How much is the penalty for failing to file Form 5472, and when does it apply?

Yes, $25,000 is correct — it was increased from $10,000 in 2018 under TCJA. The penalty applies per form, per year, per related party, and is automatic on late filing.

The statutory text (IRC §6038A(d)):

"Any reporting corporation which fails to furnish (within the time prescribed by the regulations) any information described in this section, or to maintain the records described in this section… shall pay a penalty of $25,000."

When does the penalty apply?

• Initial penalty: $25,000 automatic upon late or non-filing
• Continuing failure: if the failure continues for more than 90 days after IRS notification, ADDITIONAL $25,000 per 30-day period (or fraction thereof)
• Theoretical maximum: unbounded

Per what?

• Per form (separate forms for each reporting period and each related-party relationship)
• Per year (each tax year with non-filing accrues its own penalty)
• Per related party (separate Form 5472 required for each foreign related party with reportable transactions)

So a foreign-owned LLC with 3 related-party relationships that doesn't file for 2 years could see: $25,000 × 3 parties × 2 years = $150,000 initial penalty, before continuing-failure escalation.

Examples:

Ways to avoid or reduce the penalty:

1. File on time. The cheapest option. Form 5472 + Form 1120 take maybe 2-4 hours to prepare for a simple shell LLC.

1. Request automatic extension via Form 7004. Extends the Form 1120 due date by 6 months. Form 5472 is on the same timeline. Free extension, no questions asked.

1. Reasonable cause exception. IRC §6038A(d)(3) allows waiver "for any failure attributable to reasonable cause." But this is hard to invoke — the IRS interprets "reasonable cause" narrowly. Standard arguments:

• Reliance on professional advice (only if the professional was qualified for international tax)
• First-year filer confusion (only for genuine first-year cases)
• Death or serious illness of responsible person

1. First-Time Penalty Abatement. The IRS has a one-time abatement program for taxpayers with a clean filing history. Limited to certain penalty types, and §6038A may not qualify in all cases.

1. Streamlined Foreign Offshore Procedures. For taxpayers who can certify their non-filing was non-willful, this program allows correcting prior years for a penalty of 5% of unreported value (in lieu of full $25K-per-form penalties). Significant savings if non-filing was several years and unintentional.

1. Offshore Voluntary Disclosure Program (OVDP). Closed in 2018 but replaced by streamlined procedures. For willful non-filers, a much more punitive process.

Real-world story:

A foreign citizen bought a US rental property through a single-member LLC in 2018. They had no idea about Form 5472. The IRS audited in 2024 (6 years later). Initial penalty calculation: $25,000 × 6 years × 1 relationship = $150,000.

Through reasonable-cause arguments (the client reasonably relied on a CPA who didn't mention 5472), the EA was able to negotiate the penalty down to $50,000 — still a significant hit but much less than the original.

For the EA exam:

Know:

• $25,000 minimum penalty per Form 5472, per year, per related party
• Increased from $10,000 in 2018 (TCJA)
• Automatic upon late/non-filing
• Continuing failure adds $25,000 per 30 days after IRS notification
• Reasonable cause exception exists but is narrowly applied
• Streamlined procedures available for non-willful non-filers