Reasonable Cause for Form 5472 Penalties: What the IRS Looks For

Facts that tend to matter

• Reliance on a qualified professional who was given complete information
• The owner's experience with U.S. tax rules and access to advice
• Whether the failure was corrected promptly once discovered
• Serious illness, disaster, or other events beyond the owner's control
• The overall compliance history of the entity and owner

What usually does not work on its own

Simply not knowing the form existed, or relying on an online formation service that never mentioned it, is rarely sufficient by itself. Explanations are stronger when they describe concrete steps the owner took to comply.

Building the request

• A clear timeline of formation, operations, discovery and correction
• Copies of the complete late filings
• Engagement letters or correspondence with prior advisors
• A signed statement under penalties of perjury where appropriate

Timing

Reasonable cause can be raised with the late filing, in response to a penalty notice, or later through a claim or appeal. Including it with the late filings and responding promptly to any notice generally gives the best chance of a favorable review.

Chirino USA drafts reasonable-cause statements for foreign-owned U.S. businesses. Results depend on the facts, and no outcome can be guaranteed.

Sources and official references

• IRS — Instructions for Form 5472
• IRS — Treas. Reg. §1.6038A-1 (foreign-owned disregarded entities)