IRS Form 5472 for Foreign-Owned US LLCs — $25,000 Penalty

Thousands of international founders form US LLCs every year — primarily to access US payment processors like Stripe, Braintree, and PayPal, establish US bank accounts, and simplify contracting with US customers. Delaware and Wyoming are the most common choices, with formation costs of $50–200 and annual fees under $500.

What most of these founders do not know: a single-member US LLC owned by a non-US person is a Foreign-Owned Disregarded Entity (FODE) under US federal tax law, and it triggers an annual IRS filing obligation — Form 5472 — with a minimum penalty of $25,000 per violation for failure to file.

This has nothing to do with sales tax. It is a separate federal reporting requirement, and the IRS has been enforcing it aggressively since regulatory changes in 2017 brought FODEs into scope.

What Is a Foreign-Owned Disregarded Entity?

A disregarded entity is a business structure that the IRS treats as transparent for tax purposes — its income and expenses are reported on the owner’s personal tax return (or the owner’s entity tax return if the owner is a corporation), not on a separate return for the LLC itself.

For a US single-member LLC:

If the sole owner is a US person (citizen or resident), it is a domestic disregarded entity and the owner simply reports business income on Schedule C or their corporate return
If the sole owner is a non-US person (foreign individual, foreign corporation, or foreign trust), it becomes a Foreign-Owned Disregarded Entity

FODEs are treated as separate from their foreign owner for the purpose of certain IRS information reporting requirements — specifically, they must file a pro forma Form 1120 (a simplified version of the corporate tax return) and attach Form 5472 to report transactions with related foreign parties.

Who Is a “Foreign Person” for This Purpose?

A foreign person, for Form 5472 purposes, includes:

An individual who is not a US citizen and is not a US tax resident (does not hold a green card and does not meet the substantial presence test)
A corporation, LLC, or other entity incorporated or organised outside the United States
A foreign government or international organisation

Practical implication: If you are a founder based outside the US, are not a US citizen, and have not established US tax residency, you are a foreign person. Your single-member Delaware or Wyoming LLC is a Foreign-Owned Disregarded Entity.

If your LLC has multiple members — for example, two foreign founders — the LLC is no longer a disregarded entity but a partnership for US tax purposes. Different rules apply (Form 1065, Schedules K-1), but the foreign ownership still creates reporting obligations.

What Form 5472 Reports

Form 5472 is an information return, not a tax payment. It reports reportable transactions between the US LLC and its related foreign parties (which includes the foreign owner).

Reportable transactions include:

Money the foreign owner transfers into the LLC (capital contributions)
Money the LLC transfers back to the foreign owner (distributions, loans, repayments)
Payments the LLC makes to the foreign owner for services, rent, royalties, or interest
Payments the foreign owner makes to the LLC (reimbursements, cost-sharing, etc.)
Sales of property between the LLC and the foreign owner

In plain terms: nearly every financial interaction between you (the foreign founder) and your US LLC is a reportable transaction. Transferring startup capital into the LLC is reportable. Taking a distribution is reportable. Paying yourself a consulting fee from the LLC is reportable.

If the LLC had no transactions with its foreign owner or any other related foreign party during the tax year, Form 5472 may not be required. But this is a rare situation for an actively operating LLC — almost any business activity between the founder and the LLC triggers the requirement.

The $25,000 Penalty

The IRS Code section governing this is IRC §6038A. The penalty for failure to file a required Form 5472, or for filing a substantially incomplete form, is:

$25,000 per Form 5472 that should have been filed, per tax year.

If the failure continues after the IRS notifies you, an additional $25,000 penalty applies for each 90-day period during which the failure continues.

There is no maximum cap. If you have operated your LLC for three years without filing, the IRS can assess $25,000 × 3 = $75,000 in baseline penalties before any interest or other assessments. If those failures were continuing after notice, the number grows further.

The IRS began enforcing this aggressively in 2017 when the Tax Cuts and Jobs Act brought FODEs into Form 5472 scope (previously, only foreign-owned US corporations were covered). Many founders who formed LLCs in 2016–2020 and were unaware of the change are receiving IRS penalty notices.

