You opened a CP215, or you learned that the Form 5472 penalty exists, and the number on the page is $25,000. That figure is the start of the exposure and rarely the end of it. The penalty falls on the US LLC itself, it multiplies by related party and by year, and it keeps growing after the IRS mails notice. For who must file, see our guide to the foreign owned single member LLC. For the reportable transaction rules, see the Form 5472 guide for foreign owned corporations.
How Much Is the Form 5472 Penalty Per Year and Per Related Party?
The initial penalty is $25,000, and it multiplies by the related party and the year. A related party is a person or company on the other side of a transaction with the LLC. The foreign owner is one, and another company that owner controls is another. An LLC whose single owner funded it himself and had no other counterparty has one related party, so one unfiled year is $25,000.
The statute sets $25,000 for each taxable year, Treas. Reg. 1.6038A-4(a)(3) imposes it once per related party for a taxable year, and the IRS manual says it is asserted that way even if several infractions occurred. A separate Form 5472 is required for each related party, and the computer assessment is $25,000 for each attached Form 5472. What gets counted is related parties with reportable transactions, times years.
A filed form that is substantially incomplete counts as a failure to file under Reg. 1.6038A-4(a)(1). The amount was $10,000 before the 2017 tax act raised it, and the IRS administers $25,000 for tax years beginning on or after January 1, 2018. Section 6038A contains no inflation adjustment, so there is no separate 2026 figure.
Who Owes the Penalty When the LLC Has a Foreign Owner?
The LLC owes it. Treas. Reg. 301.7701-2(c)(2)(vi) treats a US entity that is disregarded and wholly owned by one foreign person as a corporation separate from its owner for purposes of section 6038A, and the IRS manual calls such an entity a reporting corporation. The rule applies to taxable years beginning after December 31, 2016 and ending on or after December 13, 2017.
Because the LLC has no income tax return of its own, it files a pro forma Form 1120, meaning a return with no income or tax on it that exists only to carry the Form 5472. The IRS manual says a Form 5472 filed alone is not accepted as timely, and a foreign owned disregarded entity cannot file electronically.
Lateness is measured from the Form 1120 due date, April 15 for a calendar year LLC under IRC Section 6072(a), and October 15 with a timely Form 7004. The regulation gives the LLC the foreign owner's taxable year when that owner has a US filing obligation, and the calendar year otherwise.
What Does a CP215 Notice Mean, and Is It Final?
A CP215 is a bill, and it is not the last word. The penalty is already on the account, and it can still be removed after assessment. The IRS describes it as a notice that it charged you a civil penalty, and it states the amount and a payment due date. Since 2013 the IRS has assessed the 6038A initial penalty by computer whenever a Form 1120 arrives late with a Form 5472 attached, and the CP215 is the notice that follows. An individual's account gets a CP15 instead.
Do not wait for a protest letter. The IRS internal manual (IRM) at 20.1.9.1.5 says these penalties are assessed without the usual appeal route, where a letter gives you 30 days to object before anything lands on the account. There is no Notice of Deficiency and no petition to the Tax Court. The windows that exist are these:
- The payment due date printed on the CP215. Interest does not accrue on a balance paid in full by that date.
- A written reasonable cause request. For the systemically assessed initial penalty the manual names the IRS service center in Ogden, Utah. A continuation penalty or an Exam assessed penalty goes back to the office that assessed it.
- Review by the IRS Independent Office of Appeals after assessment and before you have to pay.
- Form 843, a refund claim, after payment.
- The 30 day collection due process windows under IRC Sections 6320 and 6330 once a lien or levy notice issues.
Which window fits comes down to the date on your notice and the years still unfiled. Paying by that date stops interest and gives up no right to ask for the penalty back later. Leaving it unpaid keeps the balance open and starts collection.
How Does the Continuation Penalty Work?
The continuation penalty starts when the IRS mails a notice of the failure and 90 days pass without a cure. After that, IRC Section 6038A(d)(2) adds $25,000 for each 30 day period, counted separately for each related party and each unfiled year, and any fraction counts as a full period (Reg. 1.6038A-4(d)). The IRS manual says it is not subject to a maximum limit and may keep accruing until the failure is cured (IRM 20.1.9.5.4), and the IRS international penalties page says the same.
Filing the missing form stops further accrual under Reg. 1.6038A-4(d)(3). It does not erase what has already been assessed. The regulation's own example has three unfiled years, a notice, and a filing on day 135. Each year costs $75,000: $25,000 initial, $25,000 for the first 30 day period, and $25,000 for the fraction of the second. The three years total $225,000.
Paragraph (d) gives no cure period that cancels the initial penalty. The statute runs from the day the IRS mails notice, and the IRS manual lists the Form 5472 notice letter as reserved with no number published. The IRS has not published whether a computer generated CP215 starts that 90 day count, so the conservative reading is that it does, and the filings get built on that assumption.
