The LLC Only Had a Few Hundred Dollars of Expenses, but the Potential Form 5472 Penalty Was $25,000

The penalty exposure for not reporting those payments on Form 5472 was $25,000.

The client's situation

The client, who lives in Asia, formed a U.S. LLC to hold a domain name and a brand for a future business. The company had no bank account activity and no customers. Each year the owner paid the state fee and the registered agent fee with his personal card. He had not filed anything with the IRS for the two years since formation, because "the company does nothing."

What went wrong

The owner assumed that a company with almost no activity could not have a federal filing requirement. But when a foreign owner pays the LLC's bills personally, those payments are transactions between the owner and the LLC — and those are exactly what Form 5472 is designed to report.

The tax or reporting requirement

A foreign-owned U.S. single-member LLC must file Form 5472 with a pro forma Form 1120 for each year in which it has reportable transactions with a related party. Reportable transactions include amounts the owner pays on the company's behalf, such as formation costs, state fees and registered agent fees. There is no minimum dollar amount.

The potential IRS exposure

The $25,000 penalty is a fixed amount per form, per year. It does not scale with the size of the transaction. Two missed years meant potential exposure of $50,000 — for a company whose total expenses were under $1,000.

How Chirino USA analyzed the situation

We reconstructed each year from the owner's card statements and the state and registered agent invoices. We confirmed the LLC was a disregarded entity with a single foreign owner, had not elected corporate treatment, and had no other related-party activity. Because the IRS had not contacted the company, the client was in the best possible position: correcting the problem voluntarily.

How we addressed the issue

We prepared pro forma Forms 1120 and Forms 5472 for both missed years, each reporting the owner-paid expenses. Each late filing included a reasonable cause statement explaining the facts: a first-time foreign owner, minimal activity, no tax consequences, and prompt correction once the requirement was identified. The filings followed the IRS procedures for submitting delinquent international information returns.

The result

Both years are now on file with explanations attached, and the current year was filed on time. Late filings can still receive a penalty notice, and if that happens, the reasonable cause statement already on file becomes the foundation of the response. Correcting the issue before any IRS contact is generally the strongest position available.

What other taxpayers in similar situations should know

• There is no minimum transaction size for Form 5472.
• Paying LLC fees with a personal card creates reportable transactions.
• The penalty is per form, per year, regardless of how small the company is.
• Correcting voluntarily, before the IRS contacts you, generally leaves more options open.

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)