A Delaware LLC With Zero Revenue Received a $25,000 IRS Form 5472 Penalty

The owner, a foreign investor, sent us a photo of the letter with one question: "How is this possible?"

The client's situation

The client lives in Western Europe and formed a Delaware LLC to hold a future investment in a U.S. startup. The investment took longer than expected, and for the first year the LLC simply held the funds the owner had transferred in. There was no revenue. When the client learned about Form 5472 from his attorney, he had a preparer file the pro forma Form 1120 and Form 5472 — about ten months late.

What went wrong

The late filing itself is what triggered the penalty. The forms were correct, but no explanation of the delay was included, and the penalty was assessed automatically after the IRS processed them.

The tax or reporting requirement

The LLC was a foreign-owned single-member entity, so its owner's capital contribution was a reportable transaction. A pro forma Form 1120 with Form 5472 was due by April 15 of the following year, or by the extended deadline if Form 7004 had been filed.

The potential IRS exposure

The assessed penalty was $25,000. If the response were ignored and the IRS treated the failure as continuing after notice, additional $25,000 penalties could apply for each 30-day period. Interest also accrues on unpaid assessed penalties.

How Chirino USA analyzed the situation

We confirmed the notice matched the filing, the tax year and the LLC's EIN, and that the filed forms were complete. We then built the reasonable cause record:

• The owner had no prior U.S. business and relied on a formation package that did not mention Form 5472.
• The company had zero revenue and no U.S. tax due; the only transaction was the owner's own contribution.
• He acted promptly once his attorney raised the issue, and filed before any IRS contact.
• The company's U.S. presence was minimal, a factor the regulations specifically ask the IRS to consider for small companies.

How we addressed the issue

We submitted a written reasonable cause statement, signed under penalties of perjury, with supporting documents and a clear timeline, within the response period on the notice. We also requested that collection activity be held while the request is reviewed and calendared the follow-up so that appeal rights are preserved if the initial request is not accepted.

The result

At the time of writing, the request is under IRS review. Our firm has successfully handled Form 5472 reasonable cause penalty matters with comparable facts, but every case is decided on its own facts and no outcome can be guaranteed. If the initial request is denied, the next step would be a formal appeal.

What other taxpayers in similar situations should know

• Zero revenue is not a defense to the Form 5472 penalty, but it is a relevant fact for reasonable cause.
• Including an explanation with a late filing can matter.
• Calendar the notice deadline immediately.
• Keep every document showing who told you what, and when.

How Chirino USA can help

If you own a U.S. company from outside the United States and are concerned about a missing or incorrect Form 5472, Chirino USA Accountants & Advisors can review your filings, identify potential exposure, and help determine the appropriate path forward. You can email us or message us on WhatsApp, in English or Spanish.

Sources and official references

• IRS — About Form 5472
• IRS — Instructions for Form 5472
• eCFR — Treas. Reg. §1.6038A-1 (foreign-owned disregarded entities)
• eCFR — Treas. Reg. §1.6038A-4 (penalties and reasonable cause)