Can a Form 5472 Penalty Be Abated? Reasonable Cause and Its Limits
The regulation allows relief on an affirmative showing of good faith and reasonable cause, in a written statement of all the facts that includes a declaration under penalties of perjury, and Treas. Reg. 1.6038A-4(b)(2)(iii) weighs those facts case by case. Treas. Reg. 1.6038A-4(b)(2)(ii) also tells the IRS to go easy on a small company that never knew the section 6038A requirements existed, on three conditions, including prompt and full compliance with every IRS request to file the form and produce the books and records behind the reportable transaction. A file with several unfiled years has a problem with that third condition.
The IRS manual pulls the other way. The IRS decision tree for late Form 5472 filings directs a denial for being unaware of the filing requirement, financial hardship, complicated transactions or structure, many layers of ownership, and foreign records that were hard to get. It denies "CPA or attorney ignorance," a bookkeeper's mistake, and advice from whoever set up the company. The manual tells examiners that a taxpayer doing business offshore has a responsibility to determine its filing obligations. The IRS has not reconciled those two positions, so both get argued.
The categories the decision tree does let through are narrow: an assessment error by the IRS, a casualty or a local disaster, death or serious illness or the unavoidable absence of the person with sole authority, a valid extension request with a copy attached, an IRS error, a mail problem with proof of timely mailing, records that could not be obtained, and a narrow form of reliance. The manual also recommends that reasonable cause not be considered until all delinquent returns are filed.
The IRS also takes the position that reasonable cause cannot reach the continuation penalty at all, because the manual treats 90 days after notice as the last day reasonable cause can exist (IRM 20.1.9.5.5). Whether that position survives a challenge is a separate question, and the two penalties are argued differently.
Why the First Letter Matters
CautionThe statement you send first becomes the record. A line like "I did not know" lands in the category the IRS denies on sight.
The phrase "ordinary business care and prudence" that people quote appears nowhere in Reg. 1.6038A-4. It comes from the IRS manual, and in the international setting the manual applies it against the taxpayer.
Does First Time Penalty Abatement Apply to Form 5472?
No. IRM 20.1.1.3.3.2.1 grants First Time Abate only for failure to file under IRC 6651(a)(1), 6698(a)(1) and 6699(a)(1), failure to pay, and failure to deposit. It excludes returns with an event based filing requirement and information reporting that depends on another filing, and it names Form 5472 on the ineligible list. Our guide to first time penalty abatement covers the penalties it does reach, and penalty abatement has the definition.
The IRS page, now titled Administrative penalty relief, says FTA is transitioning to Automatic Exemption from Penalty starting Summer 2026, beginning with 2025 returns, and the new relief keeps the exclusion for information reporting that depends on another filing. Neither reaches the 6038A penalty directly.
One narrow administrative route sits outside reasonable cause, and it depends on the LLC's three year penalty and filing history. No IRM section implements the new relief yet, so whether that route survives the switch from FTA to Automatic Exemption is an open question.
Does a Late Form 5472 Filing With a Reasonable Cause Statement Stop the Penalty?
No. The IRS delinquent international information return page, updated April 19, 2026, says taxpayers may attach a reasonable cause statement to each late return, and that penalties may be assessed during processing without considering the attached statement. Reasonable cause is considered before assessment only for Forms 3520 and 3520A. Our guide to the delinquent international information return procedures covers the page in full.
That page also tells filers to attach late returns to an amended income tax return. A foreign owned LLC has no income tax return to amend, and the IRS has published no guidance on how the procedure works there. The streamlined procedures offer no help either, because the IRS says they are designed only for individual taxpayers. See our comparison of quiet disclosure, streamlined, and voluntary disclosure.
The Voluntary Disclosure Practice is open to entities, and it requires willful conduct. The IRS proposed changes in December 2025, including a $10,000 per return cap on penalties for delinquent international information returns, and its page as of July 20, 2026 still describes that as a proposal, so treat the cap as unavailable.
How Often Does the IRS Abate These Penalties?
The National Taxpayer Advocate reported that for the most frequently assessed international information return penalties, IRC 6038 and 6038A averaged across 2018 to 2021, the abatement rate was 74 percent by number and 84 percent by dollar value, and that 83 percent of systemic business 6038 and 6038A penalties are assessed against small and midsize businesses.
Those figures combine two statutes, they are historical, and they say nothing about a particular LLC. No abatement is promised, and the IRS notes that not all international penalties qualify for reasonable cause.
What If You Never Filed Form 5472 for Several Years?
Each missing year and each related party stacks. Three years with two related parties is $150,000 in initial penalties, and a notice starts the continuation meter on top of it. The IRS manual says to complete the delinquent filings first, then compute what is owed year by year.
