Does the $25,000 penalty fall on the owner or the LLC?

Why people get two different answers

Ask this on Reddit and someone will reply with a version of this:

The first half is right. A single-member LLC that hasn’t elected to be taxed as a corporation is a “disregarded entity,” and its activity is reported by its owner (IRS, single member LLCs).

The second half doesn’t follow for Form 5472. Regulations finalized at the end of 2016 made an exception: a US LLC wholly owned by one foreign person is treated “as a domestic corporation separate from its owner for the limited purposes of the reporting, record maintenance and associated compliance requirements” of section 6038A (T.D. 9796). Form 5472 is that reporting requirement. So for this one form, the LLC counts as separate from you.

Who the penalty is written against

The Form 5472 instructions say: “A penalty of $25,000 will be assessed on any reporting corporation that fails to file Form 5472 when due and in the manner prescribed.” The IRS’s own manual confirms that a foreign-owned US disregarded entity “is treated as a reporting corporation” (IRM 20.1.9.5.1).

Once assessed, the IRS sends a CP 215, Notice of Penalty Charge (IRM 20.1.9.5.2). It goes to the address the IRS has on file. If that address belongs to a registered agent who has since resigned, the notice can sit unread while the clock runs. If that might be you, start with how to find out what the IRS has sent.

How the number grows

• $25,000 for each tax year the form was due and not filed. A substantially incomplete form counts as not filed.
• The same $25,000 applies to failing to keep the records the rules require.
• The initial penalty is counted once per related party per year, even if the form and the records both fail. For a single-owner LLC that usually means one $25,000 per year.
• If the failure continues more than 90 days after the IRS sends notice, another $25,000 applies for each 30 days, or part of 30 days, that it continues. The manual says this continuation penalty “is not subject to a maximum limit.”

Those points come from the Form 5472 instructions and IRM 20.1.9.5.4. Three unfiled years can mean three separate $25,000 penalties, before any notice has arrived.

What about you personally?

The instructions also say that “criminal penalties under sections 7203, 7206, and 7207 may also apply for failure to submit information or for filing false or fraudulent information.” If that line worries you, raise it with a tax attorney. It isn’t something a tax preparer should interpret for you.

On the civil penalty, none of the IRS guidance above says whether an amount assessed against the LLC can be collected from the owner’s own money. That depends on law and facts outside a tax return, and a tax preparer isn’t the right person to answer it. If you’re facing an assessed penalty, that question belongs with a tax attorney or an Enrolled Agent.

For most owners who haven’t had a notice yet, the next step is to get the missing years filed, whichever way the liability question goes.

What the IRS looks at when a late year comes in

A late Form 5472 attached to a late pro forma 1120 can have the $25,000 assessed automatically when it’s processed (IRM 20.1.9.5.3). Relief is then considered on reasonable cause, and the manual sets out how:

• The LLC makes its case in a written statement, signed under penalties of perjury, setting out the facts.
• The IRS recommends that reasonable cause isn’t considered for any year until all delinquent returns are filed.
• For a small corporation, reasonable cause “will be applied liberally” when it had no knowledge of the requirement, has limited presence in the US, and promptly and fully complies once asked.
• First-time abatement, the relief many people have heard of, does not apply to Form 5472 on its own terms. There’s a narrow link to relief on the related Form 1120, which depends on the file.
• Once the 90 days after an IRS notice have passed, the continuation penalty generally has no reasonable cause exception.

“Applied liberally” isn’t a promise, and nobody can tell you in advance what the IRS will decide. What you can control is getting every missing year filed with an accurate statement, ideally before a notice arrives.

That’s the work we do on late Form 5472 filings: we prepare each missing year and draft the reasonable cause statement. If anything needs representation, we tell you on the first call that you need an Enrolled Agent or tax attorney.