants.
6. Owner-paid expense (reimbursement in)
The owner pays an LLC expense from a personal account and the LLC later reimburses, or will reimburse. Examples:
- Owner pays an AWS bill from a personal credit card.
- Owner pays a US domain registration from a personal account.
- Owner pays a conference ticket for an employee of the LLC.
These are the most commonly-missed tags. They often do not appear on the LLC’s own bank statement — they appear on the owner’s personal statement. During intake we specifically ask the owner to run a check of personal statements for business-related expenses.
7. Expense paid for owner (reimbursement out)
The LLC pays a personal expense of the owner. Examples:
- The LLC pays the owner’s phone bill.
- The LLC pays an airfare that turns out to be personal.
- The LLC pays rent on an apartment used by the owner personally.
These should be rare in a well-run LLC. When they do occur they belong under category 7, not under general operating expenses.
8. Services
Services provided by the owner to the LLC (or vice versa) that are not already reported as payroll. The common example: the owner spends time running the LLC and is not on a payroll. If the owner formally charged the LLC a service fee during the year, that fee is a related-party transaction. If the owner is simply doing their own LLC’s work without a formal service fee, there is no transaction to report.
“Other” (with a required explanation)
The 5472 instructions include an “other” category for everything that does not fit the above. Each “other” tag requires a short written statement describing the transaction. During review we try hard to re-categorise “other” tags into one of the eight; “other” is a last resort because it attracts attention.
The totals the IRS actually sees
Form 5472 reports totals by category, by related party. If the owner contributed $10,000 in capital and then later lent $5,000 as a documented loan, those are two separate line items on the 5472 against the same related party. The IRS does not want a single net number; the IRS wants the categorised detail.
A clean 5472 for a typical first-year LLC might look like:
- Contribution from owner: $10,000
- Owner-paid expense (reimbursement in): $873.20
- All other categories: $0
A clean 5472 for a more established LLC might look like:
- Contribution from owner: $5,000
- Distribution to owner: $8,000
- Loan from owner: $20,000 (per promissory note dated 2026-04-10)
- Loan repayment: $5,000
- Owner-paid expense: $431.20
- All other categories: $0
Neither of these is “small enough to skip”. Zero-income years with any related-party flow still require the filing.
The specific errors our reviewer catches most often
Over hundreds of 5472 filings we see the same errors repeatedly. If you are preparing your own, double-check for these before you file.
Netting
Reporting contributions and distributions as a single net number is wrong. The 5472 wants gross amounts in each direction. If the owner contributed $10,000 in March and withdrew $3,000 in November, that is $10,000 in category 1 and $3,000 in category 2 — not $7,000 in category 1.
Owner-paid expenses missed entirely
The most common review bounce. The founder prepared the 5472 from the LLC’s bank statements alone and never looked at their personal card. Reviewer asks: “Did you pay any LLC expense from your personal card this year?” — the answer is almost always “oh, yes, a few”. Those few are related-party transactions.
Property contributions missed
A laptop brought in from personal use at formation is a property contribution at its fair market value. A domain name transferred to the LLC is a property contribution at its FMV. These usually appear on no bank statement and need to come from a direct question during intake.
“Loans” that are really contributions
If there is no promissory note, no interest rate, no repayment schedule, and the LLC never actually repaid, calling an inflow a “loan” is wishful thinking. The IRS can recharacterise it as a contribution. BorderFile tags it as a contribution during review unless the owner can produce documentation.
Mis-attributed counterparties
A transfer from the owner’s spouse to the LLC is a related-party transaction (the spouse is attributed to the owner), not an unrelated third-party transaction. Reviewer catches these by looking at the counterparty name on each transaction and flagging anything that resembles a family or related-entity name.
Services billed to the wrong year
If the owner’s service fee was billed in December 2025 and paid in January 2026, which year does it belong to? Cash-basis reporting (the usual choice) puts it in 2026. Accrual-basis puts it in 2025. Pick a method and stay consistent across the year.
Everything in “other”
If more than ~5% of the related-party volume is tagged “other”, the reviewer sends it back. “Other” exists for exotic transactions; most LLC transactions do fit one of the eight main categories.
How BorderFile handles this during intake
Our intake flow is deliberately conservative:
- You upload bank statements (PDF or CSV) for every active business account.
- We parse the transactions and run a first-pass categoriser against counterparty names and amount patterns.
- We flag any transaction tagged “unclear” and ask you to confirm.
- We separately ask you a direct question: “Did you pay any LLC expense from a personal account this year? Did you transfer any personal property to the LLC?”
- We tie the categorised totals back to the owner’s own records as a cross-check.
- At submit, no transaction can remain “unclear” and no related-party totals can be net rather than gross.
The reviewer and EA/CPA then run their own passes against the same data. The goal is not just “a complete 5472” — it is a 5472 that will still look complete if the IRS ever asks about it in year three or five.
In one sentence
A clean 5472 is not one with small numbers — it is one where every related-party flow has been identified, categorised in the right one of eight buckets, and tied to the right counterparty, with gross amounts in each direction.
If you have a specific transaction you cannot categorise cleanly, send us the details at support@borderfile.io and we will tell you how we would tag it.