The Filing Requirements in Detail

What You File

Pro forma Form 1120 — a basic version of the US corporate income tax return, filled out with the LLC’s name, EIN, address, and tax year information. Most fields are left blank or marked as N/A. This form is the “shell” that Form 5472 attaches to.
Form 5472 — the actual information return, reporting:
- The LLC’s identifying information
- The foreign owner’s identifying information (name, country, tax ID if applicable)
- The nature of the relationship (e.g., sole owner)
- Each reportable transaction with description and amount

Filing Deadline

The Form 5472 attached to the pro forma 1120 is due by:

April 15 for LLCs on a calendar year (January–December fiscal year)
October 15 with an extension (Form 7004 extends the 1120, which extends the 5472)

Important: An extension does not waive the penalty if you fail to file at all. It only extends the deadline for filing without penalty.

Where to File

Mail to the IRS address specified in the Form 1120 instructions for foreign corporations with no income effectively connected with US trade or business. As of 2026, this is:

Internal Revenue Service P.O. Box 409101 Ogden, UT 84409

Electronic filing is not available for the pro forma 1120 + Form 5472 combination via standard channels. Your tax preparer may have access to e-file through professional software.

Voluntary Disclosure — Fixing Past Non-Filing

If you have operated a foreign-owned LLC for one or more years without filing Form 5472, you have a back-period exposure. The IRS offers avenues for addressing this:

Delinquent International Information Returns Submission Procedures (DIIRSP)

The IRS DIIRSP programme allows taxpayers to file delinquent information returns (including Form 5472) and request penalty abatement based on reasonable cause. “I was not aware of the requirement” is not typically accepted as reasonable cause on its own — but demonstrating that you have now come into compliance and have not been contacted by the IRS helps.

Streamlined Filing Compliance Procedures

If the non-compliance was non-willful (i.e., not deliberate), the Streamlined Procedures may allow you to come into compliance with reduced or eliminated penalties. There are two tracks:

Streamlined Foreign Offshore Procedures (SFOP) — for taxpayers residing outside the US; no penalty
Streamlined Domestic Offshore Procedures (SDOP) — for taxpayers residing in the US; 5% miscellaneous offshore penalty

A US tax professional is essential here. These procedures have specific eligibility criteria, and improperly filed submissions can be rejected or create additional exposure.

Practical Steps for Compliance

If you have a foreign-owned US LLC and have never filed Form 5472:

Find a CPA or enrolled agent with international tax experience. Not every US tax professional handles FODEs regularly. Specifically look for someone with Form 5472 and cross-border LLC experience.
Gather records of all transactions between you and the LLC. Capital contributions, distributions, any payments for services. This is what goes on Form 5472.
Assess how many years are open. Generally the IRS has a 3-year statute of limitations on assessments, but there is no statute of limitations for unfiled returns — the clock does not start until the return is filed.
File all delinquent returns. Use DIIRSP or Streamlined Procedures depending on your situation. Your tax professional will advise which applies.
Set up an ongoing process. Going forward, file by April 15 (or October 15 with extension) each year.

Form 5472 vs. Sales Tax — These Are Separate

Form 5472 is a federal IRS reporting requirement. Sales tax is a state-level obligation. They have nothing to do with each other and are administered by entirely different agencies.

Being registered for state sales tax in Delaware, Wyoming, Texas, or any other state has no bearing on your Form 5472 obligation. Likewise, filing Form 5472 does not create or satisfy any sales tax obligations.

Many foreign founders who incorporate a US LLC specifically to access Stripe or bank accounts focus on their payment processing setup and state-level sales tax registration, but neglect the federal reporting requirement entirely. Both must be handled.

Common Mistakes

Assuming a “disregarded entity” means no filing requirements. Disregarded for income tax purposes does not mean disregarded for information reporting. The Form 5472 obligation is specifically tied to FODE status.
Using a US address for the LLC but not understanding the federal implications. A Wyoming registered agent provides a US address; it does not insulate you from IRS obligations as the foreign owner.
Treating the LLC’s $0 income years as non-filing years. If there were any transactions between you and the LLC (even a $1 capital contribution), a Form 5472 was likely required.
Filing only state returns. Many multi-state sales tax filers believe their filing activity satisfies all US government requirements. It does not — Form 5472 is a federal requirement filed with the IRS, not any state.
Missing the extension deadline. Requesting an extension for the 1120 extends the 5472 deadline, but the extension must actually be filed (Form 7004) before the original April 15 deadline.