The $25,000 penalty, explained

A foreign-owned single-member LLC that misses a Form 5472 does not owe a small late fee. It owes $25,000 for the missed form, for that year. The number is fixed by law, and it applies per form and per year, so missed years add up fast. This page explains how the penalty works, what counts as not filing, and what to do when a notice arrives. No scare tactics are needed. The number does the work.

The penalty in one paragraph

The penalty for a missing or substantially incomplete Form 5472 is $25,000 per form per year, under IRC 6038A(d). One missed year is one form and one penalty: $25,000. Three missed years are three forms and three penalties: $75,000. The penalty is charged per form, so the count of missed years is the count of penalties. That is the whole arithmetic, and it is the reason a missed filing is worth fixing rather than forgetting.

Per form, per year

Each tax year has its own Form 5472. The penalty attaches to each year separately, which means the exposure grows with every year that passes unfiled. A formation year that was never filed is still open years later, and each year after it adds its own penalty if it also had a reportable transaction. The formation year counts in practice, because the money spent forming the LLC is normally paid by the owner and is a capital contribution, and a capital contribution is a reportable transaction.

A year with no reportable transactions at all requires no Form 5472 for that year, and so it carries no penalty for that year. The test is the transaction, not the calendar. That is why the first step in any catch-up is to work out, year by year, which years had a reportable transaction and which did not.

The continuation penalty

The $25,000 penalty is not the end of the exposure. If the failure continues more than 90 days after an IRS notice, a further $25,000 applies for each 30-day period, or part of one, that it continues, per related party. The clock in that sentence is the notice: 90 days after the IRS tells you about the failure, the penalty starts growing again, $25,000 at a time, every 30 days.

That is why an IRS notice is never a letter to set aside. The notice starts a clock, and the clock is expensive. The first thing to do on receiving one is to read it, note the date, and act on it. The catch-up guide covers the filing itself.

What counts as not filing

Not filing takes more than one shape. A return that was never sent is not filed. A return that was sent late is late, and lateness is itself a failure. A return that is substantially incomplete is treated as not filed: a Form 5472 missing the transactions it exists to report does not satisfy the duty. And a return filed in the wrong manner does not count either. Form 5472 filed by a foreign-owned US disregarded entity cannot be e-filed, so a return sent through a channel the IRS does not accept for this form is not a filed return.

The practical point is simple: the filing is only complete when the right form, filled in properly, reaches the IRS by the right route and on time. Fax to 855-887-7737 or mail to the IRS, 1973 Rulon White Blvd, M/S 6112, Attn: PIN Unit, Ogden, UT 84201, with proof of the filing kept afterwards.

The Form 1065 penalty is different

A late Form 1065 carries its own penalty, and it is calculated differently: about $260 per partner per month or part of a month, up to 12 months, for returns due in 2027 ($255 for returns due in 2026), per Rev. Proc. 2025-32. A partnership with two partners that files three months late faces about $260 times two partners times three months. That is a different scale from the 5472 penalty, and it is a different rule. Do not apply the $25,000 figure to a partnership return, and do not apply the per-partner figure to a Form 5472.

Reasonable cause

The IRS can abate the $25,000 penalty where the failure was due to reasonable cause and not willful neglect. Reasonable cause is a possibility to raise with a tax professional, not a promise. It is not automatic, and it is not granted because the owner did not know about the filing. A tax professional can judge whether the facts of a case support a reasonable cause statement, and can help to put it in the form the IRS expects. Raise it early, with the filing, rather than after a notice has already started the continuation clock.

What to do first if a notice arrives

First, read the notice in full and note the date it was issued. The 90-day period runs from the notice, so the date matters. Second, gather the records for the years the notice covers: the reportable transactions, the formation documents, and any filings already made. Third, speak to a tax professional before replying. A reply that concedes the wrong facts can make the position worse, and a reply that misses the deadline can cost another $25,000 per 30-day period.

Fourth, file the missing returns. A notice is not resolved by correspondence alone. The filing duty stays in place until the returns are filed, and the penalty exposure stays with it. The catch-up guide sets out the order of filing.

What not to do

Do not backdate a return. A return must show the date it was actually filed, and a false date creates a second problem on top of the first. Do not ignore the notice, and do not assume that silence ends the matter: the continuation penalty exists precisely because silence does not end it. Do not file a new return in the wrong manner to save time. A Form 5472 sent by a channel the IRS does not accept is still not filed.

Last reviewed: November 2026. Sources: IRS, Failure to file penalty