The unfiled form also holds open the statute of limitations. Under IRC Section 6501(c)(8), the time to assess any tax tied to the return does not expire before three years after the IRS is furnished the required information. By its terms the extension can reach items on the return unrelated to the missed form, unless the failure was due to reasonable cause. The penalty's own three year period under Section 6501(a) does not begin until the return is filed.
Does "no transactions, no filing" help? Rarely. For a foreign owned LLC, reportable transactions include contributions to and distributions from the entity, so a dormant LLC with one wire from its owner has something to report.
Can the IRS Take the LLC's Bank Account or the Owner's Passport?
The LLC's account is reachable. If the balance goes unpaid after notice and demand, IRC Section 6321 attaches a tax lien by operation of law to all property and rights to property belonging to the person liable, and Section 6331 allows a levy on the same property 10 days after notice and demand. The LLC is the taxpayer on this penalty, so those sections reach its US bank account. Interest runs on the balance, and payment plans exist.
Whether the IRS can reach the foreign owner's own assets for a penalty assessed in the LLC's name is an unsettled point. The LLC is a corporation for section 6038A, and for employment and certain excise taxes under the same regulation, while it stays disregarded for income tax. No published authority answers the question.
A passport is a different matter. IRC Section 7345 reaches an individual with a seriously delinquent tax debt, above $66,000 for 2026, and it operates on US passports. The penalty belongs to the LLC, and a foreign owner usually holds no US passport, so the section rarely applies. It changes if the owner is a US person or becomes personally liable on another ground. The Form 5472 instructions also point to criminal exposure under IRC Sections 7203, 7206 and 7207, and those sections reach conduct the IRS can show was deliberate. A late form from an owner who did not know the form existed is a civil penalty matter.
Does the Farhy Decision Mean the IRS Cannot Assess the Form 5472 Penalty?
No, and the cases concern a different penalty. In Farhy v. Commissioner, the Tax Court held in 2023 that the IRS lacked authority to assess the IRC 6038(b) penalty on Form 5471. The D.C. Circuit reversed on May 3, 2024, 100 F.4th 223, and its opinion never mentions section 6038A. The Tax Court then reaffirmed its view in Mukhi v. Commissioner, 163 T.C. 150 (2024), a case appealable to the Eighth Circuit, which the Tax Court said had issued no published opinion on the question.
Section 6671(a) directs that the penalties in subchapter B of chapter 68 be assessed and collected in the same manner as taxes, and section 6665(a)(1) does the same across chapter 68. Section 6038A sits in chapter 61, and in Farhy the taxpayer argued that a penalty outside those assessment provisions is not an assessable penalty that section 6201(a) reaches. The IRS manual nonetheless says these penalties are assessed under sections 6201(a) and 6671(a). No appellate court has ruled on whether the 6038A(d) penalty is assessable, the IRS keeps assessing it, and a CP215 left unpaid on that theory heads toward lien and levy. Our guide to Form 5471 penalties covers the case law.
What Should You Do About a Late Form 5472 This Week?
Build the missing years first, then the request for relief. Once the IRS has mailed notice of the failure, every 30 day period the forms stay unfiled can add another $25,000 for each related party and each year, and filing stops the growth.
Gather four facts before you answer anything: the date on the notice, every year the LLC existed, every related party that had a transaction with the LLC, and whether each year's pro forma Form 1120 and Form 5472 was ever filed. Send those four and the year by year exposure can be mapped.
Do not ignore the payment due date, and do not send a one line letter that says you did not know. Do not file a missing year before checking the Form 7004. For a foreign owned disregarded LLC it has to be filed by the regular due date, carry the Form 1120 code on Part I line 1 with "Foreign-owned U.S. DE" written across the top, and go to the dedicated Ogden fax number or address. A timely Form 7004 sent to the ordinary address does nothing. If the LLC's classification is itself in doubt, read our entity classification election guide.
Have questions about a Form 5472 penalty? Contact TS CPA for a free consultation. We respond within the same day.
Official IRS and Government Sources
- IRC Section 6038A
- IRC Section 6501
- IRC Section 6072
- IRC Section 6320
- IRC Section 6321
- IRC Section 6331
- IRC Section 6671
- IRC Section 7345
- Treas. Reg. 1.6038A-4
- Treas. Reg. 301.7701-2
- IRS Instructions for Form 5472
- IRS Instructions for Form 7004
- IRS International Information Reporting Penalties
- IRS Understanding Your CP215 Notice
- IRS Administrative Penalty Relief
- IRM 20.1.1 Penalty Handbook
- IRM 20.1.9 International Penalties
- IRM 21.8.2 BMF International Adjustments
- IRS Delinquent International Information Return Submission Procedures
- IRS Streamlined Filing Compliance Procedures
- IRS Voluntary Disclosure Practice
- IRS Passport Revocation for Unpaid Taxes
- Mukhi v. Commissioner, 163 T.C. 150
- Public Law 119-21
- National Taxpayer Advocate, Foreign Information Penalties: Provide Taxpayers Their Rights Before Assessment