A founder in Pune forms a Wyoming LLC on a Tuesday, moves $2,000 into its new bank account on Wednesday to pay for a Shopify theme, and has just created a reportable transaction with a related foreign party. Nobody told her. Eighteen months later a letter from Ogden, Utah tells her the LLC owes $25,000.
Nobody did anything wrong here in the ordinary sense. The rule is simply unusual, and the services that form LLCs for non-residents rarely mention it because it happens after checkout.
Who has to file
Two groups. US corporations that are at least 25% foreign-owned and have transactions with a related foreign party. And, since 2017, single-member LLCs owned by a non-US person. The IRS treats that second group as if they were corporations for this one purpose, so an LLC that files nothing else federally still files this.
A related party is the owner, the owner's other companies, close family, and anyone who controls or is controlled by the owner. For a solo founder, the related party is you.
What counts as a transaction
Almost anything that moves value between the LLC and its owner: capital contributions, loans in either direction, repayments, distributions, the owner paying an LLC expense from a personal card, the LLC paying the owner for services. The formation fee paid from the owner's card is enough. A dormant LLC with one contribution and no income has a reportable transaction and a filing obligation.
How it is filed
Form 5472 is attached to a pro forma Form 1120: the first page of the corporate return with only the identifying information completed and a note that it is filed for a foreign-owned disregarded entity. No tax is calculated on it. The package cannot be e-filed for a disregarded LLC; it goes by fax or mail to a specific IRS address. The fax transmission report is the only proof it was ever sent, which is why we keep every one.
It is due April 15, or October 15 if Form 7004 was filed by April 15. The LLC needs an EIN to file it. The owner does not need an ITIN for this form, though may need one if a 1040-NR is also due.
The penalty, and what happens after a notice
$25,000 per form, per year, assessed automatically, plus $25,000 for each 30-day period the failure continues after 90 days from an IRS notice. Two related parties means two forms and $50,000 a year. The notice is a CP215 with a balance and a payment deadline; the IRS has not looked at any facts when it sends it.
The reassuring part: reasonable-cause relief is commonly granted to first-time filers who file voluntarily with a written explanation. The pattern that succeeds is specific and dated: first US filing, owner lives abroad, no US income, relied on a formation service that never mentioned the form, filed within weeks of discovering the requirement. Vague explanations are declined.
Staying clear of it
- Calendar April 15 for every year the LLC exists, including the year of formation and the year of dissolution.
- Keep a plain ledger of every transfer between you and the LLC. That ledger is the form.
- File Form 7004 by April 15 if the books are not ready; the extension is free and moves the $25,000 deadline to October.
- Keep the fax report with the LLC's permanent records.
The check you can run today: open the LLC's bank statement for its first month. If money came in from you, a Form 5472 was due for that year.