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Foreign-Owned LLCs and Corporations: How to Avoid IRS Form 5472 Penalties (and What to Do If You’re Already Penalized)
Every year, thousands of foreign-owned U.S. businesses are hit with $25,000 IRS penalties — not because they did anything wrong financially, but because they missed or misunderstood Form 5472.
At PacificWestTax, we help international business owners stay compliant, respond to IRS notices, and — when possible — get penalties reduced or removed.
What Is Form 5472 (and Who Needs to File It)?
Form 5472 is an information return required by the IRS for any U.S. entity with foreign ownership of 25% or more, or that’s wholly foreign-owned.
It reports:
- Ownership details
- Transactions between the U.S. entity and its foreign owner
- Capital contributions, loans, and payments
If you own a single-member LLC that’s foreign-owned, you must file both:
- Form 5472, and
- Pro Forma 1120 (U.S. Corporation Return)
even if you earned no income during the year.
Why the Penalty Is So Severe
Failing to file Form 5472 by the deadline (typically April 15, or June 15 for foreign entities on extension) triggers an automatic $25,000 penalty per year, per entity.
If you ignore IRS notices, that penalty can compound — reaching $50,000 or more over time.
The IRS uses this form to track cross-border ownership and prevent tax evasion, so compliance is taken seriously — even for small or inactive LLCs.
Common Situations That Trigger 5472 Penalties
- Setting up a U.S. LLC through an online service (like Stripe Atlas or LegalZoom) without realizing it’s “foreign-owned.”
- Failing to file because the entity had no income or activity.
- Using a CPA unfamiliar with international compliance requirements.
- Late or incorrect filings when ownership changes.
Unfortunately, many foreign clients only learn about Form 5472 after receiving the penalty notice.
If You’ve Already Been Penalized
Don’t panic — penalties can often be reduced or removed if handled correctly.
Here’s what to do immediately:
- Hire an experienced international CPA — not all accountants know foreign compliance.
- File all missing 5472 forms and pro forma 1120s immediately.
- Request penalty abatement using a detailed reasonable cause letter explaining the situation.
- Stay compliant going forward to avoid repeat penalties.
Our team at PacificWestTax has successfully helped foreign clients reduce or eliminate these penalties by showing good faith compliance and clear communication with the IRS.
Example: The $50,000 Penalty We Reversed
A client from Singapore owned two Delaware LLCs that hadn’t filed Form 5472 for three years.
They received two IRS penalty notices totaling $50,000.
We filed all back forms, drafted a strong abatement letter, and worked with the IRS international compliance division.
Within 90 days, both penalties were fully waived.
That’s the power of experienced representation.
How to Stay Compliant Going Forward
To avoid future penalties:
- Maintain a U.S. tax ID (EIN) for each entity.
- File Form 5472 + pro forma 1120 every year — even with no income.
- Report all ownership or transaction changes immediately.
- Use a CPA who specializes in international U.S. tax compliance.
We handle all filings for you and track deadlines so you never miss another form.
Key Takeaways
- Foreign-owned LLCs and corporations must file Form 5472 and pro forma 1120 annually.
- Missing or late filings trigger $25,000+ penalties — even with no income.
- Penalties can often be reduced or removed through abatement.
- Ongoing compliance prevents future IRS exposure.