IRS compliance
Form 5472: the $25,000 trap for non-resident LLCs
Since 2017, a US LLC owned 25% or more by a non-resident and with no other member (a single-member LLC) is treated as a corporation by the IRS for reporting: it must file Form 5472 each year, together with a pro forma Form 1120. Missing it, filing late, or filing an incomplete return triggers a $25,000 penalty. This is not a tax: it's an information reporting obligation — but the penalty is very real.
What are we talking about?
Form 5472 is titled "Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business." It is an information return, not a tax return: the IRS wants to know the transactions between the US company and its foreign owner (IRS, "About Form 5472").
Why is an LLC concerned?
By default, a single-member LLC is a "disregarded entity" and files no return of its own. But regulations effective for tax years beginning in 2017 changed that: a foreign-owned single-member LLC is now treated as a corporation for this reporting obligation only. It must therefore file a 5472, attached to a pro forma 1120 that acts as a cover (IRS, "Instructions for Form 5472").
Which transactions must be reported?
Form 5472 covers "reportable transactions" between the LLC and its foreign owner (or a related party). In practice, this typically includes:
- Contributions from the owner to the LLC (initial funding, capital contributions);
- Distributions or repayments from the LLC to the owner;
- Loans, service payments, rent and other flows between the company and the related party.
Even an LLC that did "nothing" commercially may have reportable transactions — if only through its formation and initial funding.
The penalty: $25,000, and not capped at a single amount
This is the heart of the trap. Failure to file, late filing, or a substantially incomplete return triggers a $25,000 penalty. If the failure continues after IRS notice, an additional $25,000 penalty may apply per 30-day period (IRS, "Instructions for Form 5472," Penalties section). The amount was raised from $10,000 to $25,000 by the 2017 tax reform.
Deadline and how to file
- An EIN is required to file: the LLC must obtain its tax ID from the IRS.
- Deadline: the 5472 + 1120 are due by the 15th day of the 4th month after the end of the tax year, generally April 15 for a calendar year. An extension is available via Form 7004.
- Transmission: this pro forma filing by a disregarded LLC is not made through regular e-filing — it is submitted by mail or fax per IRS instructions.
How to avoid the trap
The rule is simple to state, easy to forget: if your LLC is owned by a non-resident, assume 5472 + 1120 are due every year, even with no profit or activity. Keep a clean record of contributions and distributions, get the EIN at formation, and have the return prepared by a professional. This compliance cost is one of the recurring lines to budget for — we note it in our article "How much does a US LLC really cost?".
Key takeaways
- A foreign-owned single-member LLC must file 5472 + 1120 every year since 2017.
- It is an information return, not a tax — but missing it costs $25,000.
- Contributions, distributions, loans and payments between the LLC and the owner are reportable transactions.
- Typical deadline: April 15 (extension via 7004); EIN required; filed by mail/fax.