The Client's Previous Accountant Never Mentioned Form 5472

The client had done the responsible thing. The accountant simply had never handled a foreign-owned LLC before.

The client's situation

The client lives in Spain and owns a U.S. LLC that licenses photography to American publishers. He hired a local U.S. accountant who mainly prepared returns for U.S. residents. Each year the accountant reported the licensing income on the owner's personal nonresident return. The LLC itself never filed anything.

What went wrong

The accountant treated the LLC as invisible because it was a disregarded entity for income tax. That is correct for income tax, but it misses the separate rule that treats a foreign-owned disregarded entity as a corporation for Form 5472 reporting.

The tax or reporting requirement

Since 2017, a U.S. single-member LLC owned by a foreign person must file Form 5472 with a pro forma Form 1120 for each year in which it has reportable transactions with its owner or other related parties. That requirement applies alongside any personal return the owner files.

The potential IRS exposure

Four years were affected, with potential exposure of $25,000 per year. The client had also signed every personal return, so the question of reliance on the accountant would be important.

How Chirino USA analyzed the situation

We reviewed the engagement letters and email history with the prior accountant. They showed that the client had disclosed the LLC, provided its formation documents and asked whether anything else was needed. The accountant had responded in writing that the personal return covered everything. Reliance on a professional can support reasonable cause when the professional was competent, had all the relevant facts and the taxpayer actually relied on the advice. These documents addressed each of those elements.

How we addressed the issue

We filed the four late years of pro forma Forms 1120 and Forms 5472, each with a reasonable cause statement that quoted the accountant's written advice and attached the relevant emails. We also reviewed the personal returns for consistency with the newly filed entity forms.

The result

All four years are on file and the client's personal and entity filings now tell the same story. If the IRS assesses penalties on the late filings, the reliance-on-advice documentation is already in the record and provides a strong foundation for requesting relief. Results always depend on the specific facts.

What other taxpayers in similar situations should know

• A disregarded LLC is still visible to the IRS for Form 5472 purposes.
• Ask your accountant directly: "Does my LLC file Form 5472?"
• Keep the emails where you disclosed the LLC and asked for advice.
• Reliance on a professional is strongest when you gave them all the facts.

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)