Where does related-party loan interest go on Form 5472?
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On Form 5472 Part IV, line 18 reports interest received and line 32 interest paid. Lines 17 and 31 request balances for borrowing and lending, respectively.
What to check
A bank transfer can include a principal repayment and interest. Use the loan agreement and repayment schedule to split the transfer. Then reconcile the interest figures and balance figures separately. Review the IRS instructions for the balance method that applies to the filing.
Example
A corporation pays its foreign parent $12,000, consisting of $10,000 principal repayment and $2,000 interest. It checks $2,000 against line 32 and reflects the principal repayment in the borrowing schedule.
Before you proceed
- Separate each payment into principal and interest.
- Reconcile interest to the accounting records.
- Retain the loan balance working papers for lines 17 and 31.
Can the year-end loan balance go on the interest line?
The interest lines use reportable interest. The borrowing or lending balance is evaluated on the separate balance line.
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- When does Form 5472 need a separate Part VIII for cost sharing?